Although ties between the two companies are now tenuous, one can't help but see traces of Duty Free Shoppers in the highly internationalised orientation of General Atlantic.
The wealth that founded General Atlantic was built from an ingenious play on the globalising economy. General Atlantic has, in turn, continued expanding based on a firm belief that national borders will increasingly give way to the fluid forces of commerce. As Steve Denning, a co-founder of the firm and now its chairman, puts it: “The world's economies are going to become as interrelated as are the economies of California and New York today. We are capitalising on that integration.”
Perched near the top of Greenwich, Connecticut's gentle slope, the General Atlantic headquarters gives a sense of a sort of low-key command-and-control centre, with its long-distance views and globe-spanning hedge fund neighbours. A visit to the office's main conference room solidifies this impression. General Atlantic has been using videoconferencing for years in holding inter-time-zone meetings, but the firm recently completed a major upgrade to its system, and lenses around the room is something to behold.
A far more complicated feat, however, has been in the realm of human organisation. Twenty-six years after its founding, the firm has engineered a transition of leadership from co-founder Denning to William Ford, 45, who joined the firm in 1991. Ford officially becomes chief executive office on January 1, 2007, having risen to president in early 2005. He inherits the leadership of a firm that has grown from a family investment office to a global network of seven offices and 90 investment professionals, as well as additional employees who manage the flow of investment capital from an exclusive roster of partners, most of them families.
Ford also takes on the responsibility of keeping General Atlantic ahead of trends that account for the bulk of growth in global business. This will mean being more focused than ever on the sources of entrepreneurial energy and innovation as momentum shifts from the US and Western Europe to India and China.
General Atlantic's increasing focus on Asian opportunities is fitting, given that the origins of the firm are in Asia. Charles Feeney, who in the early 1960s co-founded Duty Free Shoppers (now DFS Group), provided the original funding for General Atlantic in 1980. Together with Cornell classmate Robert Miller, Feeney began his retail empire with outlets on US military bases in Asia. The business took off when Duty Free's management had the idea of opening retail outlets in airports, where travelers could buy goods free of duty. Early locations were in the Hong Kong and Honolulu international airports.
We've been allowed to built the firm with a sort of perpetual mentality
The global expansion of Duty Free built fortunes for the two partners. Miller went on to found Search Investment Group, a familiy office based in Hong Kong that now manages third-party capital, including commitments to hedge funds and private equity funds.
Feeney set out to create a direct investment entity to manage his business assets, including the assets of a charitable organisation now called The Atlantic Philanthropies, In 1980 he hired former McKinsey & Co. partner Ed Cohen, who several months later hired fellow McKinsey consultant Steve Denning. Prior to joining McKinsey, Denning, a Utah native and Stanford MBA, had spent six years in the US Navy, and his athletic bearing makes him seem like someone equally at home with commanding vice presidents and midshipman.
The firm was originally established to invest in real estate, oil and gas and information technology. As the 1990s began, General Atlantic spun off its real estate and oil and gas divisions to focus on IT, and expanded into other growth industries.
General Atlantic transitioned from a captive direct investment company to an independent private equity firm in the early 1990s, after which the firm began to add additional capital partners.
In 1998, General Atlantic began its global expansion beyond its two offices in Greenwich and New York. That year, the firm established its first overseas office in London, although the firm had already begun experimenting with small offices in Tokyo and Sao Paulo. Today, major non-US offices exist in London, Düsselddorf, Hong Kong and Mumbai. In 2001 the firm opened a West Coast office in Palo Alto, which recently appointed software entrepreneur Raymond Bingham as its head.
The firm has also opportunistically expanded its sectors of focus to include enterprise solutions, financial services, healthcare, internet and media, and semiconductors and communication. Among its big exits have been Compuware, which provides products for computer programmers, E* Trade, the online stock broker, Priceline, the online retailer, and Baan, a Netherlands-based enterprise solutions company.
Ford, a New Jersey native and former Morgan Stanley investment banker, has worked on a number of General Atlantic's big wins, including E*Trade, Priceline, Baan and Zagat, a company that provides consumer ratings of New York restaurants, among other categories.
Ford is now a board member on an even more storied New York institution – the New York Stock Exchange, which acquired General Atlantic portfolio company Archipelago Holdings, an exchange, last year.
Where Denning has the more commander-in-chief-like persona, Ford gives off a details-oriented rigorousness The two have an easy camaraderie, and it is clear that while Denning still relishes extolling the strengths of the firm the built, he has confidence in Ford's mastery of General Atlantic's many resources. “Over the next five or 10 years, Bill will be running this place, not me,” says Denning calmly.
Ford adds: “Steve has worked very hard with me and the executive committee to really develop a thoughtful transition plan, which is something that is not that common in private equity. WE've been very deliberate about it.”
As chairman, Denning will spend most of his time with individual portfolio companies – “something I love,” he says – as well as developing evergreen relationships with the firm's circle of “capital partners” (more on this later).
Ford calls his firm's strategy “global growth investing”, and stresses that the geographic and sectoral expertis resident among General Atlantic's professionals are distinct. The professional assigned to the firm's five broad sectors are tasked with identifying investment themes in their many sub-sectors. Simultaneously the firm seeks to identify the companies that best embody these themes, regardless of where they are in the world. This is where the geographic teams, with local contact and locally tempered business judgment, add the most value
The world's economies are going to become as interrelated as are the economies of California and New York today. We are capitalising on that integration
Ford offers the case study of Vimicro, a Beijing-based “fabless” semiconductor company in which General Atlantic invested in 2004. The initial investment was managed by East Asia head Vincent Feng and received support from Greenwich-based Philip Trahanas, the firm's head of embedded systems and communications, who flew out to jointly diligence Vimicro. The company went public last year. “Vince was making a judgment about local management and about the quality of the company, while Phil's job as a sector expert was to see what the quality of the competitive position of the company's technology was,” says Ford.
Similarly, Mark Dzialga who runs General Atlantic's enterprise solutions group, travels to India several times per year to work with india office head Abhay Havaldar to work on IT services and business processes outsourcing deals.
Feng, based in Hong Kong, argues that regional biases are absent from General Atlantic's investment decision process, because all its professionals are compensated from a single pool of capital. “The fact that we're global necessitates a global viewpoint on dealmaking,” says Feng. “If you raise a fund specifically for a region, and the professionals are rewarded for the investment returns from that region”, the results can be a battle for resources at the expense of a meritocratic deal selection system.
Feng says he recently had a conversation with a Chinese entrepreneur who was interested in General Atlantic's presence in Europe, but wondered whether the firm's European partners would provide the requisite support for the geographic expansion. “I assured him that there was no question that the support would be there,” says Feng. “This is because it directly affects everyone's compensation, regardless of whether the investment is made in London or in the US or by me in China.”
The one-global-firm structure has created “a very team-oriented culture” at General Atlantic, says Denning. “We aren't in India to try to find companies that are only addressing India as a domestic market or as an export market. We're looking for the best opportunities anywhere in the world that meet our investment criteria.
With the aid of its videoconferencing network, General Atlantic holds investment committee meetings bi-weekly where the various committee members evaluate deals irrespective of geography. As Ford puts it, the firm's professionals evaluating internet opportunities do not weigh, for example, a Chinese investment “in the vacuum of internet opportunities in China.”
If we were interviewing at some of the better business schools, someone from the PRC or India would want to stay and work in the US. You go interview those same people today, and they are just as happy to work in China and India
Denning notes with evident pride that all of the firm's non-US offices are run and staffed entirely by nationals of the respective regions. In recent years, finding top talent for these offices, particularly in Asia, has benefited by what Denning refers to as a “sea change” in the ambitions of young, post-MBA professionals. Three or four years ago, “if we were interviewing at some of the better business schools, someone from the PRC or India would want to stay and work here” in the US, says Denning. “You go interview those same people today, and they are just as happy to work in China and India.”
While General Atlantic will be opportunistic in how it expands, Denning says that given the growth of the economies of China and India, he wouldn't be surprised if the firm adds offices and professionals throughout the region.
If you haven't had an opportunity to commit to a General Atlantic fund, there's reason. The firm does not manage funds in the traditional private equity sense of the term, and it is very selective about who it partners with for capital contributions.
Unlike most blind-pool limited partnerships, which gather commitments at the outset of an investment period, draw down capital as needed and distribute proceeds to LPs on a pro-rata basis, General Atlantic maintains what might best be described as a series of overlapping evergreen relationships with large family groups and a few institutions.
“Capital partners”, as the roughly 20 groups are called, commit to back General Atlantic investment activities for periods of five years, after which they are offered the chance to renew the commitment. The partners may join in at any time, and in any given year a few of the roughly 20 relationships are up for renewal.
Steve has worked very hard with me and the executive committee to really develop a thoughtful transition plan, which is something that is not that common in private equity
Capital partners must commit a minimum of $100 million, and are told to expect to invest roughly $20 million per year for five years. Today General Atlantic has at its disposal about $5 billion in commitments. While the Atlantic Philanthropies remains a significant provider of capital, the largest commitment to General Atlantic's activities today is from the Thomson family of Canada. On the institutional side, the firm draws capital from a small handful of endowments and foundations, and gets support from AIG, with which it has had a strategic relationship since 2000, particularly in Asia, where the global financial services corporation has a long history.
The investment professionals of General Atlantic provide about 10 percent of the capital for all deals. Denning says that in 26 years, only one capital partner has failed to renew their relationship.
General Atlantic is “in active discussions with a few families today”, says Denning.
The overlapping commitment structure, argue Ford and Denning, provides General Atlantic with a stability and long-term outlook that makes it unique among most private equity firms. The staggered commitment renewal schedule means the firm never worries about intermingling of funds or about exiting an investment ahead of a follow-on fundraising, they say. This message is delivered to potential capital partners as well as to potential portfolio company managers concerned about the longterm commitment of General Atlantic. Ford notes that his firm today has nearly 50 portfolio companies, which he argues is high for an investor the size of General Atlantic. He says this high count is due in part to the firm's luxury of being able to hold investments for a long time. “We've allowed to build the firm for a long time. “We've been allowed to build the firm with a sort of perpetual mentality,” he says.
It's hard to find a better case study in the salutary effects of long-term holds and globalisation than the firm's experience with Archipelago Holdings, the electronic securities trading company in which General Atlantic invested $125 million in 2003. Archipelago agreed to merge with the New York Stock Exchange last year and go public. General Atlantic currently owns 5.3 percent of NYSE shares for a value of over $680 million. With Fored as a prominent board member, the value may continue to climb if the NYSE successfully completes its announced merger agreement with Euronext. It's a development that lends further evidence to General Atlantic's core thesis, and the kind of thing that convinces its evergreen partners to make their commitments time and time again.
GENERAL ATLANTIC SNAPSHOT
Headquarters: Greenwich (Connecticut)
Additional offices: New York, Palo Alto, London,
Düsseldorf, Mumbai, Hong Kong
Capital under mangement: $10 billion
President and CEO: William Ford
Chairman: Steve Denning
Total employees: 150
Investment professionals: 90
Senior investment executives: 30
Current portfolio companies: 47
Target investment size:
$50 to $400m in equity per transaction