HOW DID YOU COME TO WORK AT CALTIUS?
I was an auditor in the investment services group at KPMG, and when Caltius was formed in 1997 we started doing the audit work for them. I was on the Caltius audit engagement team for two or three years, and I had a chance to meet [CEO] Jim Upchurch, [managing director] Michael Kane and [managing director] Greg Howorth. I came to Caltius in February of 2000, and the relationship that I had formed with them was a major contributor in my decision to join Caltius. I was considering a couple different offers at the time: Two were in investment banking and one was at Caltius. I really liked the culture here at Caltius; it fostered an environment where people worked hard to get good results but had fun while they were doing it. The private equity industry was also very appealing to me from a career perspective.
HOW IS YOUR ROLE DEFINED?
My primary responsibilities include overseeing accounting and financial reporting, investor relations – everything from disseminating financial or investment return information to answering questions about our portfolio company investments or any tax questions our investors have – as well as overseeing the external audit and tax work, our banking relationships (including deposit accounts and capital call lines of credit), Treasury, IT, human resources, and some areas of operations. We don't really have a dedicated COO here, so our CEO, general counsel and I all work together to manage the operations of the firm. We have a controller who has been with us for six years now; she handles most of the financial reporting and human resources elements of the back office. With the closing of Fund IV we brought on another member of the team. She's going to be helping us out in all areas but primarily spending her time on accounting, managing accounts payable, and capital calls and distributions.
HOW DO YOU DIVIDE YOUR TIME BETWEEN THE MEZZANINE SIDE OF THE BUSINESS AND THE EQUITY SIDE?
Because of the nature of the business, I spend more time on the mezzanine side. With debt investments, we have monthly or quarterly interest payments that we need to collect. I prepare the interest payment schedules for all of our portfolio companies, and work with the CFOs at those companies every quarter to make sure they're aware of the interest payment date and the amount due. We've also made a lot more investments out of the mezzanine funds side than the equity funds side mainly due to the fact that the average duration of each mezzanine investment is only about three years as opposed to six or more years for an equity fund investment. We've now invested in over 40 transactions on the mezzanine funds side, and about 15 transactions on the equity funds side. Other elements of our routine are the same for both sides: we have separate weekly meetings to discuss the existing portfolio companies and new transaction opportunities, as well as quarterly valuation and portfolio review meetings for each side.
WHAT ARE YOU DOING TO PREPARE FOR FAS 157?
FAS 157 is obviously something that's going to be on everybody's mind in 2008, whether you're a mezzanine fund or a buyout fund. Since we have been reporting our investments at fair value for many years now, I originally thought it was going to be mostly form over substance, by which I mean we thought that it was going to be a lot more disclosure in the footnotes to the financial statements, as opposed to making substantive changes to our valuation policies and procedures. But about a month ago I talked to our audit partner and she has indicated that there may need to be some changes in the valuation procedures we perform for subordinated loans. I'm in the process of putting together a group of eight or ten CFOs of other mezzanine firms to develop and share best practices in the adoption of FAS 157. It is important to get a sense of how everybody else is dealing with this issue, because I think there's a bit of uncertainty right now over the exact procedures to implement.
WHAT OTHER INITIATIVES WILL YOU BE WORKING ON THIS YEAR?
We'll be spending a lot of time setting up the back office for Fund IV, and getting all of our limited partners set up with IntraLinks. Another thing that we're going to look at this year are some of the third party private equity software solutions. We use MAS 90 as our general ledger program, and we're still using Excel for our financial statements and financial reporting. I'm still looking for a system that combines all aspects of the back office, including the allocation waterfall. We're also going to be looking at our retirement plan and other company provided benefits to ensure that we have the plans that best meet our employees' needs, now and in the future.