Philip Jensen

HOW IS ADMINISTERING PAUL CAPITAL'S DIVERSE PRODUCTS DIFFERENT FROM OVERSEEING ?REGULAR? PRIVATE EQUITY FUNDS?
From an operational standpoint, we probably have much more significant cash flow in and out of our business than most direct investment firms because we are paying capital calls and receiving distributions on a daily basis. So much of our activity here is set up on supervising, receiving information from those underlying investments, evaluating that information for reporting to our investors and managing the significant cash flows in and out of our portfolios. I don't think most direct investment firms are as dependent on managing cash flows; they don't tend to have significant events on a daily basis.

HOW DO YOU MANAGE HIGH CASH-FLOW ACTIVITY?
To manage cash flows, we have what we call our management company controller's organization, which in effect acts as a treasury department. They do the financial management of the firm itself as opposed to the funds, but they also manage all the treasury activities, cash flows in and out of the fund so they're the people responsible for the moving of the cash. Then we have accounting teams dedicated to each product line including a controller and fund accountants for each to provide supervision and manage the financial reporting for those funds.

HOW HAVE YOU STRUCTURED YOUR TEAM SINCE YOU JOINED IN 2001?
I joined at a time when the firm was branching out into the three product lines and undergoing very rapid growth. Consciously, we focused on bringing people in with specialized experience. We brought in people with specific experience, for instance, in investor services, financial management processes and information technology. We brought in people from the broader financial services industry who understood how to manage customer accounts and manage cash flows and set up reporting systems and so forth.

I work closely with all the professionals in the business to evaluate what the operational needs are, but ultimately I was responsible for developing a design for the administrative organization. So the primary responsibility fell upon me to design the organization, lead the development of business processes and determine the skill sets that we needed in the organization.

WAS IT DIFFICULT TO JOIN A PRIVATE EQUITY FIRM WITH NO PRIOR PRIVATE EQUITY EXPERIENCE?
It was not difficult to join Paul Capital. I spent 12 years in public accounting and in many respects a private equity firm is very much like a professional services firm ? it tends to attract high caliber professional people so I felt the culture of the firm was similar to that of other professional services firms. On the operational side, I spent 10 years before coming to Paul Capital in chief financial officer roles in different corporate situations that were very operationally intensive ? large companies that had large financial operations and large transaction volumes. So coming here it was not difficult to evaluate what the business requirements were here for businesses processes and technology that had to be developed to support the firm. In many respects it's a natural fit. Most operational activities of a private equity firm that are really not that different from processes that are used in other types of businesses.

HOW HAVE THE NEW VALUATION RULES IMPACTED YOUR JOB?
Where the new interpretations of valuation rules like FAS 157 present the greatest challenge to us is in our secondaries business. We have a wide range of private equity fund investments in our portfolio, many of which use non-compliant valuation techniques. Some older funds carry their investments on a tax basis, some of them carry on a cost basis, or sometimes we have smaller funds that are just not very sophisticated in the valuation process. Our team spends a lot of time understanding the valuation approaches in detail and determining whether we will have to adjust values for the portfolio interests in some of these funds to comply with GAAP valuation methods. There is a challenge in the secondary business where we don't have direct control or the valuation process; generally we would prefer to have the valuation work performed by the general partner.

On the healthcare side, in some respects, our valuation approach is more straightforward and consistent the analysis we perform when originally making an investment.

On the fund of funds side, for the most part, our portfolio is not as diverse as our secondaries portfolio. Most of them are in US venture firms have done a very good job of stepping up to the valuation requirements so we seldom have to make any changes to valuations that comes in that portfolio.

WHAT HAVE BEEN THE EFFECTS OF THE RECENT INVESTMENT BANK OF IRELAND MADE IN YOUR FIRM?
Bank of Ireland hasn't invested in the firm as a whole. We formed a joint venture where Bank of Ireland put capital into the fund of funds business to allow the business to grow and we provided our traditional private equity expertise to that business. The bank is very interested in frequent communication but is not actively engaged in the day to day management of that business.