Former CSFB PE execs to raise fund

A group of executives from CSFB’s private equity arm have set up Diamond Castle Holdings and are seeking to raise between $1bn and $1.5 bn.

A group of investment professionals that defected from New York-based DLJ Merchant Banking Partners, the private equity arm of Credit Suisse First Boston (CSFB), over the past six months are planning to raise a fund of between $1 billion and $1.5 billion (€810 million and €1.22 billion).

According to an article in The Wall Street Journal, the new firm, called Diamond Castle Holdings, is to be led by Lawrence Schloss, who had served as DLJ head after the departure in 2002 of Tony James to New York buyout rival The Blackstone Group.

In the news reports, the executives who departed CSFB said they were “disturbed by their lack of independence,” citing conflicts of interest that arose between the investment banking and private equity sides. As an example, they said they were pressured not to compete for deals against other private equity firms who were clients of CSFB. The article also cited their frustration with corporate bureaucracy and complicated compliance issues.

“We were held hostage to the financial sponsors group,” said defector Michael Ranger in the article. “It was all about supporting the mother ship. We wanted to prove ourselves in a non-investment-bank model.”

As Diamond Castle prepares to launch its fundraising, CSFB reportedly has begun raising its fourth fund, which is targeting $3.5 billion (€2.84 billion), not quite near the $5.3 billion (€4.3 billion) raised for its third fund, sources in the article said. The defectors claim that much of the success of the DLJ division was due in large parts to their efforts, and that they will leverage their track records to woo past CSFB investors to their new fund.

Other CSFB departures this year include Michael Dugan who left in May to join The Blackstone Group as senior managing director in its corporate advisory group. Two months earlier in March, James Quella left DLJ to become senior managing director in charge of monitoring the operations and strategy of Blackstone’s private equity portfolio companies.