Australia’s Cromwell Property Group appeared to have latched onto a hot opportunity last month when it announced a new investment platform, together with a pair of partners, that would soon invest $1 billion in Europe’s fast-growing data centre sector.
However, that opportunity may have been hotter than the Brisbane-based fund manager realised, after an Australian media report published on Sunday revealed that one of the firm’s partners, Stratus Data Centres, is helmed by a CEO convicted decades ago of stealing from clients.
Public records since reviewed by Mingtiandi reveal that Clarkson, who was identified in a joint release by Cromwell together with Stratus and its parent firm EXS Capital as chief executive of the data centre property platform, also presided over a UK data centre company declared insolvent in 2014 before suffering a personal bankruptcy in 2015.
The Stratus Cromwell Data Centre Fund, which Cromwell announced jointly with Hong Kong-based investment manager EXS Capital and Nigel Clarkson’s Stratus Data Centres has yet to announce any fund raising milestones or property deals.
However, the manager of Cromwell European Real Estate Investment Trust (CEREIT), a unit of the Aussie investment firm said that it has entered into a conditional preliminary agreement with Stratus and its parent firm to co-invest directly into 50 percent stakes in the investment vehicle’s first two data centre projects, in London and Frankfurt.
Shareholding Without Representation
Cromwell’s deal with Stratus and EXS, which appears to be still in the early stages, comes as the firm’s chief executive and founder, Paul Weightman, is fighting to prevent its largest shareholder, Singapore’s ARA Asset Management, from gaining a seat on its board.
ARA, which currently holds a 26.9 percent stake in Cromwell, this week called for an extraordinary general meeting to be held on 18 September to allow shareholders to vote for its representatives on the ASX-listed company’s board.
“In the absence of the Cromwell board of directors inviting an ARA representative onto the board, ARA must take its nominations directly to shareholders through an EGM,” a spokesman for ARA told Mingtiandi. “We are confident we will secure necessary support when that takes place on September 18.”
The firm, which manages more than $80.4 billion in assets as of 30 June this year, has been trying to install representatives on Cromwell’s six-man board, including famed corporate raider Gary Weiss and lawyer Joseph Gersh, since soon after it acquired a 19.5 percent stake in the firm in March 2018.
Cromwell has twice previously blocked ARA’s attempts to gain representation, claiming that Weiss, who also sits on the board of ARA shareholder Straits Trading, suffers from a conflict of interest, while asserting that Gersch lacks experience in corporate governance.
ARA Seeks Better Governance
In June of this year ARA’s bid for representation morphed into a hostile takeover attempt with the firm launching a bid to acquire an additional 29 percent stake in Cromwell, beyond the 24 percent that it held at the time.
“ARA has been left with no choice but to pursue this course to try and restore value for the benefit of ARA and all security holders in Cromwell,” ARA founder and CEO John Lim said at the time. “We seek change based on our strong belief that the existing Cromwell strategy is failing and exposing our investment to unacceptable risks. This is magnified by poor cost control by management, at times inexcusable largesse, and weak corporate governance.”
Cromwell, which has urged shareholders to reject ARA’s offer, has been criticised for pursuing what ARA portrays as ill-conceived strategies, including its use of shareholder funds to acquire European property fund manager Valad Europe for A$208 million in 2015 as well as an A$1 billion purchase of a portfolio of Polish shopping centres at the same time that Australia’s commercial property markets were enjoying record years.
Data Centre Platform Raises Fresh Issues
With Cromwell’s management struggling to maintain its grip on the controls, ARA sees the firm’s willingness to tie up with partners such as Stratus as a further sign that corporate governance needs to be enhanced.
“ARA is appalled to discover that Cromwell has recently committed to allocate significant security-holder funds to invest in data centres, a sector in which Cromwell has no expertise, with a strategic partner whose chief executive officer has been convicted of a criminal offence,” a spokesperson for ARA told Mingtiandi.
In his letter to unitholders this week calling for the EGM, ARA’s Lim said, “These latest moves only serve to confirm the erratic and undisciplined strategy of the current management team and board.”
In response to the reports of Clarkson’s past, a Cromwell spokesperson said that the company had conducted due diligence on the Stratus CEO and the wider EXS Capital team prior to announcing the strategic partnership.
The company representative noted that Clarkson had disclosed the earlier conviction and that in his role as CEO of Stratus, does not have a role in, or ownership of, EXS Capital, which will manage the proposed fund jointly with Cromwell.
Delighted to Partner
In announcing its data centre venture in July, Cromwell focused on the opportunity to surf the waves of demand for server storage space created by increased use of the mobile Internet, cloud services and video streaming, while fitting the deal into its existing investment approach.
“The partnership is another good example of our ‘Invest to Manage’ strategy in operation,” Cromwell’s chief investment officer, Rob Percy said. “We are delighted to be able to partner with a specialist organisation of Stratus’ calibre to create an exciting investment opportunity that we know will be in strong demand from both leading hyperscale data centre operators and international capital partners.”
The investment firm’s excitement, however, is up against the track record of Stratus’ management, with the joint announcement pointing to the team’s more than 20 years of experience in data centre property investments, development in management.
Jailed in West Australia
Just beyond that 20 year horizon, Clarkson in 1997 returned to Perth, Australia from London to plead guilty to 16 counts of stealing as a servant, after absconding with A$53,811 in funds belonging to clients of his then employer, Jones Lang Wootton, now part of JLL, according to local media accounts at the time.
Then a retail real estate agent, Clarkson reportedly stole the money from client accounts over a four year period, using it primarily to repay loans used to play the stock market.
For his crimes, Clarkson was sentence to 18 months imprisonment, with parole, according to a report in the West Australian.
UK Firm Wound Up
While later working with British Telecom in London as its head of European property, according to his LinkedIn profile, Clarkson later founded UK data centre development group Pioneer Technology Solutions with that firm being shut down in 2014 after tax authorities and customs creditors petitioned for it to be wound up under the terms of the country’s insolvency act.
While Clarkson was listed as a director of Pioneer Technology Solutions in its 2012 annual report, no one appeared to represent the company at its insolvency hearing in March 2013, according to government records.
Also in 2013, when Clarkson’s LinkedIn profile shows him serving as CEO of Global Data Centres in London, a petition was filed for his bankruptcy with the UK’s High Court of Justice, with the bankruptcy being ordered on 14 September 2015, according to court records.
Clarkson set up Stratus Data Centres in 2014, according to his LinkedIn profile, where he is said to be responsible for leading site selection, acquisition due diligence, investment case development and other real estate related matters, while also taking charge of corporate sales, marketing, product and business development among other duties.
Note: This article has been updated to include comments from a Cromwell representative.