BCFC: Knighthead, Hedge Funds and a Potential New Stadium

Saturday was not a great day for Blues fans. On the pitch, the team struggled to create chances in a 1-0 scrappy defeat to Blackpool at St Andrew’s. Off the pitch, news surrounding potential backers of the Often Partisan consortium brought more questions than answers.

Main Stand St Andrews

Most of the questions arose as a result of an opinion article written by Neil Moxley for The Mirror, which can be viewed at this link.

While Moxley touched on some of the historic issues surrounding investment in football clubs, I think the largest amount of questions came from the idea that moving from St Andrew’s was one of the main motivators for investors to back the deal.

With this in mind, I wanted to put together some of my own thoughts based on what I know, what I have found out and what I think to offer a different perspective for people to think about.

Who are Tom Wagner and Knighthead?

When news broke on Thursday night about Wagner, there were immediate natural questions from Blues fans about who these potential backers were and what they could do for the club.

The original Bloomberg article noted that Wagner was made a director of a Birmingham-based company called Shelby Companies Limited (SCL), which was founded on April 12, 2023. It’s through this company any investments in the club will be made.

We can see from Companies House that Shelby Companies Limited is owned by a Cayman Island registered company called Knighthead Annuity & Life Assurance Company (KALAC).

This company has as its correspondence address the same New York address as Knighthead Capital Management (KCM).

As one would expect, KCM are opaque about what they control with only a small presence online.

However, a search of the Open Corporates database suggests that KCM control a number of funds based in the United States.

This database however doesn’t list entities that KCM may control in tax havens like the Cayman Islands, such as the aforementioned KALAC.

With so much out there about “hedge funds”, I think it’s important to understand what KALAC is to understand why they would invest in Birmingham City.

To quote their website, KALAC is a “well-rated insurance and reinsurance company”.

KALAC offer their customers something called a fixed annuity.

What this means is that they take deposits from their customers, and then pay them a guaranteed investment return each year over a fixed period. You can read more about how this works in their brochure, linked here.

To create the profits to achieve those returns, KALAC takes all the money invested by their clients and invests it in a diverse portfolio of assets.

According to their website, KALAC has around $2.5Bn in assets and $300M in equity.

Now, while I can already see the dollar signs light up in people’s eyes, that doesn’t mean KALAC are going to invest billions in Blues.

Any investment in the club will be just another asset in their portfolio; which I can understand would give rise to the fears that KALAC would just put the money in and expect a return.

However, on the plus side the fact that Blues would only be one more asset in their portfolio means that the club and KALAC wouldn’t become the millstones around each other’s necks in the same way Blues and BSH are currently.

As it stands, we don’t know what percentage of Blues KALAC are willing to take on, or if they are the only backers that Jeremy Dale and Often Partisan Limited have found.

However, under EFL regulation 114.5.4 Blues are required to:

…publish the identities of the ultimate owner (Person, not Entity) of each Significant Interest in the Club (as that term is defined Rule 1.1 of Appendix 3). That information shall as a minimum be published on the Club’s official website on a page accessible directly from the home page of that official club website.

The EFL defines a “Significant Interest” as:

‘Significant Interest’ means the holding and/or possession of the legal or beneficial interest in, and/or the ability to exercise the voting rights applicable to, shares or other securities in the Club which confer in aggregate on the holder(s) thereof ten (10) per cent or more of the total voting rights exercisable in respect of the shares of any class of shares of the Club. All or part of any such interest may be held directly or indirectly or by contract including, but not limited to, by way of membership of any Concert Party, and, for the purpose of determining whether and interest or interest(s) amounts to a ‘Significant Interest’.

(a) any rights or powers held by any Person shall be attributed to any Connected Person to that Person, and

(b) any rights or powers held by an Associate or, Nominee of any Person shall be attributed to that Person.

In practical terms, as OPL are buying a stake of 45.64% in the club, any investor with more than a 25% stake in the OPL consortium will have to declare their interest.

For those who are interested, you can find the current BCFC ownership document on their website at this link.

What sort of owners would KALAC be?

This has to be one of the most important questions for Blues fans. After the difficulties the club has suffered in the last decade, I think there is a fear from many fans that there is always a chance the club could be jumping from the frying pan into the fire.

It’s a difficult question to answer too; without speaking to people at KALAC and having the chance to gain an insight, all we are left with is to look at what evidence there is available publicly about KALAC or about “hedge funds” in general.

The danger with pre-judging KALAC based on the performance of other hedge funds is that it’s easily possible to construct a straw man argument. As every firm is different, the way one company acts is not necessarily the same as the way KALAC will act.

I’ve taken a look at KALAC both on Google News and on Linkedin to try and find out more about the investments they make, with little success.

While the KALAC LinkedIn feed concentrates on how KALAC’s annuity products can benefit customers, the main details I can see on Google News reflect the good credit ratings KALAC have achieved with their debt issuance.

The one line that gives me some comfort is this from the Yahoo Finance report about the recent credit rating that KALAC received:

AM Best views Knighthead Annuity’s debt-servicing capabilities favorably, with sufficient liquidity to service its debt and access to additional capital through its holding company.

This sounds a million miles away from the mess that is Birmingham Sports Holdings.

With little evidence available, this leads me to my own gut feelings based on the whispers I’ve heard around this whole takeover process.

The one thing that strikes me is that if BCFC is one small part of the investment portfolio that KALAC has, then I can’t imagine KALAC will have a huge day-to-day interest in how Blues is run; all they will be concerned about is the financial results.

That in turn makes me think that the most important thing KALAC can do is ensure that the right staff are appointed in board positions at the club to ensure this happens.

KALAC are going to need a board which is experienced in both football and business to ensure the club is run in the best possible way.

I’m really hopeful that this happens.

I think Blues have suffered due to the number of board members who have been in place due to their connections with owners, familial or otherwise.

While people might not appreciate it due to the way things have been in recent seasons, there is no question that Birmingham Sports Holdings have put money into the club since 2016.

However, while money was spent on player transfers and especially salaries, the continued lack of professionalism from people like former CEO Ren Xuandong has ensured much of that money has been wasted.

For KALAC to succeed and get their returns, they need to heed that lesson.

A New Stadium?

The other big talking point in the piece written by Neil Moxley on Saturday was the idea that Blues will move from St Andrew’s as part of this potential OPL takeover.

From what I can see, Moxley based this idea on two major points.

Firstly, he’d heard from a contact at Birmingham City Council that Jeremy Dale had been shown around the Birmingham Wheels site.

I have made contact with OPL asking them for comment on this detail but OPL have declined to confirm or deny it.

Secondly, having researched the value of St Andrew’s as a development opportunity and the cost of developing the Birmingham Wheels website, Moxley came to the conclusion that there was some potential for profit by doing so.

While I can understand his logic, I think it’s possible that Moxley is jumping the gun here and extrapolating an idea from a very small fraction of the overall picture.

I’ll be honest, although I’ve heard similar rumblings about OPL looking into a stadium move, none of those rumours were enough for me to consider publishing anything about them.

The main reason for this is that I think Dale viewing the Birmingham Wheels site is more to do with due diligence than anything else.

When people hear the words “due diligence” or “data room” I can imagine that they imagine accountants at laptops crunching numbers.

In actual fact, proper due diligence is much more than that.

Due diligence is finding out everything you can about the asset you’re about to buy; which in the case of Birmingham City would surely include looking at the potential to expand St Andrew’s or moving to another site should capacity demands require it.

I wouldn’t be surprised if Dale and OPL have looked at multiple sites that could be considered for Blues to move to.

However, from the little bits I do know for certain I’d like to reassure fans that I think any ideas of Blues moving to somewhere like the NEC or  the north of Birmingham are absolutely wide of the mark.

I also think that any idea that Blues would look to immediately move from St Andrew’s are premature also.

While news like this is good for generating comment, column inches and website clicks, I don’t actually think it’s helpful in the short term.

For some people it’s raised expectations of what might happen if and when this takeover takes place; potentially to a point which will be difficult to attain.

For others, it’s caused disquiet and concern due to their attachment to St Andrew’s and the possibility that their concerns may not be taken into account.

I may be in the minority here, but I personally would much rather rumours like this were held back until there was something a bit more solid to report on; particularly as so many people have taken what is a logical construct as solid fact.

The one thing we know for certain is that time is ticking on for the deal to be signed off.

Although the HKSE announcement gave 60 days as the time limit for the deal to be completed, I think it’s best for everyone if it gets signed off sooner so that all reorganisation can be done in the off-season.

While we may hear more reports about potential backers of OPL in that time, I do not believe we’ll have any official comment from OPL, KALAC or anyone else until the ink is dry on the contract.

We’ve waited a long time for new owners; a little bit more patience isn’t that much to ask of us.