JP Morgan opens back office

If any firm knows the pain of fund administration, it is JP Morgan Partners, the private equity arm of JP Morgan now in the process of spinning out to form an independent entity. The firm oversees a portfolio of roughly 700 investments of varying stages, sizes and geographic bases, many of them legacies of earlier private equity programs that were folded into JP Morgan, notably Chase Capital Partners.

The job of running the back office for JP Morgan Partners fell to a large in-house team of accountants and administrators. Now that team is open for business to any private equity fund. Last month, JP Morgan announced the creation of JPMorgan Private Equity Fund Services, a division of JPMorgan Worldwide Securities Services. The new business will compete with the handful of other fund administration platforms available to private equity firms.

Just as large limited partners are said to be attempting to reduce the number of GP relationships they maintain, private equity CFOs want to limit the number of service providers they deal with, says Albert Foreman, the head of business development at New York-based JPMorgan Private Equity Fund Services. ?CFOs would rather make one phone call, not five,? says Foreman.

Foreman's group would now like to be the recipient of those key phone calls. The new business has roughly 100 employees and is hiring more, says Foreman. Because of JP Morgan Partners' global activities, the fund administration business has a presence in a number of locations around the world. ?We're a global operator,? says Foreman.

Much of the JPMorgan Private Equity Fund Services infrastructure is based on the Investran system. Services available to clients will include custody, accounting, escrow, tax support, reporting, foreign exchange, cash management, transaction advisory and derivatives.

Foreman says he also hopes to find clients among institutional investors that oversee portfolios of fund commitments and direct investments. JP Morgan itself has a large fund of funds business.

The new business is being led by Robert Caporale, who will in turn report to Michael Clark, the head of JPMorgan Worldwide Securities Services.

JPMorgan Private Equity Fund Services will continue to provide back office services to the newly independent JPMorgan Partners, as well as to JP Morgan's continuing in-house private equity unit, One Equity Partners.

EPA clarifies due diligence standards
The US Environmental Protection Agency in November issued a final rule on due diligence standards related to the purchase of property. The federal Comprehensive Environmental Response, Compensation and Liability Act establishes a standard for buyers to use the shield themselves from liability should the property in question be contaminated. The rule defines ?all appropriate inquiries? necessary for a buyer to prove in the event of a lawsuit. According to a client memo issued by law firm Debevoise & Plimpton, the standard requires that a bona fide environmental professional be retained to interview current and past owners of a property. The EPA generally defines an environmental professional as an environmental engineer or consultant. The new standard is stricter than an existing standard put forth by the American Society for Testing and Materials, according to the Debevoise memo. The final rule will become effective on November 1, 2006.

Change to UK Takeover Code hurts hedgies
A change to the UK's Takeover Code in November will slightly diminish the advantages that hedge funds have in take-private transactions, according to a client memo from law firm SJ Berwin. Hedge funds, which often have the ability to invest across the capital structure of a company, including in derivative instruments outside of the target company, are now subject to increased disclosure on dealings involving derivatives, including contracts for difference and options, during a takeover offer period. According to the memo: ?The UK's rule maker took the view that this activity was in fact having an important impact on the outcome of public takeover bids – because, for example, many of the positions in derivatives are hedge and so create relationships of control over the underlying companies – but was escaping the stringent rules requiring significant stakes in target companies to be publicly disclosed.?

IRS tax rulings to become more common
Private equity firms may now more frequently seek out private rulings from the Internal Revenue Service, particularly with regard to mergers that are intended to be tax free, according to a client memo from law firm Debevoise & Plimpton. Firms may also seek out private rulings on transactions where an existing company is spit into two or several separate companies in what is intended to be a tax-free manner. The likely increase in private rulings is the result of the IRS' decision to increase the number of ruling requests it receives. To do this, the US tax agency has created an expedited process for obtaining such rulings. The IRS will now seek to issue rulings within ten weeks of submission. According to the Debevoise memo, it is frequently possible to gain insight into the speed and direction of an impending ruling, called a ?pre-filing conference.? It is now ?clearly time to rethink the typical decision to avoid applying for a private ruling from the IRS in certain transactions,? according to the memo.

EVCA: Private equity creates jobs
Seeking to counter the public perception in some quarters the private equity firms are destroyers of jobs, the European Private Equity and Venture Capital Association (EVCA) has released a survey that shows private equity and venture capital-backed companies created more than a million jobs in Europe over the last five years. The study, performed by the Center for Entrepreneurial and Financial Studies at Germany's Technische Universitat Munchen, found that between 2000 and 2004 the headcount of private equity-backed companies grew by an average annual rate of 2.4 percent, creating a net total of 420,000 new jobs. Venture-backed companies created a net total of 630,000 jobs, representing an average annual growth rate of 30.5 percent. Sir David Cooksey, chairman of the EVCA, said he hoped the survey would have an impact on government policies in Europe.

Warning on UK promotional websites
The UK's Financial Services Authority (FSA) has issued a ?final warning? to promoters of venture capital trusts (VCTs), the UK's tax advantaged, smaller company investment vehicles. VCTs offer tax breaks and tax relief of 40 percent on the initial investment. Following a survey, the FSA found that 40 percent of VCTs are now purchased directly by investors without benefit of financial advice, and discounts are often offered for purchases made over the Internet. In November, the FSAwarned brokers not to overplay the benefits and underplay the risks of investing in VCTs on promotional websites. To qualify as a VCT, an investment company must invest at least 70 percent of its portfolio in unlisted or AIMtraded companies with gross asset value of no more than £15 million.

China faces backlash on foreign bank stakes
The head of the China Banking Regulatory Commission (CBRC) has defended his agency's policy on allowing foreign investors to buy stakes in Chinese financial institutions. The defense comes in the wake of perceived ?windfalls? enjoyed by some foreign investors that had taken stakes in Chinese banks, including Singaporean private equity firm Temasek. The firm is awaiting final approval to buy a stake in the Bank of China, one of the biggest lenders in China. Through the end of October, the CBRC, led by Liu Mingkang, had approved 19 investments by foreign institutions in 16 local banks. In related news, the CBRC will China will ?appropriately lower? the operating capital requirements applied to foreign banks operating in the country, making it easier for outside entities to set up shop in China.

China to monitor foreign investment in real estate
Amid concerns of a residential real estate bubble, the Shanghai branch of the State Administration of Foreign Exchange recently asked city banks to obtain approval on transactions involving foreign buyers of real estate. The move comes as the Chinese government takes steps to cool the country's red-hot real estate market and as foreign investors increasingly look to China for real estate opportunities. Last June, the government began requiring non-residents to receive official approval for any residential transactions valued at more than $1 million. While regulations can vary between municipalities, in some cities the government has also implemented taxes on flipped properties and bans on selling a property before it is completed.

HSBC launches fund admin business
In December, the Alternative Fund Services arm of global bank HSBC launched a customized private equity administration platform intended to aid the bank's private equity customers. The new platform will support administration including calls, closings, incentive and fee calculations, distributions, P&L allocations, financial and management reporting and analytics. HSBC has already rolled out the service in Bermuda, San Francisco, Hong Kong and Luxembourg, with New York, Guernsey and the Isle of Man to follow in the coming months. According to HSBC, the bank currently has $10 billion (€8.5 billion) in private equity assets under administration being serviced from six locations globally. The new effort will be led by Paul Smith, the head of HSBC's Alternative Services.

Mobius VC names new controller
Becky Meyers has been promoted internally to become the controller of Palo Alto, California-based venture capital firm Mobius Venture Capital. The promotion follows the departure of Amy Castronovo, the firm's previous controller. The current Mobiusfund, MobiusVI, is $1.25 billion and has been invested to date in over sixty technology companies. Companies in Mobius' current portfolio include Infinera, Danger, Feedburner, Impinj, LRN, Perfect Commerce, Postini, Quova, Reactrix, SkyPilot Networks, Sling Media, and Telcontar. Mobius also has an office in Superior, Colorado.