Lehman LPs approve private equity management spin-out

Lehman’s former merchant banking unit will be owned by management in a joint venture with South African billionaire Johann Rupert.

A new private equity house is set to rise from the ashes of bankrupt Lehman Brothers.

More than 300 LPs in Lehman Brothers Merchant Banking IV and Fund IV (Europe) voted on Monday to support a management spin-out proposal. The spin-out will be funded through a joint venture between management and Reinet Investments, the investment vehicle of South African billionaire Johann Rupert.

Reinet will pay $10 million for a 49 percent stake in the joint venture and take over Lehman Brothers' $230 million of uninvested LP commitments. Lehman Brothers Holdings will retain a significant stake in the buyout unit as a limited partner, with about $230 million of investments across the two private equity funds.

The new firm will be owned by management, led by Charlie Ayres alongside four partners, Danny James, Vittorio Pignatti, Joe Cohen and Javier Banon. The deal is expected to close some time in the second quarter.

As part of the spin out, Lehman offered some LPs the option to reduce unfunded commitments to the $3.3 billion fund by up to 25 percent, reducing the latest fund to about $2.6 billion. Investors in the funds include the Pennsylvania Public School Employees’ Retirement System and the New York City Employees’ Retirement System.

Lehman has spun off its private equity and venture capital funds, and continues to work to sell off it $9.7 billion private equity real estate group since the former investment bank filed for the largest bankruptcy in history in September.

In February, fund of funds HarbourVest backed a management spin-out of Lehman’s venture capital funds in a deal that was in part a synthetic secondary. As part of the deal, HarbourVest will buy out a portion of Lehman’s limited partner interests in Lehman Brothers Venture Partners III, IV and V. Fund V, the most recent, closed on $365 million in 2007 and is 30 percent invested.

The venture firm was renamed Tenaya Capital and will be managed by Tom Banahan, former managing director and global head of venture capital for Lehman Brothers.

In December, a group of managers and senior employees of Neuberger Berman won bankruptcy court approval to spin-out the bank’s investment management division, including Neuberger.