Throughout private equity's brief history, the same idea has occurred to opportunistic financial professionals again and again – why not build a firm that can offer advice and/or investment capital to clients. Under this structure, where an opportunity for capital gain is not evident, at least investment banker fees can be captured.
Indeed, a number of private equity firms today, mostly in North America, have affiliated boutique advisory firms (see table). Our list doesn't include the handful of very large financial institutions, such as Goldman Sachs and Bear Stearns, that have significant private equity programs.
It seems that just as each private equity firm announces independence from an advisory firm, a new ?merchant bank? model emerges to capture ostensible synergies between client work and investment work.
The latest departure from an investment-bank linked institution has been Citicorp Venture Capital, which reportedly is leaving the Citigroup family to form an independent firm called Court Square.
This follows the slightly more turbulent departures of private equity teams from JPMorgan and Credit Suisse, which in 2005 throttled their in-house buyout programs under pressure from large private equity investment banking clients. Goldman Sachs, however, has not only resisted these complaints from large clients, but has itself become among the largest private equity players in the world, with oft-reported synergies between its investment banking and investment arms.
A much more gradual shift in this direction can be found in the experience of New York-based media and communications investment firm Veronis Suhler Stevenson. The firm began life in 1981 offering financial services to media companies. A private equity arm was formed in 1987 and, over the years, the private equity activities slowly supplanted the M&A work. Today, VSS is a firm wholly dedicated to private equity investment, with no advisory team, although the firm still produces a well regarded research report each year.
A person close to VSS says the firm decided to dedicate more and more resources and people to its investment activities, until the advisory business was no more.
In the meantime, two other firms are bolstering their own versions of the merchant banking model. In Canada, Genuity Capital Markets, a spin-off from CIBC, has begun a program of private equity investing that is intended to benefit from the intelligence of its capital markets team. In New York, veteran financial boutique Carl Marks & Co. has added a new distressed investment business to compliment the advice it gives to distressed and general M&A clients.
Highland launches jobs outreach
Highland Capital Partners, the Lexington, Massachusetts-based venture capital firm, has become more aggressive in marketing its Highland Career-Net job listings service. Last month the firm emailed to contacts a notice about CareerNet headlined, ?Seeking Exceptional Candidates for Exceptional Companies.? CareerNet, located at the Highland Capital website, lists open positions and many of Highland Capital's portfolio companies. The CareerNet notice allows receivers to sign up for a bi-weekly newsletter, among other options. The email reads, ?To date, Highland CareerNet has placed dozens of individuals at some of the most promising venture-backed companies in the world. Several other venture capital firms, including Kleiner Perkins Caufield & Byers and Sequoia Capital, include job listings on their websites, including listings for ?confidential jobs? where the identity of the company is not made public.
Carlyle LP meeting draws nearly 1000
As many as 900 people were estimated to have attended the annual investment meeting of The Carlyle Group held last month in Washington DC. The global private equity firm currently oversees 42 private funds and has grown to more than $44 billion (€35 billion) in capital under management. At the meeting, the firm was expected to discuss its plans for two new lines of business – a new Middle Eastern fund and a Carlylebranded hedge fund platform. Like other investment meetings, Carlyle's is designed as an annual update of the performance of its funds for the limited partners. But given Carlyle's size, global scope and several strategies, its LP meeting has been has been described by those to have attended as a feat of logistics.
Fund of funds snared in theft charge
The Securities and Exchange Commission last month unveiled charges against AA Capital Partners, a Chicagoand Detroit-based fund of funds that has been charged with misappropriating funds from clients. AA Capital, formed in 1995 through a spinout from ABN AMRO's Fund Investment Group, manages roughly $194 million (€153 million) on behalf of Taft-Hartley plans – pension plans sponsored by labor unions. According to a statement from the SEC, a complaint filed against AA Capital and its president, John Orecchio, alleges that the firm and its president misappropriated at least $10.7 million from clients through a series of false capital calls and expense claims. The fund of funds manager has commitments with Charterhouse Capital, ComVentures, De Novo Ventures, Evergreen, Gabriel Venture Partners, Green Equity Investors, Mission Ventures, Quantum Value Partners, Sterling Capital Partners, The Jordan Company and Veritas Capital.
ABN AMRO sheds tech team
ABN AMRO Capital, the Netherlands-based private equity unit of ABN AMRO, has transferred its information and communications technology (ICT) assets to Favonius Ventures, a ?risk-capital? provider, according to a statement. The investment team overseeing ABN AMRO Capital's ICT investments will also transfer to Favonius Ventures, allowing the bank-affiliated private equity firm to ?focus on its strategy of mid-market buyouts in Europe,? according to Gerben Kuyper, chairman of ABN AMRO Capital. The upsized Favonius Ventures will launch a new ICT fund this year with roughly €150 million in capital.