Dallas-based LBO firm Hicks, Muse, Tate & Furst has changed its compensation structure – apparently at the behest of its limited partners.
London’s Financial Times newspaper ran a report today saying Hicks Muse’s European team stand to share ‘close to 93 percent’ of the carry from the €1 billion Europe II fund, which is currently being raised.
Under the previous compensation structure, members of the firm’s US investment team were entitled to a share of the carry arising from European exits, and vice versa. Under the new terms, this ‘profit sharing’ has been eliminated, with the US team getting all the carry from US deals and the European team all the carry from European deals.
“Investors didn’t think the previous model – where everyone got a share of everything – was ideal,” a source at Hicks Muse told PrivateEquityOnline. The source confirmed the European team would get around 93 percent of the profits from the new Europe II fund.
The only partner with a continuing interest in both the US and European arms of the business is John Muse, who recently moved to the London office and will take over as chairman from Tom Hicks next year following the latter’s retirement.
The source agreed with the suggestion that the firm had effectively been ‘split.’ He pointed out that the firm now operated two separate investment committees headed by Hicks and Jack Furst in the US and Muse and Lyndon Lea in London. But he denied reports that the changes would lead to the eventual spin-off or re-branding of the European unit.
The Financial Times report suggested that the move partly reflected a desire to ‘ring-fence’ the European side of the business from poor investments in the US. Along with several buyout rivals, Hicks Muse made some tanking telecom investments from its fourth fund, which closed in 1997. Its fifth fund, which closed in December 2000, raised $1.5 billion – three times less than the original target – and is the last time the firm raised capital in the US.
A leading European-based limited partner told PrivateEquityOnline that moves to grant the Hicks Muse European team greater autonomy appeared to be ‘an internal issue’ designed to keep the team sufficiently incented. “A lot of teams come and go in Europe that have US parents,” he said. “They [Hicks Muse] see Europe as a stronger market for buyouts than the US at the moment and having built a good presence here, they don’t want to throw it away.”
The firm certainly appears to be placing a strong emphasis on Europe. In addition to Muse’s recent move, the London office poached senior dealmaker Neil Richardson from rival Kohlberg Kravis Roberts earlier in the year. And Lyndon Lea, who is responsible for the day-to-day running of the European business, is seen by many in the industry as a rising star.
A source close to HMTF’s Europe II fundraising said it was on course for a first closing ‘shortly’ and that the firm was ‘comfortable’ with the way it was progressing despite the difficulty of keeping to the planned schedule during the summer lull.
In a separate announcement, the firm said it was lowering the price range for its planned flotation of portfolio company Premier Foods from 230p-260p to 215p to 230p. Amid tough market conditions, the firm is now planning to raise £120 million (€181 million; $225 million) from the offer rather than £130 million.