Landmark's secondary generation

Leave it to a secondary specialist to artfully complete a complicated transfer of assets – in this case the ownership transfer of Landmark Partners, the Simsbury, Connecticut private equity secondary pioneer.

The firm was founded by Stanley Alfeld in 1989 as one of the first dedicated secondary fund managers. At the end of last year, Alfeld sold off the last of his ownership interest in Landmark's management company to the firm's partners, led by chairman and managing partner Francisco Borges.

As with the succession at New York firm Warburg Pincus and the few other next-generation private equity franchises, Landmark's key to transitional success appears to have been a founder with a desire and a plan to see his firm carry on without him.

Borges, who joined the firm in 1999, says Alfeld began putting together an “elaborate” succession plan as early as 1996. This included expanding Landmark's partner group from three to eight and bringing in an outsider, Borges, as the firm's thenpresident.

“It was important to Stan that he clearly articulate the succession plan both internally and externally to our investors,” says Borges.

Alfeld did this both verbally and symbolically. At the firm's 2000 LP meeting, Alfeld introduced Borges as the new president, and then stepped away from the podium and took a seat in the front row to listen. At the next year's LP meeting, according to Borges, Alfeld sat in the back row and never took the podium. The next year, Alfeld did not attend the meeting.

A RELATIVELY NEW APPROACH
Landmark actually started life in 1984 as Technology Transitions, a venture capital firm that invested in a range of computer, software and medical startups. The firm had the support of The Rocke feller Foundation, Connecticut Bank & Trust, Aetna Life & Casualty, Ameritech and NCR, among other institutions.

But in 1989, the firm changed its name and strategy, and announced a major secondary deal – the $100 million-plus acquisition of a portfolio of 54 venture capital partnership interests from financial services corporation Cigna. Among the underlying funds were partnerships managed by Kleiner Perkins Caufield & Byers and Welsh Carson Anderson & Stowe. The funds in turn were invested in roughly 800 underlying companies in various industries and at various stages of development. At the time, Alfeld described the purchase as “an index of the venture industry”.

A 1989 press release from Landmark notes: “The concept of acquiring existing venture capital portfolios is believed to be a relatively new approach.”

Fifteen years later, Landmark has just closed its eleventh private equity secondary fund, rounding up a total of $625 million. Fund X, closed in 2000, drew $580 million. “Our strategy has been to raise a digestible amount of capital and to deploy it in attractive, negotiated transactions,” says Borges, noting that while his firm ranks among the more recognisable names in the industry for secondary deals, it has avoided the billion-plus market. “The fact of the matter is that when you raise a megafund, it becomes absolutely critical not to miss out on mega-transactions.”

Borges claims that about 85 percent of the secondary transactions his firm does are “purely negotiated”. The rest are what he calls “quasi-auctions” because of the limited number of participants.

Borges says he wants his firm to be known primarily for its secondary business, including a line of real estate secondary funds launched in 1996. Currently, Landmark manages roughly $3.2 billion (€2.6 billion) in private equity secondary capital and $1 billion in real estate capital.

But Landmark has also created direct, primary and co-investment programmes. When Borges was brought on board in 1999, among his duties was to raise a fund for direct investment in growing, “union-friendly” companies. That effort was scaled back from its original goals. The fund, called Landmark Growth Partners, eventually drew $75 million. It has completed three transactions to date of companies that “have a strong record of working closely with labour”, says Borges. (Landmark manages a significant amount of Taft- Hartley money – capital from labour union pensions.)

Landmark Primary Partners, which has drawn roughly $200 million, commits primary capital to “emerging” funds managed by experienced GPs. Borges predicts his firm will eventually raise a second fund of this nature, or create a separate-accounts programme with this strategy, which focuses primarily on buyout funds.

Leveraging its approximately 700 fund relationships, the firm also raised a “small” co-investment fund, says Borges, and is exploring a follow-on effort.

PUBLIC TO PRIVATE
Borges himself stepped into the thick of the private equity world from an unusual background that included public service and a stint running an insurance business.

After gaining a law degree in 1978 from the University of Connecticut Law School, Borges went to work for the Travelers Insurance. During that time, he became involved in local politics, serving as a Hartford, Connecticut city councilman. The council seat was very much a night job and a labour of love. “It was volunteer work,” laughs Borges.

Borges: negotiated deals and quasi-auctions

In 1985, when Borges was 34 years old, local Democratic leaders approached him with the idea of running for Connecticut's treasury office. The next year, Borges beat the Republican candidate and became the only African-American in the state to hold statewide office.

The state's pension, over which Borges was sole fiduciary, thrived during his stewardship. Among his more controversial actions while in office, Borges invested $25 million of state pension capital to buy a foundering local firearms producer, Colt Industries. The investment also involved a capital contribution from the United Auto Workers union, whose members stood to be out of work if Colt factories shut down.

At the time, a Washington Post article said of Borges: “[He] is the rare public official who combines economic literacy with political compassion.”

While treasurer, Borges came in contact with the private equity industry for the first time, and made the state's initial commitment to a private equity fund. “I determined it made sense for diversification,” remembers Borges.

Connecticut's private equity programme began in 1987 with a $300 million commitment to Crossroads Constitution, a venture capital fund of funds managed Dallas-based Crossroads Group. Although a later iteration of the firm would eventually get into a legal dispute with Connecticut over the management of Crossroads Constitution, the partnership has been extremely successful from a returns perspective. Crossroads, in fact, was founded by a team of private equity professionals who had left Cigna prior to its secondary sale to Landmark. Connecticut was the firm's first big client.

Borges stepped down as treasurer a year shy of completing his second term. “I have always believed that public service is something that one should do and do well, but then move on,” he says.

Borges joined GE Capital's Financial Guaranty Insurance Corporation, in part because it was an “opportunity to take on a business and manage the bottom line,” and in part because the division was one with which he had had no contact as treasurer.

After a few years at GE Capital, Borges was introduced to Alfeld, who laid out for him his long-term plan for Landmark. Borges, who speaks at a careful, measured pace, says he hopes to see his firm grown at a continued “thoughtful” rate, particularly in its core secondary business.

He is aided in managing the post-succession firm by the one original partner who remains from the 1989 Cigna transaction – president, managing partner and chief operating partner Timothy Haviland.