Advanced lobbying

As public interest grows, private equity is getting organized - witness the trend to highly focused advocacy. By Andy Thomson

With demand growing for greater transparency and regulators beginning to cast an ever more discerning eye over the activities of alternative asset managers, private equity firms find themselves blinking under an increasingly intense spotlight these days. Charles Sherwood, a senior partner at London-based buyout giant Permira, acknowledged this reality in a recent Sunday Times newspaper interview when he said: ?There is going to be increased public scrutiny of private equity. The argument that it's called private equity because it's private is just not sustainable.?

This leads quite naturally to the conclusion that, if private equity is being forced out of the closet, it at least should be letting people see it for what it is, rather than what people assume it to be. And this in turn leads equally naturally to the formation of industry lobbying groups. The most recent example is the formation in the UK of the so-called Initiative for Private Equity Investment Trusts (iPEIT).

iPEIT (www.ipeit.com) has been launched by ten private equity investment trusts listed on the London Stock Exchange with the aim of educating people about their activities and the merits of investing in them. Such trusts invest either directly in a single manager or through funds of funds and account for a total market capitalization of around £9 billion ($17.1 billion; €13.4 billion). Members of iPEITinclude August Equity Trust, Electra Private Equity and Pantheon International Participations.

The organization says it is aiming to be an information source rather than a financial promoter, and will provide data on all 20 PEITs in the UK. Peter McKellar, an investment director at one of these – Standard Life European Private Equity Trust – said: ?This is a segment of the asset class that is not properly represented and is slightly misunderstood, so we felt the need to present the case better.? He said iPEITwould seek to explain phenomena such as net asset value, cash drag and the differences in quarterly rather than daily valuations of portfolios.

Ian Armitage, chief executive of UK mid-market private equity firm HgCapital and an iPEIT committee member, added: ?PEITs have become a holding choice of smart, long term investors and advisers who understand that the best returns are made over years, not months. iPEIT can explain the reason for that.?

The launch of iPEIT appears to be part of a wider trend for the private equity industry around the world to more intensively promote itself and protect its interests. In some less developed markets, industry bodies are only now being formed. For example, the Japan Private Equity Association was launched in August of last year, following a Japanese Ministry of Finance proposal for more punitive taxation of private equity investments by foreign buyout firms investing through partnerships.

In mature private equity markets, underneath the umbrella of regional or national industry bodies, more focused interest groups now appear to be cropping up. For example, in the US, where the venture-oriented National Venture Capital Association (NVCA) has held a monopoly position, a new lobbying group specifically for buyout firms such as The Blackstone Group and Kohlberg Kravis Roberts is being formed. The seriousness of the group's intention to influence lawmakers was underlined when it recently rallied to the cause veteran Washington insider Harry Clark as an adviser.

iPEIT arguably takes the sophistication of lobbying efforts to a new level, representing as it does just 20 firms operating in a small sub-segment of the private equity market. As information on the asset class becomes more widely disseminated, regulators and the general public alike are set to discover that private equity is a far from homogenous entity.

Buyout firms face anticompetitive probe
Several large private equity firms, including KKR and Silver Lake Partners, have received letters from the US Justice Department seeking information related to anticompetitive practices, according to reports. A spokesperson for KKR declined to comment on the reports. The letters seek information broadly related to anticompetitive practices and ask for documents related to auctions going back to 2003, according to a report in the Wall Street Journal. KKR and Silver Lake recently collaborated on a deal to acquire semiconductor company Freescale for $17.6 billion (€13.9 billion). It is unclear what other private equity firms have received similar notices. A source close to The Blackstone Group said his firm has received no such letter. The letters were sent by the New York office of the Justice Department. A small collection of large buyout firms have of the past several years variously joined forces and competed on increasingly larger private equity club deals. In fact, the proponents of multi-billion-dollar buyouts argue that this largest segment of the private equity deal market is the most attractive because the competition is limited to the few players able to write checks of a certain magnitude.

KKR scoops IR talent from Canadian pension
Kohlberg Kravis Roberts has hired Dominique Hansen, a vice president at OMERS Capital Partners. Hansen reportedly left OMERS Capital on October 6 to join KKR's office in Menlo Park as part of the firm's investor relations team. A spokesperson for KKR confirmed to PrivateEquity-Online that Hansen has indeed been hired by KKR, but did not comment on Hansen's new title, where she will be based or her start date. OMERS Capital is based in Toronto and manages private equity investments on behalf of the Ontario Municipal Employees Retirement System (OMERS). OMERS is the fourth largest pension fund in Canada, with over C$40 billion (€28.3 billion; $35.9 billion) in assets under management. Hansen joined OMERS in July 2002 and is one of the firm's seven vice presidents. The 16-person firm also has another senior vice president and two associate vice presidents. According to the OMERS Capital website, Hansen has 16 fund relationships across Canada, the US and Europe.

Esposito joins new secondaries firm as CFO
Gerry Esposito has joined Newbury Partners in New York as chief financial officer. He was previously CFO and chief administrative officer of the private equity group of BNP Paribas, where he oversaw financial reporting and operations for the US private equity arm of the bank. Before that he was a senior manager at Deloitte & Touche. Newbury was formed recently as a spin-out from the secondaries investment division of Auda Advisors. The new firm is led by Richard Lichter, who ran Auda's $410 million private equity secondary fund. Lichter took with him Auda's entire secondary team, including Michael Ireland, Christopher Jaroch, Justin Pollack, David Shyu and Brian Kapetanis.

Liquid Realty adds controller
Liquid Realty Partners, the San Francisco-based secondary investor in private equity real estate funds, has hired Mitchell Otolski as an assistant controller. Otolski will be responsible for accounting, taxation and reporting. He previously was a finance analyst at Gryphon Investors, a San Francisco buyout firm. Before that he was a tax senior at Deloitte & Touche as well as PricewaterhouseCoopers. Liquid Realty's chief financial officer is Andrew Jensen, formerly a senior controller at Gryphon Investors.