News analysis: Quadrangle paid for key man success

Among the information disclosed in the recent glut of CalPERS documents was an interesting item about the Quadrangle Group: the New York alternative investment firm paid a now-departed employee, as well as members of the placement team of UBS, for assistance in managing a key man vote. The employee and UBS were later paid a success fee after the vote. 

The documents outline a key-man event that took place when founder Steve Rattner left the firm in early 2009 to join the administration of US President Barack Obama. The firm’s LPs had the option to terminate the investment period after the key-man clause was triggered.

Quadrangle paid fees to one of its employees, Ivan Nedds, and certain employees at UBS, to help make sure the LPs voted to preserve the commitment period. Nedds was an employee of Quadrangle for 12 years, and until July 2009 was its chief marketing officer. He is not currently listed as an employee on the firm’s website.

Nedds was paid $250,000 for “the successful outcome of the Key Man Election”. UBS, out of a $1 million fee, was paid $250,000 based on the successful outcome of the election, according to the disclosed CalPERS documents.

During the key man period, Nedds “provided advice, had meetings and discussions with limited partners about the Key Man Event and the QCP II [Quadrangle Capital Partners II] Amendment and otherwise performed in the ordinary course of his responsibilities”.

UBS “provided strategic advice about how best to manage the Key Man Event including but not limited to: (i) managing the overall process, (ii) evaluating materials for meetings with limited partners, and (iii) advising on concessions to limited partners”.

In its disclosure, Quadrangle notes that “UBS was not required to have any discussions, contact or correspondence with the limited partners of Fund II with respect to the Key Man Event” – though the document does not say that UBS did not have contact with LPs.

While it’s not unheard of for a placement agent to take on an advisory assignment outside of a straight placement, those assignments usually are connected with a fundraise, a placement agent at a competing firm said.

A seperate placement agents said hiring a placement agent to advise on a key man event outcome with LPs is “unusual”. The success fee is even more unusual. “How was UBS to earn it?”, one placement agent asked.

Many disclosures relate to new investment proposals since May 2009, when CalPERS’ enacted a placement agent disclosure policy. But a number of firms voluntarily disclosed information provided by managers with ongoing commitments to pay placement agents for existing investments.

The disclosures were obtained from more than 90 percent of the fund managers that work with the pension in response to CalPERS’ disclosure policy. The pension has not released the names of the firms that did not comply with the disclosure request.