Start spreadin' the news – New York City's municipal pension plans have received approval to commit as much as $4 billion to private equity over the next five years.
In addition, the division of city comptroller William Thompson's office charged with overseeing private equity will hire seven professionals to handle the stepped-up activity level.
All this is good news for Josh Wolf-Powers, the managing director for private markets in Thompson's office, who has been the sole person in charge of overseeing New York's underdeveloped private equity programme. In May, the comptroller's office issued a request for proposals for private equity consultants to help the city build a programme and monitor investments. In 2003, the office issued a Request For Proposal for a $175 million allocation to “emerging” managers – small, first-time private equity funds, funds run by ethnic minorities and women.
The New York comptroller's office serves as an investment advisor to five municipal pension plans: the Board of Education Retirement System; the New York City Employees' Retirement System; the Teachers' Retirement System; the Fire Department Pension Fund; and the Police Pension Fund. The plans together have an estimated value of $83 billion.
A plan recently approved by the respective pension boards calls for Wolf- Powers' division to hire three senior investment analysts and four analysts. The boards also approved a plan – recommended in 1997 by consultant Pacific Corporate Group – to build a private equity portfolio up to a $4 billion valuation within five years. New York City's programme has a current value of roughly $500 million.
One hundred miles upstate, the New York State Retirement System, with $115 billion under management, has long been a major participant in private equity. The state pension currently has 6.7 percent of its assets in private equity. It was only a matter of time before the City decided to do something about being several steps behind Albany.
PROVIDENCE DRAWS $9BN IN LP INTEREST
Providence Equity Partners, the Rhode Island media and communications investment firm, has raised $4.25 billion (€3.7 billion) for its fifth fund. According to market sources, the firm drew roughly $9 billion in investor interest for the vehicle, despite not having issued a formal private placement memorandum or initiating a conventional fundraising effort. The firm's previous fund closed in 2000 on $2.8 billion in commitments. Providence Equity was co-founded by CEO Jonathan Nelson in 1991. The firm, with additional offices in London and New York, has participated in a number of landmark media deals, including PanAmSat, Freedom Communications and Warner Music Group. It has agreed to invest in the buyout of movie studio Metro- Goldwyn-Mayer.
CARLYLE SPIN-OUT LAUNCHES FUND
Dallas-based Ewing Management Group has announced the establishment operations with more than $1 billion (€820 million) in equity capital available for investment in under-performing companies in a broad range of sectors. The firm is led by CEO Edward Ewing, who is also the fund's single largest individual investor, having contributed more than 20 percent of total capital. Ewing Management was formerly Carlyle Management Group, an affiliate of private equity giant The Carlyle Group. The two had a joint fund with a two-year investment period. Following the expiration of an agreement, the two sides mutually agreed not to renew jointly investing. Ewing Management maintains additional offices in New York City and has plans to open an office in Shanghai.
NORWEST EQUITY CLOSES $800M MIDDLE-MARKET FUND
The Minneapolis firm's eighth middlemarket vehicle follows the May close of a $400 million (€336 million) mezzanine fund also managed by Norwest Equity. The firm's middlemarket fund will continue to make investments of $20 million to $80 million in companies operating in the manufacturing, distribution, healthcare services, business services and consumer products industry sectors. Since Norwest's inception in 1961 as Norwest Growth Fund, Wells Fargo has been the firm's primary source of capital. The firm is run by managing general partners Timothy DeVries and John Lindahl and has managed more than $2.3 billion in capital over the last 15 years.
TENNENBAUM CLOSES FOURTH FUND
The Santa Monica, California-based distressed investor closed its Special Value Opportunities Fund on $2 billion (€1.64 billion). Tennenbaum Capital Partners says it will invest in long-term opportunities in both the public sector and in the private sector, including bank debt, mezzanine securities and distressed bonds. The fund will follow the investment strategy applied by the firm for the last eight years of investing in special situations. Babson Capital Management, a unit of MassMutual Financial Group, will serve as co-manager of the fund. Tennenbaum Capital Partners was established in 1996 and has since raised more than $3.5 billion in assets. It is led by Michael Tennenbaum, who prior to forming the firm served as vice chairman of Bear Stearns.
EVERCORE, GORES PULL BDC
The attrition of proposed business development companies (BDCs) in the US continues, as Los Angeles' Gores Technology Group last month canceled the proposed $250 million IPO of a vehicle that would primarily make mezzanine debt investments in private companies. Los Angeles-based Evercore Partners has also withdrawn its proposed $240 million BDC.
BDCs typically provide mezzanine debt, senior loans and equity tranches to mid-market companies. Kohlberg Kravis Roberts announced plans to scrap its $750 million BDC in favour of raising a $780 million (€655 million) publicly-traded real estate investment trust (see next story), due to investor resistance. In July, Blackstone Group delayed the IPO of its BDC, Blackridge Investment, reportedly over a dispute over who would pay the underwriting fee and also announced that it would reduce its target from $850 million to $650 million. Only two IPOs have taken place this year, the most significant one being Apollo's launch of the $930 million Apollo Investment vehicle in April. The only other offering to successfully launch was the much smaller $96 million Prospect Energy Corp in July. Enthusiasm for the product appears to have waned with intensive negotiations reportedly taking place over management fees and the size of the vehicles.
KKR RAISES $780M THROUGH PRIVATE REIT
After scrapping plans for a business development company, the New York private equity giant has raised a pool of capital for real estate investing, and has plans to take the entity public. The new entity, KKR Financial, was created through the private sale of 78 million shares priced at $10 per share, according to information filed by investment bank Friedman Billings. KKR has reportedly hired a team of former Wells Fargo executives to manage the REIT, including Paul Hazen, the former CEO of the bank. In 2001, Hazen was named chairman of the board of directors of Accel-KKR, a technology investment joint venture between the buyout firm and venture firm Accel Partners. Former CSFB co- CEO John Mack reportedly will join KKR Financial's board of directors. In April, KKR filed a registration statement for the proposed $750 million (€629 million) initial public offering of KKR BDC, a business development company affiliated with the firm that was to make debt and equity investments in public companies. KKR will reportedly eventually file to take KKR Financial public as the shares, placed through Rule 144A, have registration rights that come due within 12 months. KKR has recently had close interaction with another private REIT. Earlier this year, CNL Hospitality, a private REIT, agreed to buy luxury hotel holding company KSL Recreation from the buyout firm for $1.2 billion.
VENTURES WEST CLOSES LARGEST CANADIAN VC FUND
The Toronto-based venture capital firm announced funds raised for a new entity totaling C$250 million ($192 million; €150 million). The fund, Ventures West's eighth, is the largest private venture capital fund ever raised in Canada. It will invest in early-stage companies in the biotech, communications, energy technology and IT sectors. The fund has already made three investments: NeuroAxon, Novadaq Technologies and GaleForce Solutions. Ventures West closed its last fund in 2000 on C$235 million. Investors in the new fund include OMERS; University of Toronto Asset Management; Teachers' Private Capital, the private equity arm of the Ontario Teachers' Pension Plan; and Caisse de dép^t et placement du Québec.
NEW DISTRESSED FIRM FINDS $183M
Longroad Asset Management, based in Stamford, Connecticut and Austin, Texas, has closed a new fund that will focus on special situations in the middle market. The fund, called Longroad Capital Partners, will invest in the debt obligations of financially challenged middle-market companies with revenues between $50 million and $500 million, according to a press release. Longroad focuses on seeking “negative control” of its target companies, meaning acquiring a large enough position in a company such that no other stake holder or debt holder is able to maneuver during the restructuring process without Longroad's consent. Prior to forming Longroad, founding partner Paul Coughlin was general partner and co-founder of CoMac Partners.
INTERWEST PARTNERS RAISES $600M
The Menlo Park, California-venture investor has closed its ninth fund, which drew $600 million (€504 million) in less than two months. InterWest, which also has an office in Dallas, invests in early-stage companies in both the life sciences and information technology sectors. The firm invests an average of about $10 million to $15 million over the course of the firm's involvement in each portfolio company. The firm announced its intention to raise a new fund at its annual meeting in mid-April and was overwhelmed by the response it got from its investors. About 85 percent to 90 percent of the new fund's LPs were return investors, virtually all US-based. The fund's investors comprise pension funds, endowments, foundations and funds of funds, including HarbourVest Partners. InterWest's previous fund closed on $750 million in 2000.
QUAKER BIOVENTURES DEBUTS WITH $280M
The Philadelphia firm's fund is the largest inaugural venture vehicle in the last year and half. The firm, founded in 2002, invests in multi-stage life sciences companies in the Mid-Atlantic region, including those involved in biopharmaceuticals, medical devices, human diagnostics, health information technology and healthcare services. The fund was oversubscribed by $80 million, and included “several of the world's leading institutional investors”, including state, city and corporate pension plans and university endowments. Quaker is led by Ira Lubert, a former venture fund manager at Safeguard Scientifics; Brenda Gavin, the former president of S.R. One, GlaxoSmithKline's bioscience venture capital investment company; and P. Sherrill Neff, previously the president and chief operating officer of Neose Technologies, a publicly traded life sciences company.
CASTANEA FINDS $207M FOR NEW FUND
The Newton, Massachusetts private equity firm's first institutional fund received key support from the endowments of Princeton and Yale universities and has now closed at $207 million (€174 million). Castanea had previously done a number of private equity deals using the personal capital of its founders. Castanea was founded by Brian Knez and Robert Smith, co- CEOs of publishing company Harcourt General until its sale in 2001. They both currently serve as vice chairmen of retailer Neiman Marcus. The fund, Castanea Partners Fund II, will pursue a strategy of investing in small to mid-sized companies with equity investments of between $10 million and $20 million.