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On Savile Row, home to hedge funds and bespoke tailors, the city’s business elite gathered in October to celebrate the lavish makeover of one of London’s most expensive office spaces.
The host is enigmatic German entrepreneur Lars Windhorst. He mingles effortlessly among UK establishment figures such as Lord Mandelson, who sits on the advisory board of Sapinda, Mr Windhorst’s investment company.
“Lars throws the best parties,” gushes one guest. Quick as a flash, Mr Windhorst counters: “I don’t want to be seen as the guy who throws the best parties. I want to be seen as the guy who brings the best deals.”
Mr Windhorst has a long way to go before he can make that case. The 39-year-old financier’s charm offensive in London is part quest for redemption — a shot at rebuilding his reputation after a pair of spectacular flame-outs in his native Germany. Once hailed as a “wunderkind”, he oversaw the collapse of two companies, fell into personal bankruptcy and received a suspended jail sentence — all before he was 34.
Hoping to put this behind him, Mr Windhorst moved to London six years ago. It was a good move: in a world of low interest rates, many investors have been willing to listen to anyone with an interesting idea — even if the opportunity came from a smooth-talking German with a history of losing money. “Lars is a representation of what you have to be as a City networker today,” one investor says. “He has an ability to cross cultural borders.”
Yet his most fervent supporters and his detractors often ask the same question: “Where does the money come from?”
Sapinda has two investment strategies: one is a “special situations” model of investing, where financing is co-ordinated with Anoa Capital, a brokerage in which Sapinda owns a 10 per cent stake. The other strategy is building start-ups.
A review by the Financial Times of his start-ups finds that much of the money behind them is borrowed — often on relatively onerous terms, a reflection of Mr Windhorst’s chequered history. These young companies are listed on lightly-regulated European exchanges. Most of the companies have yet to make a profit.
Some are propped up by an apparent circular flow of money between Mr Windhorst’s various offshore vehicles and the businesses, sometimes involving unusual structures that use convertible bonds, put options and loans.
Mr Windhorst’s reputation and the perceived regulatory risk of doing business with him have put off some investors. But a coterie of big-name asset managers, including Legal and General, Janus Capital, Fidelity and Italian insurance company Generali, are among his investors, apparently drawn by the prospect of giving their investment performance an adrenalin shot at a time of bleak mainstream returns.
Will they prove the sceptics wrong? Or will Mr Windhorst’s elaborate financial propositions prove too good to be true?
Mr Windhorst retains a hearty risk appetite, despite past failures. Sapinda has invested tens of millions in battered sectors such as mining, oil and gas, as well as technology and distressed property. Even by his own admission, he still has tendencies that bedevilled him in the past — including a reluctance to unload unprofitable businesses.
Sapinda Holding made a net profit of €187.1m during 2014, according to its latest accounts, audited by EY Amsterdam. This profit is both realised gains and increases in valuation.
Mr Windhorst’s admirers see him as a creative outsider. In Germany, he was the teenage entrepreneur whose talents caught the imagination of then-chancellor Helmut Kohl. By his twenties he was attending Davos and eschewing university for the thrill of the start-up. His lack of formal education in business or economics gives him a fresh perspective, supporters say.
To his critics, he is a fantasist — albeit one with great charm — who uses money, connections and an extravagant lifestyle to woo investors. For many in his orbit, Mr Windhorst’s enigmatic character and lavish parties recall Jay Gatsby, F Scott Fitzgerald’s anti-hero from America’s Gilded Age. Yet he claims to be uncomfortable with the idea of being seen as flashy — he sees his yacht and other accoutrements only as tools for building his business.
“Lars’s boyish manner makes people want to protect and collaborate with him,” says a close associate. “Is he for real? If there’s a con in there, it’s so deep he’s conning himself.”
A story to tell
Mr Windhorst leans back in his armchair and speaks candidly about what went wrong in his past. He is adamant that he has learnt from his mistakes. “I want to work hard and gain a reputation as a respected investor and businessman,” he says. His soundproofed office space features models of his private jet and 68-metre luxury yacht.
“Lars’s approach is simple. He tells you the story of his life, which is quite incredible,” says one hedge fund manager. “Then he tries to get you into his world and make you buy into what a great investor he is by putting all the wealth in front of you.”
Mr Windhorst’s advisory board is packed with men who lend gravitas — such as management consultant Roland Berger and Hubertus von Grünberg, former chairman of Swiss engineering group ABB — and others who have known the backlash of scandal. Sapinda group chief executive Edwin Eichler, the former boss of German conglomerate ThyssenKrupp, had to step down in 2012 following a corruption scandal.
Lord Mandelson, a skilled political tactician, twice had to resign from government in the Blair years. In an interview he said he did careful due diligence on Mr Windhorst. “I concluded that his previous mistakes were down to his youth and inexperience at the time and that since then he had attracted high-quality people around him.”
Then there is Seok Ki Kim, a soft-spoken South Korean who is one of Mr Windhorst’s mentors. Until recently, he was listed on a Sapinda website as chief investment officer and head of risk management. The FT has found that Korean prosecutors charged Mr Kim in 2001 following allegations of stock manipulation. The case against Mr Kim, who has not returned to Korea since 2000, is pending.
Mr Windhorst says he rebuilt his fortune after his personal bankruptcy through lucrative bond and equity investments. In 2012 he was an early investor in Grand City Properties, which focuses on distressed German property, persuading well-respected fund managers to join him. The company was listed in 2012 at a €150m valuation and its market capitalisation has since soared to €2.7bn. Mr Windhorst made more than €250m on Grand City Properties.
“It was Lars’s redemption trade,” says one investor.
Of Sapinda’s portfolio of start-ups, three of them are in the commodities sector, now in the middle of a prolonged slump. Sequa Petroleum, established in 2013, is an oil and gas company; Amatheon Agri, founded in 2011, develops and operates agricultural and food projects in sub-Saharan Africa; and Ichor Coal, also set up in 2011, focuses on thermal coal production in South Africa.
Since he made the initial investments the price of coal has collapsed and South Africa’s economy, like that of other emerging markets, is under pressure. Oil is below $40 a barrel and gas prices are at rock bottom. But Mr Windhorst remains bullish. This year Sequa Petroleum began buying into assets in the North Sea at distressed prices — including an oil and gasfield part-owned by Total — hoping to reap the benefits once the oil price recovers and raise capital on the back of anticipated cash flow.
Mr Windhorst acknowledges that some of his funding methods are unconventional — even “aggressive”. Corporate filings for Amatheon Agri give an insight into the money flow between his personal offshore companies and listed Sapinda subsidiaries.
In July 2014 an Amatheon Agri subsidiary issued a €125m bond at a rate of 8.5 per cent, a debt that cost more than €10m a year to service. Mr Windhorst, through one of his personal offshore companies, owned at least 30 per cent of the bond and used it to prop up Amatheon Agri’s balance sheet at year-end.
Mr Windhorst’s offshore company sold Amatheon Agri €10m worth of the bond for €2m, “thereby creating an €8m profit”, according to its accounts. It also injected a further €26.8m worth of bonds into Amatheon Agri’s capital reserves. Even with this boost, Amatheon Agri lost nearly €14m in 2014.
Why did Mr Windhorst use his personal company to create paper profits in the nascent venture? In part, because banks were reluctant to lend to him, given his past. More importantly, he hopes to attract other investors.
Shifting the cash was the “quickest and easiest way to help the management of the company and provide them with a large fund of cash they can show in the balance sheet,” he says.
His past poses a “handicap” that he overcomes with these sort of transfers. “Because we did not have the traditional ways and means, I had to improvise,” says Mr Windhorst.
Another source of funds is an esoteric structure at the heart of Mr Windhorst’s empire: Sapinda Invest, a Luxembourg-listed company that in the past two years has raised €1bn in debt funding. The majority of Sapinda Invest’s backers are not public, but they include Generali, Middle Eastern investors, institutions and high-net-worth individuals.
Sapinda Invest was structured to make it easy for investors to access deals and benefit from “the investment record of Mr Lars Windhorst”. It can buy up to 10 per cent of any Sapinda deal. Investors are granted “profit participation notes”, which pay out 5 per cent a year, and a share of any upside.
Mr Windhorst will go to lengths to persuade investors to sign up — including offering sweeteners such as put options — that could come back to haunt him. One hedge fund manager recalls his spiel: “Lars tells you: ‘I have this really good deal for you. Buy it and if the value goes down I’ll buy it back from you at the price you got in at.’”
This has got Mr Windhorst in trouble in the past. One instance involved US-listed Track Group — previously known as RMDX and Secure Alert. During the financial crisis, Mr Windhorst could not repay put options in the stock of the electronic-monitoring company. These, alongside other put option deals, were factors that tipped Vatas (a unit of Sapinda) into insolvency in 2009.
Mr Windhorst began investing in Track Group in 2006 and now owns more than half of its stock, despite its failure to make a profit for at least 20 years. He is loath to exit the investment, saying a restructuring and change to its business model will turn it round.
One investor in several Sapinda deals says: “Lars tries to make everyone happy. It’s not his style to cut back.”
Mr Windhorst often refers to his investors as “friends and family”, and critics say he uses perks like meetings on his yacht, trips to Formula One races and suggestions for lucrative investments to cement his relationships.
But there has been friction, too — including an internal probe at a prominent European fund manager.
When Muhammed Yesilhark, a fund manager at €52bn asset manager Carmignac Gestion, took a position in Sequa Petroleum in September 2014, the move was questioned internally. At the time, the oil and gas company’s only asset was part-ownership in a Kazakh exploration licence. It had made a loss of €4.2m in 2013 and the stock, listed on the lightly-regulated Euronext Marché Libre in Paris, was thinly traded.
Within weeks of buying Sequa, Carmignac reversed the trade and sold the stake back to Mr Windhorst. It later emerged that on the same date Carmignac acquired the position in Sequa, Mr Yesilhark and his colleague Malte Heininger had invested with their personal accounts in a separate deal promoted by Sapinda and its related brokerage, Anoa.
The deal — a pre-IPO convertible bond called Cloud Hotel Investments, a German real estate fund — had a clear upside: the fund managers were able to buy at a discount and sell once it listed. Mr Windhorst says the investment was a “good deal”, but they did not receive preferential treatment. The fund managers’ personal investments led to an internal probe at Carmignac.
Mr Yesilhark and Mr Heininger, who still work at the firm, did not respond to requests for comment. Carmignac said it “deals with every situation in a way that is fully compliant with applicable regulations and rules of ethics”.
In his quest for redemption for past failures, Mr Windhorst has gone to great lengths to assure people he has the money, connections and social standing. He has extended invitations to dinners with compelling speakers such as Matthias Warnig, an ex-Stasi officer and close friend of Russian president Vladimir Putin. He is a patron of London’s Serpentine Galleries. Tonight Mr Windhorst will host Sapinda’s annual Christmas extravaganza at the Natural History Museum.
Parties aside, now he has to show results. “I’m on top of the details, I know what I’m doing. You will see,” says Mr Windhorst. “It is not something which is a two-year story. It will take five years, 10 years. And I have the patience and the persistence.”
Across his office on his desk sits a sign that reads: “Just get it done.”
Additional reporting by Buseong Kang, Simon Mundy and Stefan Wagstyl
Anatomy of a deal
1. Late 2013 Centrics Oil & Gas issues a loan of $134.5m to Sequa Petroleum
2. January 2014 Sequa takes a 75 per cent stake in an oil and gas project in Kazakhstan. It pays $10m and lends $90m to Bolz LLP, a small Kazakh company
3. Late 2014 Sequa’s well in Kazakhstan is plugged when no commercially viable hydrocarbons are found
Sequa accounts for the loan to Bolz as an intangible asset which makes up 80 per cent of the assets on its balance sheet. Sequa notes the loan isn’t likely to be repaid if the project doesn’t produce
4. April 2015 Sequa issues a $300m convertible bond. The Centrics loan is turned into a bond holding in Sequa
5. August 2015 Bolz pays back $54m of the $90m loan it received from Sequa
6. Sequa makes a cash payment to Kazakh bank Kazkommertsbank. That money repays a loan that Bolz received from Kazkommertsbank and releases an encumbrance over the oil and gas field. A Sequa spokesperson says this was part of a “tax efficient reorganisation”