New York City Comptroller William Thompson just released a statement, saying that the City's pension funds have voted in favor of terminating Quadrangle Group's investment period. My gut says this is a handy PR ploy -- vote to kill the investment period even though most other LPs won't. Actually, it's a bit more than my gut, since I know that LPs have wrested a bunch of concessions out of Quadrangle, in exchange for agreeing not to vote (absence of vote keeps investment period alive). Anyway, more about this Monday, and the full statement is after the jump:
3 min read · 24 April 2009
HarbourVest Partners today announced that it has raised $2.9 billion for its seventh secondaries fund, named Dover VII. So we've got 5 questions for Harbourvest managing director Brett Gordon: 1. There has been lots of secondary capital raised over the past 24 months, and there obviously are a lot of interested sellers. But actual deal volume hasn’t seemed to correspond. Is it still a supply/demand gap, or more a chasm in buyer/seller price expectations. From the supply/demand imbalance perspective, I’d say that the supply of assets available for sale still far outstrips the demand, or capital raised to purchase assets. Not just by a little bit, but by a multiple, which dramatically favors the buyers and lets them be very selective. But you’re right that there is still a bit of an expectation gap between buyers and sellers. Part of that is driven by buyers’ underlying uncertainties over future portfolio company performance. We’re looking at assets and trying to predict what they’ll be worth in the short-term, mid-term and long-term. But how do you do that in today’s environment with any certainty? So you either offer to buy something at a very low price, or don’t offer anything at all.
3 min read · 24 April 2009
When New York State Comptroller Thomas DiNapoli yesterday announced his placement agent ban, it was in the form of a one-page press release. But there are obviously a lot of details under the umbrella, so DiNapoli's press office has sent over the entire, 11-page policy. Read it after the jump...
1 min read · 23 April 2009
Here's a handful of additional notes on the NY State Common Retirement Fund situation and, in particular, yesterday's decision by Comptroller DiNapoli to ban the future use of placement agents by firms requesting NYSCRF investments (find my initial take here): *** I want to stress that I am in no way attacking the integrity of the current NYSCRF private equity staff, whose morale right now must be lower than that of Montreal Canadiens fans (happy 100 years). In fact, I have to wonder if the lid would have been blown off this scandal earlier, if New York had some sort of whistleblower shield to protect them from ratting out their bosses. Kind of reminds me of the Ohio BWC situation, where good staffers got caught up in something not of their own doing. *** The ban extends beyond placement agents, but a NYSCRF spokesman says that it will not extend to things such as the use of a third-party data room or printing company. I'm supposed to be emailed the official guidelines later today, and will post them. From what I can tell, they are not yet on the NYSCRF website. *** If you are a PE firm that used a placement agent, but are already in the midst of being diligenced by NYSCF, you're okay (seems the ban comes with a grandfather clause). *** DiNapoli has hired outside consultants to review current policies and relationships, but the placement agent ban is not up for discussion.
2 min read · 23 April 2009
If you can no longer use a placement agent to solicit investments from the New York State Common Retirement Fund (NYSCRF), then how do you go about doing it? I can't get an official answer yet, so I went to the pension's website for direction. Follow along: Go to the Treasurer's website: http://www.osc.state.ny.us/ Select "Pension Fund" on the left-hand nav bar, and scroll down to Investments Overview. Select Alternative Investments. The first thing that you'll see, in bold, is a contact name and email address. Only problem is that the name and address are for Nick Smirensky, who stopped working there SEVEN MONTHS AGO! Just to be sure Nick hadn't come back into the fold -- he left last October to become CIO of the New York State Health Foundation -- I shot him an email. It bounced back almost immediately, without any additional contact information for aspiring fund managers. Even worse, I actually brought this mistake to the attention of a NYSCRF spokesman over a month ago (which is why I thought to look again today). Oh competence, thy name is not NYSCRF...
1 min read · 22 April 2009
New York State Comptroller Thomas DiNapoli today "announced he has banned the involvement of placement agents, paid intermediaries and registered lobbyists in investments with the New York State Common Retirement Fund (CRF)." It's great that he's finally trying to do something, but this seems over-the-top reactionary. No one has beaten the drums harder on this kickback situation than me, but I can't see how the solution is to place an umbrella ban on placement agents. The vast majority of them -- at least the larger ones -- are reputable organizations that allow investment firms to spend their time investing (instead of fund-raising). So long as the chain-of-fundraising is disclosed -- as I suggested yesterday -- then there is no harm in having a third party represent a PE fund's interests. After all, doesn't New York Common Retirement Fund use a third party (Hamilton Lane) to do most of its due diligence? The problem in New York was corruption aided, abetted and allowed to flourish due to an embarrassing lack of oversight. The single fiduciary system also didn't help, and it boggles my mind that DiNapoli has yet to rectify that situation after two years on the job. After all, the only other state with a similar system is Connecticut, and that state's prison guards got to spend quality time with an ex-Treasurer and an ex-PE firm chief.
2 min read · 22 April 2009
1 min read · 22 April 2009
Kevin Macdonald has joined Morgenthaler as co-managing partner of the firm's private equity team, peHUB has learned. He will work out of the firm's Boston office, and succeeds John Lutsi (who will transition into an operating partner role). Fellow co-managing partner Al Stanley will continue to be based in Cleveland. "The recruitment process really came from two different directions at once," says Macdonald, a former co-founder and managing partner of Monitor Clipper Partners. "Morgenthaler was working with one of the top search firms, but it turns out that Al and I have a number of friends in common. One of them knew what I was looking for and what Al was looking for, and put us in touch with one another." If Macdonald's hiring comes as a bit of a surprise, then it's probably because you assumed that Morgenthaler was abandoning the buyout business. It's okay. I thought so too, particularly given: (a) The firm's prolonged lack of buyout deal activity; and (b) Last year's raising of a $400 million venture-only fund, after years of venture/buyout hybrids.
2 min read · 21 April 2009
The Quadrangle Group has spent an uncomfortable week in the spotlight, following allegations that firm co-founder Steve Rattner may have used improper means to secure a fund commitment from New York's state pension system. Things have gone a bit better behind the scenes, however, where Quadrangle has been working hard to preserve its own existence. When Rattner left Quadrangle in February to oversee the nation's auto industry, it left his remaining partners prone to investment impotence. Specifically, limited partners in the firm's $2 billion second fund were automatically given the right to prevent Quadrangle from making any new investments -- save for follow-ons with existing portfolio companies -- because Rattner was termed a "key-man" in fund documents. Not only would this erase most of the $500 million left in Quadrangle's second fund (plus associated fees), but it also would quash the firm's hopes of ever raising a third fund. In other words, it probably would be the end of Quadrangle.
2 min read · 21 April 2009
When a public pension system commits capital to a private equity fund, it typically discloses several pieces of information. Things like commitment size, the fund's basic investment strategy and the fund's senior management. What's missing, however, is any detailed information on how the fund was sourced or diligenced. That's got to change, and quick. I'm not proposing a full proctology exam here, just a basic timeline. For example, who was the first person to approach the pension system about the investment opportunity? And who did that person approach? And so on... If that initial contact is between a "finder" and a member of a pension's board, disclose it. If the initial contact comes at a conference between a GP and a member of the pension's investment staff, disclose it. If the initial contact is between a GP and a pension system's designated consultant, disclose it. And then tell us how the process progressed from there.
2 min read · 21 April 2009
