After much fighting, one of institutional venture capital's oldest relationships has come to a quiet end.
Farmington, Connecticut private equity investment advisory firm Fairview Capital is in the process of taking over the management of a venture capital portfolio once run by The Crossroads Group for Connecticut's state pension. The transfer follows years of backroom quarreling and legal threats between The Crossroads Group and Connecticut.
Fairview beat out heavyweights Portfolio Advisors, AIG Global Investment Group, and CSFB to clinch the mandate, assigned in March.
The partnership between the pension and the Dallas-based fund of funds manager began in 1987 with a $300 million commitment from Connecticut that was earmarked for venture capital funds. In total, Connecticut has committed $667 million to what was until recently called the Crossroads Constitution Fund, according to state records.
The dispute came in the wake of strong performance – Constitution Fund has been extremely successful for the state, returning nearly $900 million to date on called-down capital of $341 million. But in 1999, Crossroads, which was acquired in 1995 by Brad Heppner and has seen significant personnel turnover, stopped distributing cash to the state. Instead, relying on broad language in the Constitution partnership agreement, Crossroads began making “rollover commitments” of Connecticut's distributions back to venture funds. The rollover situation was discovered in 2001 when state auditors found that Crossroads had failed to make more than $200 million in distributions to the pension.
Heppner argued his firm was acting in the pension's best interests in accordance with the investment mandate, but state treasurer Denise Nappier threatened legal action against the firm to recover the funds. State records now indicate that the dispute has been resolved and Crossroads, which was acquired by Lehman Brothers late last year, has agreed to relinquish management of the portfolio.
Fairview Capital, managed by Edwin Shirley, Matthew Schaefer, Howard Halligan and Rebecca Connolly, has assumed control of an entity renamed Constitution Liquidation Fund, and will oversee the activities of interests in 75 funds on behalf of the state pension.
One of the other mandate finalists, Portfolio Advisors, has had prior experience with Crossroads. The firm assumed control of a portfolio managed by Crossroads for the City and County of San Francisco, a process described by Connecticut state records as “intensive. Crossroads did not want to relinquish the oversight of the assignment …”
SHASTA VENTURES LAUNCHED
The new venture capital firm, based in Menlo Park, California, will focus on the Western United States and will make early-stage investments in infrastructure, software, and technology-enabled services companies targeting the business and consumer markets. Shasta's three founding managing directors are Silicon Valley veterans Robert Coneybeer, who spent eight years investing in infrastructure companies at New Enterprise Associates; Ravi Mohan, who has eight years' experience investing in software and technology-enabled service companies at Battery Ventures and Tod Francis, who brings 10 years' experience focusing on technology-enabled consumer and business service companies at Trinity Ventures.
DOLL CAPITAL CLOSES FUND IV
The Menlo Park, California-based venture capital firm has announced a final cap at $375 million on its latest fund. The vast majority of Doll Capital Management's existing institutional base participated in the oversubscribed fund. A handful of leading endowments and foundations also joined DCM in the new vehicle. With its new fund, DCM will continue to focus on early-stage investments in the communications, software and semiconductor industries. Portfolio companies of prior funds include Foundry Networks, About.com and Internap. The firm launched its previous fund, capitalised at $470 million, in late 2000. The addition of Fund IV brings DCM's capital under management to $1 billion.
PROSPECT PARTNERS CLOSES $165M FUND
The Chicago-based private equity firm has announced the closing of its second fund, Prospect Partners Fund II, on $165 million (€136 million). The fund succeeds Prospect Partners Fund I, which closed in 1998 on $105 million. It received commitments from investors including Goldman Sachs, General Motors Investment Corporation, JP Morgan Fleming Asset Management, the University of Notre Dame, Wilshire Associates, Private Advisors and the Northern Trust Corporation. Fund II will focus on management-led acquisitions of lower middle market companies with niche strategies within the US. The fund will target leveraged buyouts and recapitalisations of companies with revenues between $10 and $30 million.
CALPERS BACKS RICHARDSON FINANCIAL DEBUT FUND
Canada's Richardson Financial Group has raised C$325 million (€267 million) for its debut private equity fund. RFG Private Equity LP No.1 will invest between $10 million and $60 million in a range of sectors. The fund received a cornerstone $50 million commitment from parent company James Richardson & Sons. Alongside a number of institutional investors, CalPERS also invested in the fund, making first contribution to a Canadian private equity fund. Individual investors included Win Smith, the former head of Merrill Lynch International's private client group.
BEACON CAPITAL CLOSES $1BN REAL ESTATE FUND
The Boston-headquartered real estate investment firm has closed Beacon Capital Strategic Partners III, a $1 billion (€822 million) private equity fund dedicated to buying office buildings predominantly in Boston, Chicago, Los Angeles, New York, San Francisco and Washington. Beacon's investors included more than 70 pension funds, university endowments and foundations. Beacon III made its first investment in March, acquiring 222 South Riverside Drive in Chicago for $195 million. Beacon I, a $287.5 million fund that closed in March 2000 is fully invested. Beacon II closed in July 2002 on $740 million.
WINDSTONE CLOSES $150 MILLION FUND
Phoenix, Arizona-headquartered Windstone Capital Partners has closed a new $150 million (€123 million) fund. Windstone Opportunity Partners is structured as a pledge fund and will look to invest between $5 million and $15 million in small and mid-cap public companies. Richard Freeman, a fund executive with 25 years experience is leaving from Century Capital Management in Boston to operate the fund as managing general partner. Senior managing director Norman Clarke said: “Along with Windstone's active investment banking practice, Windstone can now offer a full range of financing options for private and public companies.”
BAIN RAISES $4.25BN FOR TWO FUNDS
The Boston buyout shop reportedly managed to round up commitments in less than two months in one of the largest fundraisings of the year. Bain has raised $3.5 billion (€3.28 billion) for Bain Capital Fund VII, beating its $3 billion goal, and met a $750 million target for a fund that will be co-invested alongside Fund VIII. Most of the capital committed to the fund comes from endowments, foundations and wealthy families, with a small number of pension plans in the mix as well. Bain's successful fundraising comes shortly after the firm and a private equity consortium comprising Charlesbank Capital Partners, JP Morgan Partners, CIBC Argosy Merchant Fund and BancBoston Capital sold Sealy, the world's largest manufacturer of mattresses, to KKR for $1.5 billion. Bain and its co-investors reportedly earned a return of five times their original investment on the deal.
Bain's success also follows on the heels of two other significant US buyout fundraisings this year. In April, Menlo Park, California- and New York-based Silver Lake Partners announced the final close of its $3.6 billion second fund, making it the largest buyout vehicle focused on large-scale investments in what the firm dubs “mature technology” and related growth companies. In February, Fort Worth, Texas-based buyout house Texas Pacific Group held a final close on its fourth private equity fund, drawing a total of $5.3 billion in capital commitments from an international investor base.
ARCLIGHT CLOSES $1.6BN ENERGY FUND
The Boston-based energy investment firm intends to invest in the coal, natural gas, power generation, and electric and gas transmission and distribution industries. Fundraising for the oversubscribed vehicle began in October 2003. and it received commitments from more than 75 investors. Return backers such as The Caisse de depot et placement du Québec and the University of Texas were joined by institutional newcomers Adams Street Partners and CalPERS. Ropes and Gray provided legal advice to ArcLight while Probitas Partners acted as the placement agent. ArcLight currently manages $2.5 billion in assets.