CalPERS backs PCG spin-out(2)

As the beleaguered California gatekeeper announces a new ownership structure, CalPERS is committing $800 million to ‘cleantech’ and emerging markets programmes managed by PCG.

The California Public Employees Retirement System today announced it will commit a total of $800 million (€609 million) to two private equity programmes managed by La Jolla, California-based Pacific Corporate Group (PCG).

At the same time, PCG has announced that its asset management division has spun out to create an “independent, employee-owned” firm.

PCG has lost a string of senior investment professionals in recent years due in part to founder Christopher Bower’s unwillingness to expand ownership and control of the firm to employees, according to several sources. Bower currently owns 100 percent of PCG’s holding company.

The turnover at PCG has cost it some heavyweight clients. In December, the Teachers’ Retirement System of the State of Illinois announced it was “disappointed” at the firm’s numerous professional departures, and that it was seeking a new private equity consultant. The Oregon Investment Council is currently deciding whether or not to boot PCG as an advisor in favour of Philadelphia-based consultant Hamilton Lane.

In a statement, PCG announced that a new business called Pacific Corporate Group Asset Management (PCG AM) “will be owned by senior investment professionals including PCG’s founder, Christopher J. Bower. PCG AM’s management will report directly to its Board of Directors, which will include Mr. Bower.”

The statement noted that Bowers will also continue to run PCG Capital Partners, an affiliate that manages private equity direct and co-investments.

The press release did not name any senior employees of PCG AM that will participate in the new ownership structure. A spokesperson for PCG AM said that senior professionals at the firm joining the spin-out include managing directors David Fann and Michelle Davidson.

Fann joined the firm in November following the departures of five senior investment professionals.

It is not clear whether any PCG AM professionals other than Bower own a stake in the management company at its inception. A spokesperson said the firm’s management team is expected to own up to 50 percent of the firm “over time”.

The other members of PCG AM’s board include Gerard Drummond, Robert Smith and Frank Kline. Drummond is the former chairman of the Oregon Investment Council. Smith is the former chairman of the board and chief executive officer of Security Pacific Bank.

Other than Bower, no employee of PCG AM serves on its board. The press release does not note what day-to-day role the four board members will have at the newly independent asset management company.

Frank Kline is a founder and managing partner of Kline Hawkes, a Los Angeles-based venture capital firm.

In the statement, Leon Shahinian, senior investment officer of CalPERS in charge of private equity, said: “We welcome the formation of PCG AM as a stand-alone, employee-owned entity. We believe that PCG AM’s formation is an extremely positive move and positions the firm well for the future.”

Bower said in the statement: “Many of our major and long-standing clients, including CalPERS, shared our view that it would be helpful to create an employee-owned organization that has dedicated professionals solely aimed at providing its clients with exception service and the best private equity fund investment advice.”

Rob Feckner, president of CalPERS, said in the statement: “We have had a long-standing relationship with PCG and expect to continue our relationship for many years to come. We believe that PCG AM’s model for corporate governance, with its independent board of directors, is an important distinction that will advance the firm and its clients interests in the private equity industry.”

CalPERS will commit $400 million to a PCG AM separate account focused on partnerships that invest in clean energy and technology investments. Separately, it will commit $400 million to a PCG AM programme that will commit capital to funds investing in Eastern Europe, Latin America and Asia.

PCG has roughly $15 billion in assets. It was founded in 1979.