Portland JSX posts largest loss at US$9.4m as fund future remains unclear

Portland JSX Ltd (PJX), the private equity fund that mirrors a larger fund controlled by businessman Michael Lee-Chin, recorded its largest annual loss since inception.

Its performance reflected continued weakness in capital markets, which drove steep valuation declines across its investment portfolio, resulting in a US$9.4-million net loss for its year-end, more than double the year-earlier loss.

“The valuation of assets reflects market and company-specific conditions at the time of the valuation of the fund,” said PJX chairman Ricardo Hutchinson in response to Financial Gleaner queries.

Additionally, uncertainty lingers over the future of the fund after it exceeded its final contractual extension period.

Hutchinson told the Financial Gleaner that “all options are open”, including extensions, asset sales, asset distributions or alternative structures to manage the remaining assets.

PJX began operations in 2015 as a limited partner in Portland Caribbean Fund II (PCF II), a broader investment vehicle controlled by Lee-Chin that raised hundreds of millions of U.S. dollars to invest primarily in private businesses across the Caribbean. PJX gave pension funds and smaller investors access to overseas private equity investments that pension regulations would otherwise limit. Portland Private Equity manages PCF II.

In its audited report, PJX indicated that PCF II concluded its “second one-year term extension” on July 14. Discussions between Portland Private Equity and PJX “are ongoing as to the finality of PCF II and the disposition of its remaining assets”.

The disclosure leaves investors without a clear timeline for how and when the fund’s remaining assets will be monetised.

“No final decision has been made at this time,” the report added.

Private equity funds are typically structured with finite lifespans and are expected to liquidate or distribute their remaining holdings once their terms expire. Funds holding illiquid assets, however, can face challenges exiting investments when market conditions do not support disposals at acceptable valuations.

The latest performance leaves the fund underwater after several years of difficult market conditions, particularly for private equity and growth-oriented investments, whose valuations have come under pressure amid higher global interest rates and weaker deal activity.

Subsequent to its February year-end, PJX sold an undisclosed portfolio investment and received a US$1.3-million cash distribution. It also received an in-kind distribution of equity securities tied to a separate portfolio exit and acquired approximately US$2.15 million in additional equity securities as part of that transaction.

The activity suggests the portfolio is still being wound down even as discussions continue over the fund’s future.

PJX also reported progress in reducing debt obligations. While discussions are under way to extend the maturity of its bond facility, J$200 million of outstanding principal has been repaid to one bondholder since the reporting date.

During the financial year, the company recorded US$8.3 million in fair-value losses on financial investments, compared with US$3.2 million a year earlier.

Those write-downs overwhelmed the fund’s income stream, which consisted largely of US$227,430 in interest income, broadly unchanged from the prior year. Operating expenses remained above US$1 million, resulting in an operating loss even before finance costs.

PJX remained profitable in the three years following the onset of the COVID-19 pandemic. Challenges emerged as interest rates in the United States and the Caribbean rose to combat inflation, reducing the relative attractiveness of higher-risk private equity investments and weighing on asset valuations.

Management had previously urged investors to remain patient while it sought exits from investments in roughly 10 underlying companies. Among its most significant write-downs were investments in Outsourcing Management, which operates as itel, and Colombian grocery delivery platform Merqueo. Both investments were subsequently written down to US$1 on PJX’s books.

Portland had planned to launch a third Caribbean private equity fund but abandoned PCF III last year after securing approximately US$100 million in capital commitments, about one-third of its target.

business@gleanerjm.com