(PrivateEquityCentral.net) New York-based financial services giant Lehman Brothers has agreed to acquire the operating assets of Dallas-based fund-of-funds firm The Crossroads Group.
Terms of the deal were not disclosed, according to a press release.
Crossroads, founded in 1981, has committed more than $2bn to more than 200 private equity partnerships. The firm is led by chairman and chief executive officer Brad Heppner, who will maintain his position and become co-head of Lehman Brothers’ private funds investment group along with Anthony Tutrone.
Lehman Brothers sees some benefits of the transaction being Crossroads' ability to add capability to Lehman's wealth and asset managment business. Crossroads also has solid relationships with several fund managers and investors and has back office capabilities, according to the release.
“Crossroads brings something difficult to build, which is 22 years of history with great relationships with the right general partners,” Tutrone said. “They have a robust database that will help our entire institution and a world-class back office.”
“There is not an overlap with our capabilities,” Heppner said. 'The teamwork between the two firms has been proven.”
Heppner added that the two firms have been working on projects for the past year and through working on those projects, the firms realized a more formal merger would be beneficial for both parties.
Heppner added that Crossroads intends to keep investing in top private equity funds and his firm continues to be asked to invest in funds because Crossroads has been a valuable partner.
Lehman Brothers recently stepped up its private equity program. Earlier this week, the firm announced David Morse joined the firm’s merchant banking division as managing director. Morse joined the firm from Hampshire Equity Partners, where he was a founding partner. In April, Lehman Brothers’ merchant banking division hired Charles Ayres from MidOcean Capital Partners.
Last September, Crossroads agreed to distribute $297.5m on a pro-rata basis to Connecticut’s pension fund, ending a three-year-old dispute. Connecticut first invested with Crossroads in 1987, committing $300m to the Crossroads Constitution Fund. The pension fund received approximately $525m in distributions from Crossroads until 1999. It was at this time, the state claims, that Crossroads began to withhold distributions and recommit them to new funds without the state’s permission. Crossroads argued that the investment contract allowed it to reinvest distributions and that it was acting as a responsible fiduciary in doing so.
Heppner said Crossroads has moved on from that dispute and that Connecticut remains one of the firm’s top clients.
“That was a contract matter, not related to investment performance or activity,” Heppner said.
The private funds investment division of Lehman Brother is part of the firms larger private equity division, which includes merchant banking, venture capital, real estate, third-party funds, and fixed-income-related funds. Lehman Brothers’ private equity division currently manages $7bn of capital, including assets garnered from the latest transaction.