Sageview to create unique bank investing vehicle

The KKR-spinout is looking to sign up state pensions to raise at least $1bn for a bank holding company that will buy failed financial institutions.

Sageview Capital, which spun out of Kohlberg Kravis Roberts in 2006, is creating a way to profit from investments in struggling banks while minimising its role in running the bank.

The vehicle, which Sageview is calling Community Bancorp (CBC), could be a way to get around the fear of regulators who are not keen on private equity firms owning banks.

The Oregon Investment Council is considering a $100 million commitment to CBC contingent on the firm raising at least $500 million for the vehicle, according to documents from the OIC. OIC manages more than $68 billion in assets spread across several state pensions.

Community Bancorp will be a bank holding company based in Houston, Texas. The firm is looking for a total equity capitalisation of $1 billion for CBC, though a hard cap has not been established, according to internal documents from the OIC. Sageview expects a first closing in the first quarter of 2010, and a final close in the second quarter.

Sageview will receive a cash fee equal to 3 percent of the total commitments raised, payable in three equal, annual installments.

CBC will look to buy assets and assume debts of struggling banks from the Federal Deposit Insurance Corporation. Sageview anticipates acquiring “three or four” troubled banks in the US over three years that will become platform investments. Each acquisition is expected to need $50 million to $250 million of equity.

CBC will not be structured like a traditional private equity fund, with limited partners. Instead, Sageview is looking to get state pensions – and other similar investors – to contribute capital and take direct ownership stakes in the banks. Sageview expects its existing LPs to commit more than $100 million to CBC, of which $10 million will come from the firm, according to pension documents.

Sageview will receive a cash fee equal to 3 percent of the total commitments raised, payable in three equal, annual installments. CBC’s board of directors will have sole discretion over distributions.

Sageview’s unique investment vehicle could be very important to the future of private equity investments in banks. The FDIC, the main banking regulator in the US, imposed rules on private equity ownership of banks that require firms to maintain a higher capitalisation ratio than other entities – at a leverage ratio of 10 percent. Firms also are required to hold acquired financial institutions for a minimum of three years.

Sageview was formed in 2005 by Ned Gilhuly and Scott Stuart, who had previously worked for KKR. The firm manages about $1.4 billion through a fund that makes non-controlling investments in public companies.

Private equity managers have said bank investing has become less attractive since the FDIC released its rules. Sander Levy, founding partner of Vestar Capital Partners, said at a conference in January that he doesn’t expect to see another deal like the acquisition of failed financial institution IndyMac by a group of private equity firms. That deal took place in January 2009 when an investment consortium that included JC Flowers, Dune Capital, Stone Point Capital and MSD Capital bought the mortgage lender for $13.9 billion.