Oregon wins fee break from Aquiline

Aquiline Capital Partners is the latest private equity firm to agree to reduce fees for the Oregon Investment Council, as it negotiates a potential $100 million commitment to the firm's latest fund.

Aquiline, which is targeting $2 billion for its second financial services fund, will transfer 100 percent of transaction fees back to the fund. The firm's first such fund sent 80 percent of deal fees back to the fund.

The council did not give final approval to the commitment at its most recent meeting in April, as it will negotiate further on management fees on the fund. OIC has a prior, $200 million commitment to Aquiline's first fund, and is not willing to pay “double” fees unless the firm's expenses have also doubled, a pension spokesperson said.

“[OIC] doesn't want fees to be a profit center,” the spokesperson said. OIC could consider approval of the commitment at its next meeting at the end of May, or even before if the two parties reach agreement.

Oregon’s fee stipulations have led the way among US pensions in demanding concessions from fund managers.

The guidelines, published last year, include a provision that management fees “should not be a major profit center for the firm”. It says that “fees should be reduced for all but the most modest funds with larger funds taking larger reductions in ‘standard’ fees, acknowledging economies of scale”.

The fund recently used the guidelines to achieve fee reductions from Lone Star Funds, a Texas-based firm that Oregon has invested in for several years. Oregon made a $400 million commitment to Lone Star’s two new funds last year after the firm altered its fee structures and governance procedures to make the funds more “LP friendly”.

Also last year, OIC won concessions out of another private equity firm – Fisher Lynch Capital – in exchange for a $500 million commitment. Oregon approved a $500 million commitment to Fisher Lynch Capital Co-Investment Partnership II, which was targeting $1 billion from only two LPs, Oregon and the Washington State Investment Board.

The council started negotiating with Fisher Lynch last May on several aspects of the fund’s terms and conditions, and managed to get Fisher Lynch to set management fees so the fees are not a big profit center.

Aquiline raised $1.1 billion for Fund I. The firm was founded in 2005 by Jeffrey Greenberg, the former chairman and CEO of Marsh & McLennan’s in-house buyout group MMC Capital.

Greenberg, the son of embattled former AIG head Maurice “Hank” Greenberg, resigned from Marsh & McLennan in 2005 amid bid-rigging and price-fixing allegations leveled against the company by New York attorney general Eliot Spitzer. Marsh eventually settled those charges through paying $850 million as part of a settlement.

Aquiline invests in financial sectors including: insurance, banking, securities, asset management, operations and financial technology.