Heart and mind

PRIVATE EQUITY GPS SAY ONE THING ABOUT FAIR VALUE BUT BELIEVE ANOTHER

Irony is defined as use of words to express something different from and often opposite to their literal meaning. What reading, then, should be taken from the many pronouncements by private equity GPs that the asset class ?should move toward fair value accounting? One can almost imagine a wink delivered with this statement.

A number of notable figures in the private equity industry say they think it a good thing that private equity move toward fair value, but wish it didn't have to.

Headway is certainly being made, at least in Europe, toward fair value. In July, speaking at our 3rd Annual European Private Equity COOs and CFOs Forum, Javier Echarri, secretary general of the EVCA, said his association was in the process of promoting the adoption of the recently released EVCA/BVCA/AFIC valuation guidelines to European and UK general partners. While there will certainly be some holdouts, it appears the voluntary guidelines have gained ground. A poll of the audience – the bulk of them private equity firm CFOs – found that more than half had already adopted the guidelines

Headway is certainly being made, at least in Europe, toward fair value. In July, speaking at our 3rd Annual European Private Equity COOs and CFOs Forum, Javier Echarri, secretary general of the EVCA, said his association was in the process of promoting the adoption of the recently released EVCA/BVCA/AFIC valuation guidelines to European and UK general partners. While there will certainly be some holdouts, it appears the voluntary guidelines have gained ground. A poll of the audience – the bulk of them private equity firm CFOs – found that more than half had already adopted the guidelines

Alas, the barbarians of public market accounting have broken through the gates of private equity. An institutional investor that sizes all other assets at fair value now has a hard time explaining to his or her superiors why private equity doesn't act like the others.

None know this better than Clint Harris, the founder of Wellesley, Massachusetts private equity advisory firm Grove Street Advisors, who spoke at our 2005 Private Equity Strategic Financial Management Conference in New York, also in July. After setting forth the case for fair value as an institutionalizing force, he added that, in fact, he personally was more a fan of the hold-at-cost approach. But like many other industry veterans who manage institutional money, Harris knows that these old ways aren't compatible with the broader investment market anymore.

EVCA issues employment law paper
The Tax & Legal Committee of the European Private Equity & Venture Capital Association has issued a special paper examining employment law for European companies. The paper outlines issues for 17 European Union countries and Switzerland. The paper finds that employment laws across the countries are ?reasonably comparable. However, there are also some significant differences, which will hopefully receive the attention of European policy makers in due course. The paper examines the various laws governing recruitment; discrimination; contracts of employment; payments, benefits and taxes; hours of work and time off; transfer of employment; health and safety; and termination. In a foreword to the paper, EVCA secretary general Javier Echarri writes that the association hopes to address ?some of the most important rules for our members' daily business. The EVCA has more than 900 members across Europe.

Carlyle bolsters healthcare team
Karen Bechtel, an investment banker and principal investor at Morgan Stanley for 28 years, has left to co-head Carlyle's burgeoning global healthcare team. Bechtel will be based in New York and work alongside healthcare cohead Robert Dahl. Carlyle's healthcare team is part of the US buyout group, currently investing from the firm's fourth fund, which raised $7.85 billion earlier this year. Currently, four percent of the fund's investments are in the healthcare sector, a number which the firm says will grow. Bechtel was a member the investment committee of Morgan Stanley's private equity division, Morgan Stanley Capital Partners, which recently spun out of its parent company as Metalmark.

ILPA announces GP-LP event
The Institutional Limited Partners Association is planning an event that will allow select general partners to mingle and share ideas with the well capitalized limited partner association. Previous ILPA events have been exclusive to members. The inaugural General Partner Summit will take place in New York on November 1 and 2 and will be invitation only, according to an ILPA announcement. ?For the first time on this scale, General Partners from the world's private equity funds will be able to meet in groups and one-on-one with an international assembly of ILPA's members, according to the announcement. Together, ILPA members represent more than $300 billion in private equity assets, according to the group.

Headway Capital appoints CFO
London-based Headway Capital Partners, the private equity secondaries specialist, has announced the appointment of David Toon as chief financial officer. Prior to joining Headway Capital, Toon was the financial controller for Granville Baird Capital Partners and also group taxation manager for its parent Robert W. Baird Group Ltd. Before Granville Baird, David was the tax manager for Credit Lyonnais Securities in London. David started his career with Pricewaterhouse Coopers in the Tax and Legal Services Division in Auckland New Zealand, where he qualified as a chartered accountant. Headway Capital was founded in 2004 by Christiaan de Lint, Sebastian Junoy and Laura Shen.

NASD provide guidance on outsourcing
The National Association of Securities Dealers (NASD) has issued a notice to members on the growing practice of outsourcing certain activities among its members. The guidance defines when third party service providers are to be considered ?associated persons; accountability and supervisory responsibility for outsourced functions; and activities that are prohibited from being outsourced. In particular, the NASD informs its members that ?a member may never contract its supervisory and compliance activities away from its direct control.?

UK partnership reform delayed by ?personality? conflict
New laws governing partnerships in England, Wales and Scotland are being delayed by unfortunate conflicts over the ?legal personality of the vehicles, according to a recent memo from law firm SJ Berwin. The debate centers on whether partnerships – including the English limited partnerships heavily used by the private equity industry – should have ?legal personalities, or be viewed as entities distinct from the individual partners. The memo notes that the British Venture Capital Association is urging lawmakers to ?push ahead with those parts of the reform that would affect limited partnerships, even if it doesn't proceed with the rest of the reforms. According to SJ Berwin, a delay to the new law may result in the report getting shelved, meaning ?a number of its other proposals – many of which command universal support – will never see the light of day.?

GSC adds REIT, hedge fund
GSC Partners, a New York-based distressed firm that pursues credit-based alternative investments, recently announced the creation of a $200 million (€164 million) real estate investment trust to invest in whole-loan mortgages, bank loans, corporate loans and other asset-backed securities. In addition, the firm hired two distressed specialists, former Lehman Brothers traders Drew Doscher and Jeffrey Horan, to head up GSC Capital, a newly created hedge fund, which will focus on corporate debt and equity investments in the distressed and leveraged markets. The investment firm closed its GSC Recovery II private equity fund in May 2003 on $750 million, topping its 1998 outing by $350 million. It is also reportedly raising a $650 million collateralized loan obligation to invest in middle-market loans.

Reynolds leaves TV for Evercore
Advisory and private equity firm Evercore Partners has hired Fredric Reynolds as its president, chief operating officer and chief financial officer. Reynolds was previously president and CEO of ViacomTelevision Stations Group, the largest such group in the US, according to a press release. Evercore, based in New York and Los Angeles, is reportedly preparing for an initial public offering. Reynolds will report to Evercore co-CEOs Roger Altman and Austin Beutner. ?This is one of the most important developments in the history of our firm, said Altman in a statement. Prior to joining Viacomand its predecessor company, CBS, Reynolds was CFO at Pizza Hut, Pepsi Cola International, Kentucky Fried Chicken and Frito-Lay. Evercorewas founded in 1996 by former Blackstone vice chairman Altman.