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Hands to stump up £20m of own cash to retain Terra Firma talent

11 May 2012

Terra Firma chairman Guy Hands is believed to be ploughing £20m of his own cash into the firm’s latest fund in a bid to keep hold of its best investment managers.

The financier’s money will go into a bonus pool to released to dealmakers over the next two years, to make up for the fact they stand to make little in carried interest from the struggling fund, according to a report in the Financial Times.

Terra Firma was hit hard by its failed investment in music group EMI in 2007, which is estimated to have lost the firm about £1.7bn.

Hands’ firm has put off raising a new fund until later this year in the wake of the EMI horror show, and is attempting to rebuild its reputation with lower-leveraged deals.

Last month it secured an £825m deal to buy British care home operator Four Seasons Health Care, reducing its debt from £780m to £525m in the process.

It also picked up The Garden Centre Group for £276m in March.

The FT reported Terra Firma’s main source of income is due to fall from €75m to €30m this week thanks to a change in management fees coinciding with its fund’s fifth birthday.

It said investors are set to pay half of the annual 1.5 per cent management fee they have been handing over so far.

Although this is common in ageing funds, Terra Firma will be hit harder following the EMI deal as the fee will be based on existing investments, which are estimated at less than 60 per cent of the original investment.

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