Compliance & Regulation

To list or not to list

A new study compares the pros and cons of limited partnerships and quoted private equity vehicles.

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Limited partnership Listed private equity
Generally has a fixed life of 10 years Usually evergreen
Fixed size Usually fixed size but can raise additional capital (debt and equity) and return capital
Fees typically 1.5-2% of commitments + 20% carry Fees usually much lower than LPs – shareholders often own management company
Can be difficult to sell Shares can be sold in the secondary market
Direct funds tend to be focused Usually well diversified by deal type and vintage
Active management of drawdowns/exposure required Easy to rebalance portfolio private equity exposure
Sometimes offer co-investment opportunities No co-investment opportunities
Tax transparent Company usually subject to at least some tax, though rarely material
Detailed information on the investments available to investors Produce reports and accounts, but full disclosure often limited by commercial sensitivities
Investors can sometimes participate on advisory boards Shareholders not able to participate in the management of the company
Investors can change managers, but usually have few other powers Shareholder democracy
Initially invest at asset value Can often buy at a discount
Realization proceeds are returned to investors Realization proceeds usually reinvested, although some listed funds return capital. There can be cash drag pending reinvestment
High minimum size of investment -and investors need to invest in a wide range of direct funds to diversify properly No minimum size and diversification can be achieved with a smaller number of holdings

Emmerich jumps to First Republic
David Emmerich, a managing director at Citizens Bank and a key pointman in The Private Equity CFO Association, has left to become a managing director at First Republic Bank's new Boston office. Citizens Bank is and will continue to be the sole corporate sponsor of the CFO Association. At First Republic, Emmerich will develop private business and private banking clients and manage relationships. His chief focus will be to build a client roster among private equity firms, which was his primary duty at Citizens Bank. Emmerich began at First Republic in late March. Based in San Francisco, First Republic Bank is an NYSE traded private bank and wealth management firm with total assets of $9.3 billion. The Private Equity CFO Association has approximately 560 CFOs located around the US.

PE firm takes heat for political ties
New York-based Healthpoint Partners, a private equity firm that invests in orthopedic devices, is receiving unwelcome attention from a newspaper article that details political contributions that partners at the firm made to a politician tied to California Public Employees' Retirement System, an investor in Healthpoint's fund. A recent article in the Los Angeles Times reported that Steve Westly, California's State Controller and a member of CalPERS investment committee, received campaign contributions from two Healthpoint managing directors prior to a decision from the pension fund's investment staff to commit to the fund. Westly is currently campaigning to become governor of the state. In the article, a spokesperson for Westly said he would return the $15,000 donated by Healthpoint executives and their family members. The two Healthpoint executives in question were Joseph Cari, a Chicago attorney, and Carl McCall, a former New York Comptroller and gubernatorial candidate. Both have subsequently left the firm. Cari recently pleaded guilty in Illinois on charges related to a kickback scheme involving the state teachers' pension fund.

Report: Buyout firms pondering trade group
The heads of the largest US private equity firms have held informal discussions about creating a trade association to better advocate the role of private equity in the US economy, according to a recent report in the Financial Times. The BlackstoneGroup, Kohlberg Kravis Roberts, Texas Pacific Group and The Carlyle Group are discussing whether to create an advocacy group among just themselves – among the four largest private equity firms in the world – or whether to open the group's membership to other firms. The plans, described in the report as ?early days,? are in response to fears of coming regulatory changes affecting the private equity industry, as well as to negative public and labor-union perceptions of buyout firms. In the US, the National Venture Capital Association acts as a lobbying organization to policy- and lawmakers, but its membership is confined to venture capital firms.

Ontario promotes risk capital
Canada's Venture Capital and Private Equity Association (CVCA) has issued a statement of support for the Government of Ontario's new budget, which promotes the flow of risk capital to early stage Ontario businesses. According to the statement, the new budget includes a C$160 million (US$139 million; €115 million) commitment to ?accelerate commercialization and growth of innovative new businesses,? across the region, according to Rick Nathan, president of the CVCA and a managing director of Goodmans Venture Group. The budget also includes a C$90 million program to encourage the partnering of local venture capital firms, pension funds and the Federal Government in backing early stage Ontario-based companies. In the statement, Nathan said Canada needs to increase its supply of risk capital.