In late February, the leadership of New York-based Quadrangle Capital Partners sent its investors an update that began with a declaration that the firm’s goal “has always been to create value for our investors through our private equity investments … we have strengthened our partnership and rededicated ourselves to our core mission of private equity investing”.
This was no doubt a welcome message for the firm’s LPs. A look at Quadrangle’s 10-year history shows a number of no-doubt highly distracting personnel and business-plan shifts that indicate a franchise trying repeatedly and unsuccessfully to expand beyond its mid-market private equity origins.
The firm was founded in 2000 by Steven Rattner, David Tanner, Peter Ezersky and Joshua Steiner, four media and communications investment banking stars from Lazard Freres. On the board of Quadrangle were a number of media titans, including US moguls Barry Diller and Craig McCaw.
Over the past decade, Quadrangle’s two private equity funds have made both good and bad investments, but overall performance has been solid, if not spectacular. The recent investor letter noted that the firm’s $1.08 billion first fund, closed in 2001, has now returned 107 percent of capital to investors. Fund II, which raised $1.8 billion in 2005, has returned 26 percent of LPs’ capital. The California Public Employees’ Retirement System lists that fund has having a 4.7 percent IRR.
Over the past decade, Quadrangle lost two of its founders and launched but then spun out or shut down at least three business lines. A timeline:
March 2002: The firm brings on board two Lazard executives to launch a distressed debt investment division called Quadrangle Debt Recovery Advisors.
February 2006: The firm merges with hedge fund Harpoon Equity Management and rebrands it as a Quadrangle division.
January 2007: Co-founder David Tanner leaves the firm to head up a private equity platform at agribusiness Continental Grain.
June 2007: A Quadrangle London office is launched. Managing principle Gordon Holmes relocates from New York to lead the new European push.
August 2007: The firm announces that managing principal Ed Sippel will move to Hong Kong to open an office there.
September 2007: Yahoo chief operating officer Dan Rosensweig joins Quadrangle’s newly opened Silicon Valley office.
January 2008: Quadrangle’s debt team spins out to found Monarch Alternative Capital.
March 2008: Alice Ruth is hired as CIO of a new division – Quadrangle Asset Management. The group is built largely to manage some $5 billion on behalf of billionaire and New York City mayor Michael Bloomberg.
November 2008: Quadrangle’s hedge fund winds down operations after reported losses and investor redemptions.
February 2009: Steven Rattner announces that he will leave Quadrangle to head up a White House auto industry task force. His departure triggers a key-man event for the second fund. LPs vote to allow the remaining Quadrangle leadership to continue managing the fund.
March 2009: After slightly more than a year with Quadrangle, Rosensweig leaves the firm.
July 2009: Following revelations that he is being scrutinised as part of an investigation into the US public pension pay-to-play scandal, Rattner resigns from the White House task force. Rattner has not been charged with any wrongdoing and Quadrangle Group is not under investigation.
February 2010: Investors are informed that Quadrangle Asset Management will be transferred out of the firm and that headcount has been decreased in the London office. The firm’s website indicates that London is staffed by a single vice president, Sebastien Briens. Holmes is not listed as an employee of the firm.
Quadrangle, now led by co-presidents Steiner and Michael Huber, has told investors that following the departure of Rattner, they discovered that “we inherited an unsustainable cost structure”. The firm has taken steps to strengthen its core focus on investing in media businesses, has increased its Hong Kong headcount, and has strengthened its compliance and IR functions, while cutting other costs.