Deutsche Bank’s Alternative Investment Fundraising Group (AFG), the bank’s private equity fund placement division, has been closed. According to sources, all members of the group, which until recently had comprised 40 corporate finance and sales professionals, have left the bank.
Between 1996 and 2002, AFG worked on 72 placement mandates raising approximately $30bn of capital, according to a Deutsche Bank marketing document.
AFG thrived in the mid- to late 1990s while part of Bankers Trust, whose financial sponsors business had a strong franchise particularly in the US mid-market and large-cap LBO community. Following Bankers Trust’s acquisition by Deutsche Bank, AFG struggled to find a home within the new structure before finally becoming integrated into Deutsche’s collateralised debt obligation (CDO) sales operation 18 months ago.
For AFG, according to a former member of the team, this move marked the beginning of the end: “We could see this coming. We had been an orphaned unit anyway, but folding us into CDOs made no sense. Deutsche saw us as just another alternative asset use, but we ended up tracking around and selling CDOs to people who were only ever going to buy private equity, and where we did talk to fixed income investors, we were competing with the bank’s fixed income sales desk.”
AFG’s prospects deteriorated further following Deutsche Bank’s strategic decision to end its involvement in direct private equity investment, which earlier this year prompted the $1.6bn spinout of its late stage buyout division, now known as MidOcean Partners. Said the source: “For a private equity placement team to be part of an investment bank only makes sense if the bank is interested in the business. Deutsche wasn’t.” Deutsche Bank still runs a sizeable portfolio of fund investments, which recently became part of DB Asset Management, which also comprises a real estate investment operation.
Last year Deutsche Bank terminated fundraising efforts for a mezzanine vehicle and a secondaries private equity fund that AFG had been working on. In January and February of this year, the team’s corporate finance analysts were gradually let go, followed by the sales executives in Europe, the Middle East and eventually the US.
The source described the winding down process as “amicable”, aimed at making sure AFG’s closure would cause minimum disruption to its remaining external clients. These included Caduceus Private Investments II, a US healthcare and biotechnology fund, as well as Globespan Capital Partners IV, a US IT and communications vehicle. Both funds are thought to be near a final closing. AFG also represented Wayland Distressed Opportunities Fund, a US distressed investor.
AFG was run by Kevin McGrath, who was based in its New York headquarters. Other senior sales professionals covering the US to have left Deutsche include Dan Rudgers, Christopher Kirsten, Patrick Shattenkirk and Derek Dietrich. European and Middle Eastern distribution was led by Ayman Arekat, Lanna McCarthy, Lauren Seaver and Basil Mandil. The group had offices in London, Paris, Geneva, Bahrain and Tokyo.
The group’s closure comes at one of the longest fundraising downturns the private equity industry has experienced. According to data compiled by the European Venture Capital Association, European private equity firms raised E27bn in 2002, 25 per cent less than in 2001. Placement agents confirm that business is currently slow, but predict a recovery in 2004, when a multitude of international general partner groups are expected to resume fundraising.
Global investment banks to remain committed to private equity fund placement include Credit Suisse First Boston, Merrill Lynch and Citigroup. JP Morgan Chase wound down its placement operation earlier this year.
Merrill Lynch, alongside CSFB the market leader, is currently replenishing its private equity fund placement capabilities after a team of eight senior sales professionals defected to rival investment bank Lazards earlier this year.