For General Atlantic’s Gabriel Caillaux, “the best CEO you can imagine working with” was Lex Greensill.
On more than one occasion, the private equity dealmaker offered that glowing testament to the Australian financier, according to two people who heard him use the phrase.
That endorsement mattered. General Atlantic is known as one of the smartest investors in the technology sector. And in 2018, the “growth equity” pioneer bestowed its good name and $250m on Greensill Capital, a corporate lending start-up whose charismatic founder said he was building the “Amazon of the working capital world”.
“Lex is nothing if not ambitious,” General Atlantic’s chief executive Bill Ford told the Wall Street Journal at the time of the deal, which propelled Greensill Capital’s valuation past the $1.6bn mark. “We made this investment based on their growth story.”
Less than three years later, Greensill Capital is insolvent. Its collapse has morphed into a financial and political scandal, engulfing Swiss bankers, Australian underwriters and the former UK prime minister David Cameron.
General Atlantic has partly protected itself, having sold about half its stake in Greensill in 2019, after SoftBank’s Vision Fund pumped in $1.5bn. But for one of America’s most revered technology investors, with more than $50bn in assets, which has been an early backer of internet success stories from Airbnb to ByteDance, the hit to its reputation may be more significant.
Adding to the scrutiny is an unusual loan from Greensill to General Atlantic that was flagged during an internal investigation last year at insurance group Tokio Marine.
General Atlantic said it was “at all times a minority shareholder in Greensill, and in 2019 reduced its minority stake in the company”, adding that — as with other companies it invested in — it aimed to “improve the governance and risk management at Greensill”.
General Atlantic declined to answer a list of detailed questions. Caillaux, the company’s head of Europe, who was promoted to co-president in 2019, and sat on Greensill’s board, also declined to comment. Greensill declined to comment.
Another fintech winner?
Chuck Feeney, the Irish-American businessman best known for giving away virtually his entire $8bn fortune to philanthropic causes, founded General Atlantic in 1980 to invest in “high-growth” companies, just as the digital revolution began to jolt corporate America.
Forty years later, the firm’s record of spotting tech winners has made it “a bona fide, solid, tier-one, blue-chip investor”, in the words of one adviser who has previously worked with the group.
General Atlantic developed a reputation for sniffing out future technology giants beyond US shores. The firm was the first major US investor in Chinese online shopping behemoth Alibaba, spinning a reported $75m investment in 2009 into more than $1bn when the firm listed five years later.
In Europe, its early investment in Adyen — the Dutch payments company that now has a nearly €60bn market capitalisation — proved to many that the US private equity firm had a discerning eye for fintech stars, in a market crowded with overhyped and unproven start-ups.
The adviser expressed surprise at General Atlantic’s involvement with Greensill, whose collapse exposed how little valuable proprietary technology the company had developed. “Private equity is very good at the behind-the-scenes stuff: deep reference checking, looking from the outside in and using special agencies,” he said.
What founder Lex Greensill lacked in technological nous, he more than made up for in salesmanship. With a well-honed origin story rooted in the financial hardship of growing up on a farm in Australia, the ex-banker presented a beguiling vision of helping small businesses borrow cheaply, through clever financing linked to their invoices.
The pitch drew in Caillaux, a former banker himself, who had risen to lead the European business of General Atlantic. The two men, both now aged 44, clicked.
Before his firm invested, London-based Greensill Capital had largely subsisted on funding from business contacts, friends and family. During a near-death experience in 2016, it also borrowed heavily from Swiss investment firm GAM, through a vehicle named after a creek on Greensill’s family watermelon farm.
General Atlantic’s backing propelled the company into another league, cementing its status as a fintech “unicorn”. Caillaux publicly praised the financial firm as a “leader in its field” with “fully integrated technology and funding solutions”, even though Greensill used little of its own tech to track the corporate bills it was financing, relying heavily on third-party software platforms.
The year after he invested in Greensill, Caillaux grandly declared that Europe was in the midst of “a renaissance of entrepreneurship”.
The prestigious private equity firm, however, appears to have dismissed or missed the significance of several large red flags before writing its cheque to Greensill.
In 2017, $70m of Greensill’s $102m net revenue was derived from companies linked to GFG Alliance, Sanjeev Gupta’s industrial group, according to a document seen by the Financial Times.
The opaque financing provided to the Indian-born industrialist would later feature in several high-profile scandals at Greensill. GFG’s eventual default on about $5bn of debt hastened Greensill’s demise this month.
And despite sitting atop a sprawling financial empire that included a German banking subsidiary, Greensill’s main UK business employed a relatively obscure auditor — Saffery Champness, in 2018 ranking as only the 12th largest British accounting firm.
Flying close to the sun
Greensill soon parlayed General Atlantic’s imprimatur of respectability into a grander prize: SoftBank money.
In 2019, the Japanese conglomerate’s $100bn Vision Fund poured $1.5bn into Greensill, doubling its valuation. In the rush to deploy capital, one senior SoftBank executive told the FT that it took comfort from the due diligence it presumed Greensill’s previous blue-chip investor had performed.
“SoftBank wanted to follow in the footsteps of General Atlantic,” Lex Greensill told Bloomberg TV, on the day it first invested in his company.
On the other hand, General Atlantic executives have privately sought to pin some of the blame for Greensill’s spectacular implosion on the infusion of cash by its Japanese backer, according to people familiar with the matter. Some have even pointed to a 2019 interview Caillaux gave, hitting out at the danger of handing start-ups “too much money”, implying that it was a veiled reference to SoftBank.
The year after investing, the conglomerate was dragged into a controversy at Greensill, after the FT revealed that it was engaging in a circular financing scheme to prop up some of the Vision Fund’s most troubled start-ups.
But General Atlantic had itself already quietly benefited from Greensill’s financial engineering, which was a departure from the safe invoice-backed finance the company promoted.
In 2019, the private equity firm borrowed €300m from Greensill, funnelling the proceeds through a daisy-chain of holding companies to invest in a joint-venture with stock exchange operator Deutsche Börse.
The accounts of General Atlantic’s Dutch special-purpose vehicle stated the loan was agreed on an “arm’s length basis”. However, internal documents Greensill prepared relating to the loan presented the deal as an opportunity for it to “strengthen its relationship with a significant sponsor”.
Unlike Greensill’s standard short-term corporate funding deals, the General Atlantic deal was set up to last at least three years — and “in perpetuity” unless cancelled — using a mechanism called “cashless rolls”.
Greensill made part of the loan through its German banking subsidiary, whose management is now under criminal investigation, and packaged some of it up into bond-like investments sold to clients of Credit Suisse, which is facing expected litigation over these supply-chain finance investments. At the end of January, the General Atlantic debt was the ninth-biggest exposure in the Swiss bank’s main $6.8bn supply-chain finance fund, which was suspended weeks later.
As the wheels began to fall off at the end of 2020, General Atlantic cast itself as a reformer. With the company’s fleet of four private jets attracting scrutiny, Caillaux told the Wall Street Journal in November that he and his fellow Greensill board members had pushed to sell off the planes.
The executive did not mention one related fact: according to people familiar with the matter, Caillaux himself had previously flown on one of Greensill’s private aircraft.
That plane had been purchased through Greensill Bank, whose looming collapse has left German towns that put money in the bank facing potentially catastrophic losses, sparking fears that some will have to cut public services.
General Atlantic, meanwhile, ended 2020 triumphantly announcing that a senior partner had been named as one of the most influential European private equity executives for the second year running: Gabriel Caillaux.
Additional reporting by Oliver Barnes and Arash Massoudi