Hedge Fund Accuses Kirkland of Conflicts in Continuation-Vehicle Lawsuit
Mason Capital says the law firm is giving conflicted advice in a dispute between the Abu Dhabi Investment Council and private-equity firm Energy & Minerals Group
A hedge fund accused Kirkland & Ellis of conflicts of interest in its work on a high-profile lawsuit pitting private-equity firm Energy & Minerals Group against one of its fund investors.
Asset manager Mason Capital Management on Monday said Kirkland, one of the world’s biggest law firms, was providing “conflicted legal advice” in the dispute between the Abu Dhabi Investment Council and Houston private-equity firm Energy & Minerals Group.
In December, the Mideast sovereign-wealth fund accused Energy & Minerals of trying to profit at its investors’ expense through a proposed continuation-fund transaction for U.S. natural-gas company Ascent Resources.
New York-based Mason is a minority investor in Ascent, and has sided with the Abu Dhabi fund in its dispute with Energy & Minerals Group, which controls Ascent as its private-equity sponsor.
In a letter to Ascent’s directors, Mason said Kirkland is conflicted because it advises the Ascent board while also representing Energy & Minerals Group. Mason asked for the law firm to withdraw from its role.
“The [Ascent] board taking advice as to its own conflicts … from legal counsel which it knows, or reasonably should know, has a direct conflict is wrongful on its face,” wrote Kenneth Garschina, a managing member at Mason Capital.
Kirkland, Ascent and Energy & Minerals Group didn’t immediately reply to requests for comment. Mason Capital declined to comment.
The accusations about Kirkland are an unusual development in what was already a highly atypical conflict for the private-equity field.
The dispute appears to be the first instance of litigation between major private-equity players over a continuation fund. These are transactions that enable managers to lengthen the time they can hold assets, and which are becoming increasingly common. But investors sometimes wonder if these transactions provide the best value for them.
Kirkland has a very high profile in the private-equity industry and is annually one of the most active advisers on buyouts and fund formation, among other services.
In its complaint, the Abu Dhabi Investment Council, one of the world’s largest sovereign-wealth funds and a major investor in private equity, accused Energy & Minerals Group of attempting “to reap a massive benefit for themselves at the expense of ADIC and the other investors to whom [they] owe fiduciary duties.” The lawsuit was filed in Delaware Chancery Court in December. Bloomberg News reported earlier on Mason’s letter.
The Abu Dhabi Investment Council and the Energy & Minerals Group, which manages about $12 billion overall, have agreed to arbitration, and the continuation-fund transaction remains on pause while the dispute remains unresolved.
But in its letter, Mason Capital said it made a bid to acquire Ascent at a higher price than the continuation vehicle offers, and that alternative asset manager Kimmeridge Energy Management separately offered $6 billion for Ascent. The letter states that the company’s directors didn’t reply to either offer.
Kimmeridge didn’t immediately respond to a request for comment.