THE DUBLIN CONNECTION

Add another name to the growing list of institutions that are entering the private equity funds business – Bank of Ireland.

In June, the bank announced that it would purchase a 50 percent stake in a new private equity fund of funds business managed by Paul Capital. Bank of Ireland will pay $25 million for the interest and has an option to acquire up 70 percent before 2008. An additional $5 million (€3.9 million) will be paid for interests in Paul Capital's existing funds of funds.

Philip Paul, founder of Paul Capital, will chair the new business.

The deal will allow Paul Capital's private equity fund of funds business, led by David York, to expand into what York describes as “specialist” funds of funds. First up is a fund of funds that will commit to US buyout funds in the sub-$500 million range. Earlier this year Paul Capital hired Jamie Johnson, formerly of Alta Advisors, and Christopher Perriello, formerly of Invesco Private Capital, to oversee this strategy. York said the firm would likely form a European small buyout fund in the future, as well as evaluate the opportunity for emerging markets funds of funds.

Currently, Paul Capital manages just one line of primary-commitment funds of funds, its Top Tier family of venture capital-focused funds. The new business will be renamed Paul Capital Investments, and will continue to be based in San Francisco. York expects to double his team of investment professionals to roughly 20 over the next year and a half.

The driver behind the deal was Kevin Dolan, who runs Bank of Ireland's asset management business. He knew Paul Capital from his days in charge of AXA Investment Managers. Dolan is bullish on the alternative investment management business – last year his group acquired a 71.5 percent interest in the fund of hedge funds business of New York-based Guggenheim Alternative Asset Management Partners for $184 million (€153 million)

York says he is bullish on the growth of private equity as an asset class, but predicts an evolution from generalists to specialists among funds of funds managers. “I don't think we can add value helping folks get into large-cap buyout funds,” he says. “But I do think we can add value helping clients get into venture businesses, middle-market buyout businesses and the emerging markets area.”

Don't expect massive fundraisings from Paul Capital Investments. “Part of the notion for us is to keep our vehicles smaller,” says York. “Just like our underlying managers need concentrated winners to perform well, so do we.”

FIRST RESERVE CLOSES RECORD ENERGY FUND
First Reserve, which recently opened offices in Asia, has announced the closing of the largest energy-specific global fund ever raised, at $7.8 billion (€6 billion). First Reserve's previous fund closed in 2004 on just $2.3 billion, but so many prospective LPs were eager to invest in the new fund that the process was brisk. “The investment rate has picked up as the opportunities have picked up, and we've been able to go after larger and larger deals,” said Greenwich, Connecticut-based First Reserve CEO Bill Macaulay. “This thing, start to finish, from pre-marketing through to closing, was about three months, a little bit over…. We could have raised a much larger fund.”

NEW YORK PURSUES IN-STATE PE INVESTMENT
New York private equity firm Founders Equity led a $15 million (€11.7 million) investment in Stone Source, a Manhattan-based distributor of decorative stone for use in residential and commercial projects. In the latest example of state pensions pursuing in-state private equity investments, the transaction also received equity capital from the New York State Common Retirement Fund, which invested $8.2 million in the company. The commitment, from capital invested in both Founders Equity and the Hudson River Co- Investment Fund, was part of the CRF's In State Private Equity Investment Program, created in 1999 by the state legislature to foster investment in New York companies.

ONEX CLOSES ON $3.45BN
Publicly traded, Toronto-based conglomerate Onex has closed its second large-cap private equity fund, Onex Partners II, at $3.45 billion (€2.7 billion). Onex committed $1.45 billion, or 41 percent of the capital, to the fund. The remaining $2 billion was committed by an undisclosed group of global institutional investors. The first investment for Onex Partners II, and the last investment for Onex Partners I, which closed in 2003, is expected to be the acquisition of Chicago-based Aon Warranty Group, an extended-warranty contract provider, for $710 million (€555 million) by the end of 2006. Onex is led by its founder, chairman and CEO, Gerald Schwartz.

NORTH CASTLE SETS $300M TARGET
North Castle Partners, a Greenwich, Connecticut-based private equity firm, has launched fundraising for a new vehicle with a target of $300 million (€237 million). North Castle Partners IV will continue the firm's strategy of seeking out investment opportunities in businesses that cater to the demand of an aging population for products and services that promote health. North Castle, founded in 1997 by managing director Charles Baird, closed its last fund in 2001 on $175 million. Last year the firm reaped a 3x return on the sale of fitness club operator Equinox to The Related Companies. A year earlier North Castle sold nutrition company EAS to pharmaceutical giant Abbot Laboratories, realising a 2.5x return.

BANK OF AMERICA EYES $1BN
Bank of America has jumped on the private equity bandwagon, filing forms with the SEC for a $1bn private equity fund. The Boston-based fund will be known as BA PrivateEquity Direct, and was incorporated on May 6, according to the filing. Investment banks such as Goldman Sachs and Merrill Lynch have in recent years greatly expanded the scope of direct, in-house private equity programmes. However, most other financial services conglomerates have shuttered or spun out in-house private equity groups. Bank of America's larger rival, New York-based Citigroup, is reportedly in the process of raising a $3.5 billion (€2.7 billion) buyout fund, according to reports.

BEAR STEARNS CLOSES THIRD FUND
Bear Stearns Merchant Banking held a final close on its latest fund, Merchant Banking Partners III, at $2.7 billion (€2.1 billion). The firm will place an increasing focus on financial services companies as it seeks to differentiate itself from other captive models. The senior executives overseeing the fund are CEO John Howard and chief operating officer Gwyneth Ketterer. Ketterer said: “In sheer magnitude there's more opportunity in and around financial services. For us especially, there's an opportunity where we can piggy-back on our in-house expertise – not necessarily investment banking, but the fixed income powerhouse that's downstairs.”