Listing in London

Financial Services Authority, the UK financial markets regulator, is set to give a boost to private equity firms mulling a flotation of their funds by making a London listing possible.

To date the exchange of choice for buyout fund listings has been Euronext in Amsterdam, because the rules governing the London Stock Exchange forbid investment entities from taking controlling stakes in underlying companies. Buyout firms almost always look for control positions in the companies they back in leveraged deals. Hector Sants, FSA managing director of wholesale business, said in a statement last month: ?However, in the light of feedback and recent market developments, we will be revising a number of aspects including the prohibition on investment companies taking controlling stakes in the companies in which they invest and keeping our directive minimum listing regime open to overseas investment companies – a route which we think might be attractive for private equity funds.?

The feedback statement on the Investment Entities Listing Review will be published in December together with a further short consultation on revisions to the detail of some of the original proposals and measures to make London a more attractive location for raising capital.

Whether the new directive will spark a rush to market remains to be seen. Both Kohlberg Kravis Roberts's and Apollo Management's Euronext funds, the two vehicles that sparked interest in private equity listings and prompted the FSA consultation, have been trading at a significant discount to net asset value.

Doughty Hanson, the first European firm to state its intention to float a fund, cited the performance of the two pioneers as its reason for pulling the plug on its own offering.

No other firms have thrown their hats into the ring, despite much talk among investment bankers, who promote the fund listings and who stand to make lucrative fees from successful offerings.

Sants said: ?We hope these measures will help London to maintain its position as the prime center for raising capital in Europe.?

Fortress Investment to go public
The New York-based alternative investment giant has filed to go public on the New York Stock Exchange. The firm is seeking to raise as much as $750 million (€588 million) through the listing of Class A shares, representing 10 percent of the company. Fortress' five principals will control the remaining 90 percent of the firm through Class B shares, according to the firm's S-1 filing with the SEC. Fortress, founded in 1998, reports having $26 billion in assets under management. The firm manages roughly $13.6 billion in private equity assets, including what it calls ?a family of ?long dated value? funds focused on investing in undervalued assets with limited current cash flows and long investment horizons.?? The firm lists $9.4 billion in hybrid and liquid hedge funds strategies. It also controls two publicly traded companies under the ?Castle? brand that invest primarily in real estate and real estate debt instruments. See chart on page 35.

Compensation at hedge funds continues skyward
An annual report conducted by Glocap, Institutional Investor News and Lipper HedgeWorld on hedge fund compensation finds the present very bright indeed for industry professionals. This year's study significantly expanded the scope of the data to include most infrastructure roles. The study analyzed 850 executives at 325 US hedge funds and reports that 2006 compensation across all titles and functions exceeded 2005 levels. Among the milestones detailed was that average compensation for investment professionals with over ten years of experience at the largest hedge funds exceeded $1.5 million per year for the first time. The most experienced traders at top performing funds received an average total compensation of over $580,000, while COOs at the largest funds earned an average total compensation in excess of $800,000.

German debt clampdown looms
According to a client note issued by London-based law firm SJ Berwin, the German Federal Ministry of Finance is considering restrictions on the levels of debt that can be used in German private equity investments. The news comes hard on the heels of proposed new rules that would make it tougher for GPs to enjoy the tax advantages of investing in Germany through a Luxembourg holding company. SJ Berwin said the double whammy would mean that ?in a worst case scenario?private equity funds would have to restructure both their non-German holdings and their German investments.? The proposals have underscored suspicion that the German government is notably less enamored with buyouts, especially those with significant leverage.

?Finder's fee? trustee pleads guilty
Stuart Levine, a former trustee of the Illinois Teachers' Retirement System (TRS), plead guilty in late October to ?extorting hundreds of thousands of dollars in kickbacks from investment firms seeking to do business? with the state pension, according to a pension press release. Levine and a consultant, Tony Rezko, would pocket finder's fees from investment firms that had secured investment commitments from the state, according to Levine's plea. Rezko was a top fundraiser for Illinois Governor Rod Blagojevich. Finders' fees are prohibited in Illinois except for those charged by ?legitimate marketing companies and investment bank placement operations,? according to the statement. Earlier this year the pension system filed a law suit against Levine, the TRS outside counsel Steven Loren and Loren's law-firm colleague Joseph Cari, a former partner of private equity firm HealthPoint. The suit is seeking the reinstatement of $3.9 million in legal fees and other monetary damages.