A group of senior executives of the Private Fund Group (PFG) at Credit Suisse First Boston have signed employment contracts tying them to the investment bank for the next three years, according to market sources.
The move comes after months of market speculation as to whether the group, which comprises approximately 60 professionals and has offices in London, New York, San Francisco, Chicago and Dallas, would break away from the bank. Marketers considered a spinout a possibility amid rumours that PFG executives were seeking performance-related elements to their compensation arrangements that CSFB, run by John Mack, was refusing to grant.
Negotiations at CSFB were ongoing while captive fund placement operations at other investment banks were scaled back or closed down as fee income shrank and profitability slumped during the private equity market downturn.
JP Morgan Chase and Deutsche Bank closed their fund placement operations earlier this year, while Citigroup reduced headcount at its placement division. CSFB’s great private equity fundraising rival, Merrill Lynch, lost much of its distribution prowess when a group of sales professionals defected to Lazard. The impact of the split on Merrill's placement business will not have been lost on CSFB and its placement team.
Three-year contracts are rare in investment banking, an industry where managers as well as employees tend to prefer more flexible short-term arrangements.
The fact that PFG and its parent have committed to each other for the foreseeable future is, in the words of a London-based professional representing a rival placement group, evidence that both parties were ultimately persuaded of the merits of consolidating a relationship considered mutually beneficial by both sides.
“It’s unusual for investment banks to think this far ahead, but [PFG] is the pre-eminent global franchise, and CSFB must be aware of how valuable it is,” the professional said. “At the same time, I suspect the team were never really that keen on setting up on their own without the CSFB mantle.”
A spokesperson for CSFB declined to comment.
Since inception in 1994, PFG has raised over $115bn in commitments to private equity partnerships. Senior team members include Larry Henry, Remy Kawkabani and Mark Hallock.
In 2002, the group claimed an overall share of the fundraising market of more than 25 per cent. European clients include PAI Management, Coller Capital, Industri Kapital, Indigo Capital and Clessidra.