Quadrangle makes concessions amid uncertain future

Embattled Quadrangle has reshuffled its management, will implement a European-style waterfall and has told LPs its executives will invest more money into the business.

Quadrangle this week publicly released a letter to limited partners in which it outlines some key concessions as well as leadership changes. The moves follow a tumultuous two-year period during which Quadrangle lost its leader and became embroiled in a major pension scandal.

The firm revealed that co-founder Joshua Steiner would transition to the role of senior advisor, leaving day-to-day management to Michael Huber, currently president and managing principal, and Peter Ezersky, a managing principal.

Andrew Frey and Ed Sippel, both of whom primarily focused on new investments, will leave the firm. To boost Quadrangle’s ability to support existing investments, the firm said Steven Felsher would join as senior advisor from Grey Global Worldwide Group. Thomas Kohut, formerly with Ernst & Young, was also hired as a principal.

Quadrangle has also told LPs its principals will kick in more of their own capital to pay for the firm’s operations, supplementing the management fee. It will also shift Fund II’s distribution structure to a European-style “waterfall”, meaning GPs will not take any carry until they have returned 100 percent of invested capital.

Despite these changes, the firm's future fundraising ability remains unclear. Quadrangle “tested the markets” for a third fund recently, according to one LP, and came away with less support than it needed.

The firm “absolutely” denies it is in wind-down mode and said it will explore various “creative” strategic options going forward. One LP said any future fundraising will depend on the outcomes of Quadrangle’s Funds I and II.

Quadrangle's funds have performed fairly well this year, according to public pension documents. Funds I and II were up 2 percent and 7 percent in the third quarter, and 39 percent and 18 percent respectively year-to-date through Q3. Fund I collected $1.1 billion in 2000 and Fund II raised $2 billion in 2005.

Because of its uncertain future, some market participants have noted Quandrangle's actions were particularly positive for LPs and contrast starkly with other GPs who may not raise another fund yet have done little else besides “sit” on their current funds, collecting management fees.