Tory treasurer could net millions from controversial LV= takeover

The Conservative party’s new treasurer could make millions of pounds from the controversial takeover of the pensions and insurance mutual LV= by an American private equity firm.

The proposed buyout has enraged some Conservative MPs – and could put them at odds with Malik Karim, an investment banker, who was named Tory treasurer in September, responsible for building the party’s election war chest.

Conservatives see the takeover as another sale of a cherished British mutual institution, and it has drawn the wrath of former Conservative deputy prime minister Michael Heseltine.

Karim is the founder and chief executive of City investment bank Fenchurch Advisory Partners, LV=’s longstanding financial adviser. Fenchurch is believed to have made millions of pounds of fees by advising the member-owned firm on its gradual dismemberment in recent years.

Karim, a Tory donor who earns the lion’s share of Fenchurch’s profits, stands to make one last payday by advising LV= on its £530m sale to Bain Capital – the US private equity giant that was co-founded by Republican politician Mitt Romney.

But the deal has provoked outrage because it will end LV=’s status as a member-owned firm after 178 years, hand a paltry payout of about £100 to each of its 1.2m members, and has led to fears over asset stripping.

It has whipped up a political storm among MPs, by placing another British institution into US private equity hands. Karim’s involvement is likely to further anger Tory MPs, who are reeling after a string of revelations about standards in public life.

LV= refused to say what it will pay Fenchurch. Advisers on other insurance buyouts have made millions of pounds in fees.

Karim said there is “absolutely no conflict between Fenchurch’s role as LV=’s adviser and my personal political activities”.

“Our appointment to advise LV= on its strategic review significantly predated my appointment as Conservative party treasurer,” he said.

“As a regulated business, we have a process to approve any new mandates and this appointment was approved by our new business committee in the normal way. Fenchurch continually monitors any potential conflicts of interest extremely carefully and the firm is clear that we have none in relation to this mandate.”

“We have acted for LV= on several matters since Fenchurch was established. Importantly there is no way that I would – or could – influence government in any way in this matter, or indeed in any matter.”

City regulator the Financial Conduct Authority (FCA) last month said that it did not intend to block the takeover or plans to demutualise the firm. The FCA does not consider ownership structures when assessing takeovers, meaning the decision is now in members’ hands.

It can also be revealed that Karim was a member of a controversial film investment scheme for five years, which has long been accused by HMRC as a means of avoiding tax. Companies House filings show that Karim was a member of Ingenious Film Partners 2 Llp between 2006 and 2011.

It and other Ingenious schemes were used by wealthy individuals, including footballers David Beckham and Wayne Rooney, persuading them to invest in films and video games. A former HMRC boss described Ingenious’s schemes as “scams for scumbags” and the taxman has estimated they could cost it up to £1bn.

The schemes were marketed as a means of enabling higher-rate UK taxpayers to shelter income that would otherwise have been subject to higher rate income tax, allowing them to claim “sideways” loss relief.

However, the scheme and other Ingenious partnerships have been embroiled in a long-running row with the taxman, and recently scored a high court victory when judges ruled in the schemes’ favour. Ingenious said that the judgment backed its stance that its film partnerships were always trading with a view to make a profit, adding it was considering what further options are available to it.

Karim said he was advised to join the Ingenious scheme by his financial adviser at the time. “I have made all interim payments to HMRC as requested and will settle any remaining outstanding amounts once the matter is resolved,” he said. “I am a UK resident and my success has meant that I pay significant sums to the exchequer each year in taxes as well as making substantial donations to charity and other deserving causes.”

The chairman of the All-Party Parliamentary Group for Mutuals, Gareth Thomas, who has been campaigning against the deal with Bain, said: “Given that it is a no doubt very, very generous sum of LV= members’ money that Mr Karim is now enjoying, I hope that he will now do what LV= should have done a long time ago and publish not only what he has been paid, but also the full details of the bids, including the one from fellow mutual Royal London, so that LV= members will have all the facts at their disposal when they vote on the future of the business they own.”

Karim spent the first 12 years of his life in Uganda, where his father ran a cafe in a bus station. The family fled dictator Idi Amin’s purge of Asians in 1972, and after spending a year in refugee camps settled in Leicester where Karim excelled at his secondary modern.

He qualified as an accountant before working in banking, and set up Fenchurch in 2003 after being sacked by Swiss banking giant Credit Suisse. The firm has gone on to build a formidable reputation advising on financial services deals, including the £11bn merger of Standard Life and Aberdeen Asset Management.

Fenchurch also advised the former Liverpool Victoria Friendly Society on the £1bn sale of its home and car insurance business in tranches between 2017 and 2019 to German insurer Allianz.

In the year to the end of March 2020, Fenchurch’s profit for discretionary distribution among members was £21m, up from £17.7m the previous year and £27.7m in 2018. Karim reportedly received £17.5m of the 2018 payout – implying a 63% share.

Karim is well connected in Tory and business circles. He has been a significant donor in recent years, handing the party £50,000 in February, donating £5,000 to Jeremy Hunt in July 2019 and a further £25,000 to the Tories in 2014.

He was one of the donors chancellor Rishi Sunak and Boris Johnson chose to hobnob with in September after pushing their controversial social care tax hike through the Commons.

Karim is close to Sir Gerry Grimstone, the former chairman of Barclays and Standard Life, who was named minister for trade in March last year.

In an interview in the Evening Standard in 2016, Grimstone, who has used Fenchurch on numerous deals over the past decade, described him as a man of integrity.

“Financial services companies do not want other financial services companies poking their noses into their affairs,” he said. “But with Malik, there’s no conflict of interest. You don’t need to worry about him sticking his nose in.”

Karim said: “I am a Conservative and I believe that a Conservative government is best for Britain and the British people. Successive Conservative governments have helped me and my family to achieve what we have.

“I was recently honoured to accept the role of Conservative party treasurer and for the coming years will be focused on raising significant funds for the party to enable it to fight and win the next election. I have been a donor to the party in the past and have known many senior party and political people over many years through my interest in business and politics.”

LV= was founded with the original aim of helping Liverpool’s poor to cover burial costs. One of the UK’s last large mutuals, it attracted around a dozen bids last year, including from fellow mutual Royal London, before executives backed Bain’s offer.

Nearly a year after the bid was made public, LV= will put the deal to the vote on 10 December. However, campaigners are concerned that it only require approval from 75% of members who vote, with no quorum – meaning there is not a minimum threshold on the number of members who are required to cast their ballot to ensure it is valid.

Some also believe they have been left in the dark about a rival bid by mutual Royal London as well as what LV=’s chief executive and chairman may gain from choosing Bain over rival suitors, though the company has denied that either men stand to personally benefit.

The move to a private equity owner has additional raised the hackles of unions and politicians, who worry private equity firms’ focus on profits could result in asset stripping and additional debt that would harm the existing business before it is sold off to another bidder.

Bain has insisted it will not saddle LV= with debt. Bain Capital said the takeover offer was “based on our conviction that there is a tremendous opportunity to grow the company further over the long term, which would result in better choices for members, jobs and a strengthened market position”.

LV= said: “Fenchurch have been our corporate advisers for a number of years. The strategic review that ultimately led to the proposed transaction with Bain Capital was subject to an open tender and benchmarking of fees.

“We are satisfied that there is no conflict. Fenchurch was used during the strategic review and bidding process that resulted in the board recommending a transaction with Bain Capital in December 2020.”

The Conservative party said: “Mr Karim was appointed treasurer in September. We are completely confident that there is no conflict of interest.”

Source: Guardian