Azure Capital Raising Third Fund

Azure Capital Partners is targeting $250 million for its third fund, according to a regulatory filing. The San Francisco-based firm officially focuses on early-stage IT investments, but also has been opportunistically seeking out later-stage “orphans” (i.e., companies whose VCs don’t want to invest in follow-on rounds).

Buyout Funds Face Dilemma in Raising RMB in China

HONG KONG (Reuters) - The allure of raising a Chinese currency fund is strong for private equity firms.

But setting up a yuan fund risks alienating private equity’s most prized stakeholders: U.S., European, and Middle Eastern pension funds and fund-of-funds, which have committed billions of dollars to the buyout industry over the last decade.

These investors expect exposure to China deals. Yet they won’t get it through a yuan fund because only Chinese investors are allowed access under current Chinese rules.

While this issue is in its early phases, and may well be smoothed over, it is surfacing with certain investors, including such names as the Blackstone Group (BX.N) and Microsoft’s (MSFT.O) Bill Gates.

The development may complicate China’s moves to draw foreign private equity investors, an effort that has included tax incentives for fund managers who set up in Shanghai, which aims to catch up with Hong Kong, New York and London as a new global financial centre before 2020.

Private equity executives have promised their investors, known as limited partners (LPs), a slice of China’s red-hot economy, either through global funds or Asia-focused funds.

A yuan fund is seen as allowing easier access to Chinese deals and faster closure, but Beijing forbids non-China investors from taking part.

So if you’re The Blackstone Group, which has a global buyout fund active in Asia and is raising a yuan fund, it’s possible for a non-Chinese LP to wonder: Are you going to use my money to invest in China or will you use Chinese money?

Partly to help internationalise its financial centres, Beijing is encouraging global funds such as Blackstone and The Carlyle Group [CYL.UL] to launch yuan funds and set up offices in Shanghai and Tianjin. Neither the LPs nor the private equity fund managers, known as general partners (GPs), want to miss the hot investment opportunities in China.

“Usually the most convincing way to deal with conflicts of interest between RMB and offshore funds is to align their investment scopes and target returns,” said John Fadely, a partner specializing in fund formation at Clifford Chance.

“So that they always invest together, pro rata to their capital commitments, unless that wouldn’t be feasible for some objective, readily understandable reason,” said Fadely.

Fadely acknowledged that China’s regulatory hurdles make this difficult today.

The yuan is also known as Renminbi, or RMB, and was introduced by the Communists and literally means “people’s money”.

In August, Blackstone said it aimed to launch a 5 billion yuan ($732.3 million) fund, one of the first Shanghai-registered yuan private equity funds by a foreign investor. [ID:nN14292761]

An LP source close to Blackstone told Reuters that some investors in the United States had raised concerns about Blackstone’s plan to launch the yuan fund.

The LP source declined to be identified as the source was not authorised to speak to the media.


Blackstone Senior Managing Director Ben Jenkins addressed the issue when asked about it by Reuters at the AVCJ conference in Hong Kong last month.

“First of all, to clarify, we don’t have it (the yuan fund) yet. We are in the process of raising it. We view it very much as additive and complementary to what we are already doing in Asia and China specifically,” Jenkins said.

Foreign limited partners in other dollar funds face the same issue.

The Bill & Melinda Gates Foundation Trust, part of the Gates foundation, decided not to invest in a newer Hony Capital fund partly due to concerns about Hony’s plan to raise money domestically for a yuan fund, according to sources familiar with the situation.

Hony is an influential China fund backed by Legend Holdings, the world’s No.4 PC maker. Despite efforts by its founder John Zhao to clarify that Hony’s yuan fund and its dollar fund would focus on different industries in China, the Gates foundation decided to walk away from Hony’s second dollar fund, said the sources, who were not authorised to speak to the media.

“The foundation doesn’t have information about specific investments as our focus is on grantmaking,” said a Gates foundation spokeswoman, in an emailed response to Reuters inquiries on Hony Capital.

The Gates foundation was a major LP in Hony’s first fund.

For Blackstone, Jenkins’ explanation was on similar lines — different focuses for its dollar fund and yuan fund in terms of deal size.

“The fund, if we are successful, will be 5 billion renminbi, roughly $750 million equivalent, so that is a relatively small fund compared to our current $20 billion global fund,” Jenkins said. “The RMB fund will be making investments in the $25 million to $50 million range, so those are really too small for us to pursue out of the main fund,” he said.

Jenkins also said that for deals worth over $75 million in the mainland and for overseas deals, Blackstone’s dollar and yuan funds would look to invest jointly.

For the first time, the amount of yuan funds exceeds that of dollar funds raised this year for investment firms focused on China, according to the Centre for Asia Private Equity Research (CAPER) in Hong Kong.

Of the money raised so far this year for investing in China, nearly 60 percent were yuan funds, worth nearly 20.4 billion yuan ($3 billion), according to CAPER.

“I think it is a mixed feeling,” said Kathleen Ng, managing director at CAPER, referring to the yuan, U.S. dollar fund dilemma.

“As time goes by, most LPs have come to terms with this reality and accept the fact that an RMB fund is part of the landscape in China’s private equity,” she added. ($1=6.828 Yuan)

By George Chen and Michael Flaherty
(Additional reporting by Farah Master; Editing by Don Durfee and Muralikumar Anantharaman)

Audax Mezz Fund in Market, But Where’s the Close?

Audax Group confirmed today with an SEC filing that it is in the market raising a $750 million mezzanine fund, a follow-up to the firm’s $700 million second fund. The fund was first reported by peHUB in July.

At the time, Audax Co-CEO Geoff Rehnert told peHUB that the firm expected to close on Audax Mezzanine Fund III LP in Q4, however the SEC filing does not indicate any capital raised. I’ve got a call in to Audax about why that is.

The firm’s prior mezz fund may be nearing full deployment, considering it was 70% spent in July.

Unless, of course, mezzanine deal flow has been as slow as it has been on buyout side. A lack of deals is why Audax has held off on formal fundraising for its fourth buyout fund. In the first half of the year, the firm pre-marketed Audax Private Equity Fund IV LP, but decided to wait until it had deployed more of its third fund before raising more. Makes sense, since Fund III was only 50% deployed as of July, even after doing ten add-on transactions this year. That means the firm was sitting on around $500 million of the $1 billion pool, and it hasn’t announced any deals since this summer. I’ll update when I hear back from the firm.

Previously: Audax Buyout Fundraising On Hold, Mezz Fund Full Speed Ahead

PSERS Reports Q3 Results

The State Employees’ Retirement System of Pennsylvania today reported earning 7.1%, or $1.6 billion in the third quarter of 2009. It also reported private equity returns of 7.2% and venture capital returns of 0.1% (both PE and VC returns lag one quarter, so are through June 30).


The State Employees’ Retirement System today reported earning 7.1%, or $1.6 billion, in the quarter ended Sept. 30. The results mark a second consecutive quarter of gains and put the SERS Fund in positive territory for the year, officials said.

“Our year-to-date performance continues to be impaired by the first quarter, when investment markets were still falling sharply,” Chief Investment Officer John Winchester reported at a SERS Board meeting here today. “But thanks to the positive performance in the second and third quarters, the Fund’s cumulative performance through the first three quarters of the year stood at 4.5% as of Sept. 30.” SERS operates on a January-to-December fiscal year.

International stocks provided the strongest performance in the third quarter, returning 19.9%, followed by global stocks at 18% and domestic stocks at 15.4%. The Fund also recorded a double-digit quarterly return on its fixed income investments, at 10.8%.

Other asset classes producing positive quarterly returns were private equity, 7.2%; absolute return (funds of hedge funds), 5.3%; inflation protection (including commodities), 5.1%; and venture capital, 0.1%. The only asset class producing a negative return for the quarter was real estate, at -8.9%. Officials said that reflected the ongoing weakness in the commercial real estate market.

The private equity, venture capital and real estate returns are lagged one quarter, meaning the numbers listed above for those asset classes are actually for the quarter ended June 30.

“We were particularly pleased to see private equity performance begin to recover as quickly as it did,” Winchester said. “Every indication is that the private equity portfolio has continued to gain value since June 30. If that trend holds, it should aid the Fund’s full-year performance.”

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The fund ended the quarter with $23.7 billion in assets, up from $22.6 billion at June 30. The $1.6 billion in investment earnings was supplemented by $145 million in employer and employee contributions, but offset by payouts of $591 million for annuitant benefits and expenses.

In other business, the Board adopted an updated strategic investment plan that anticipates a gradual shift over a multi-year period (and subject to annual review) toward a greater allocation to fixed-income investments in order to meet the liquidity needs arising from a projected increase in benefit payouts as the fund matures. SERS expects to pay out about $2.4 billion in benefits and expenses this year but that is expected to jump to $3.9 billion by 2019.

By major asset class, the current actual allocations, current targets and the newly adopted long term targets are: Stocks, 25%, 47%, 35.5%; alternative investments (private equity and venture capital), 22.1%, 14%, 12%; real estate, 8.7%, 8%, 7%; fixed income, 11.8%, 15%, 32.5%; inflation protection (including commodities) 6.3%, 7%, 4%; absolute return (funds of hedge funds)23.9%, 9%, 9%.

The divergence between current actual and current target allocations in several asset classes reflect the impact of the market turmoil in 2008 and the first quarter of this year, when some asset classes fell faster than others and when SERS elected to sell some more-liquid assets, both in order to ensure sufficient cash on hand to meet liquidity needs and as a safeguard against potential further market declines, Winchester noted.

About the Pennsylvania State Employees’ Retirement System
Established in 1923, SERS is one of the nation’s oldest and largest statewide retirement plans for public employees, with assets of more than $23 billion and more than 219,000 members.

Gilde Healthcare Raising Growth Equity Fund

Gilde Healthcare Partners is raising upwards of €50 million for a growth equity fund that would focus on European healthcare companies. It has already closed on an undisclosed amount of capital commitments.


Gilde Healthcare Partners (Gilde), a European private equity firm specializing in healthcare, today announced the launch of a new growth capital fund, Gilde Healthcare Services. The fund will invest in specialized clinics, providers of elderly care, prevention, screening and other fast growing healthcare services in The Netherlands and surrounding countries. The fund addresses the shortfall in bank finance in the healthcare sector and will provide growth capital to fast growing healthcare services companies. Apart from the new fund, dedicated to healthcare services, Gilde manages two healthcare technology funds.

Gilde Healthcare Services is one of the few European private equity funds raised in 2009. The fund is backed by a mix of institutional investors, family offices and private investors. Gilde is in advanced talks with additional investors and expects the fund size to exceed EUR 50 million in the course of 2010.

“We believe this successful fundraising in the current economic climate is a validation of our strategy. With our hands-on, specialized investment approach we will facilitate the growth of a variety of healthcare service companies.” said Jasper van Gorp, Investment Director. “The healthcare sector is transforming rapidly and via Gilde Healthcare Services we provide investors a unique opportunity to participate in fast growing healthcare services.”

About Gilde Healthcare Partners

Gilde Healthcare Partners is headquartered in Utrecht, The Netherlands and manages EUR 300 million (USD 450 million) in three investment funds. Gilde’s healthcare technology funds, Healthcare I and II, invest venture capital in therapeutics, diagnostics, medical technologies and biotech. The newly raised Gilde Healthcare Services I fund provides growth capital to healthcare services companies.
Gilde Healthcare Partners is a successful builder of healthcare businesses across Europe. By investing in companies with clear deliverable business models, Gilde applies its financial resources, partner expertise and business network to create significant value for both its investors and the entrepreneurs it backs.

First Round Capital’s Got Talent

First Round Capital has outdone itself. Not with a new investment, but with a new video holiday card.

You might remember last year’s infectiously joyous effort, which involved First Round partners dancing with each of their portfolio companies (a spoof on the Dancing Matt phenomenon). This time they’ve set their sights on another, and more recent, viral superstar:

Catalyst Venture Partners with iAxil

Catalyst Venture Partners of the UK has formed a European/Asian partnership with iAxil, a Singapore-based venture accelerator arm of Ascendas. The effort ”will support and assist both European-based companies wishing to access the Asian market, and Asian-based companies seeking to penetrate European markets.”


Catalyst UK and Singapore based iAxil, the venture accelerator arm of Asian conglomerate Ascendas, have joined forces in a unique European/Asian partnership.

The co-venture will support and assist both European-based companies wishing to access the Asian market, and Asian-based companies seeking to penetrate European markets.

The partnership offers companies an inside track into each market. It will develop contacts, carry out due diligence on potential partners/customers and negotiate deals.

Richard Turner of Catalyst Venture Partners forged the deal said:

“This is such an exciting time in the development of east/west trading relationships. I am delighted that we can offer our portfolio and other companies access to such a high quality partner in the East”.

Tay Li Ling, Senior Vice President of iAxil, commenting on the partnership, said:

“Catalyst have such an excellent understanding of technology companies and European markets I am delighted that we can offer this service to our companies”

About iAxil (

iAxil is a one-stop centre providing a total solution to help entrepreneurs launch and grow their ventures. Leveraging on more than 10 years of experience, they have grown into one of the region’s leading venture accelerator centres offering entrepreneurs and start-up companies access to venture capital, business planning, financial modelling, market intelligence, deal structuring, recruitment of talent, branding, access to international markets and quick start-up space. They also provide consultancy services to help corporate and government clients to establish, develop and run incubators and incubation programmes.

iAxil was founded in 1994 and to date has helped more than 185 start-up companies. Some of the successful start-up companies include Sinomem Technology Ltd (listed on the Singapore Exchange), Pharmesis International Ltd (listed on Singapore Exchange) Cassis International, Triangle Technologies, Lightspeed Technology and InfoTalk Corporation.

About Catalyst Venture Partners (

Catalyst Venture Partners are a corporate finance and fast growth advisory firm specialising in the environmental technology, healthcare, software and media. Since its foundation in 2000 Catalyst has worked with over 50 start-up and early stage companies. We work with ambitious and entrepreneurial led companies who are at the early and expansion stage of their development. We help companies: recruit key staff; find investor directors, develop growth strategies and raise funding. We focus on companies seeking to raise equity between GBP500,000 and GBP5 million.

CCB Launching $1 Billion Hong Kong Fund

SHANGHAI (Reuters) - CCB International (Holdings) Ltd, a wholly owned investment banking arm of China Construction Bank Corp (0939.HK) (601939.SS), is close to launching a $1 billion private equity fund in Hong Kong, CCB International CEO Hu Zhanghong told a conference on Wednesday.

The private equity fund is planning to take a 15 percent stake in Bank of Shanghai, Hu told reporters on the sidelines of the conference. HSBC (0005.HK) (HSBA.L) also holds a stake in unlisted Bank of Shanghai. (Reporting by Samuel Shen and Edmund Klamann; Editing by Jonathan Hopfner)

CITIC Raises 9 Billion Yuan for PE Fund

SHANGHAI (Reuters) - CITIC Securities (600030.SS), China’s biggest listed brokerage, will close its first private equity fund next week after raising about 9 billion yuan ($1.3 billion), and is considering raising funds overseas, a senior executive said on Wednesday.

The local-currency fund, to be managed by CITIC Private Equity Funds Management Co, will target investments in the finance, consumer, raw materials and machinery manufacturing sectors, said Liu Lefei, chairman of the CITIC Securities unit.

At least 15 Chinese brokerages, including CITIC Securities, Guoyuan Securities 000728.SZ and Changjiang Securities Co (000783.SZ), have obtained regulatory approval to start private equity investments, seeking to expand revenue as competition intensifies in the brokerage and investment banking businesses.

“China’s financial reform has just started, so there are many investment opportunities in this sector,” Liu, former chief investment officer at China Life Insurance (2628.HK) (601628.SS), told a conference in Shanghai.

“There are also huge opportunities in machinery manufacturing, as China is and will continue to be the workshop of the world,” Liu said, adding that rapid economic growth and urbanisation would boost the consumer sector.

Liu said he was considering launching U.S. dollar-denominated funds to raise money overseas, seeking to lure foreign investors who are typically more sophisticated than local investors.

“Most cash-rich Chinese entrepreneurs are not willing to have their money managed by others, and often believe they can manage their money better,” Liu said. “Overseas money is more stable, and longer-term in nature.”

He added that it was also difficult to raise money from government bodies or state-owned companies in China due to regulatory hurdles.

Fortune Capital, another Chinese investment management firm, also said on Wednesday that it planned to raise up to $100 million in its first dollar fund to meet rising demand from overseas investors seeking higher returns in China.

The Chinese government has been encouraging the development of the private equity sector, aiming to channel more money into the private sector to help sustain the economic recovery, which has relied heavily on state-backed stimulus. ($1=6.83 Yuan) (Reporting by Samuel Shen and Edmund Klamann)

Pantheon Plugging Away on Secondaries Fund

Pantheon International, a listed UK investment firm, has raised $950 million toward its fourth fund aimed at the private equity secondaries market, according to a regulatory filing. That’s a modest rise from the $343.6 million it had a year ago but a testament to the fact that investors are willing to get behind secondaries funds, slowly.

Pantheon’s fund, Pantheon Global Secondary Fund IV LP, has a target of $4.75 billion according to a regulatory filing. However, an April report from Probitas Partners pits the fund’s target at $3.75, so the $4.75 billion figure may be a hard cap. Its prior effort, a 2006 vintage, had $2 billion in commitments.

I would be willing to wager that the firm lowers its sights. That’s a big fund as far as secondaries go, topped only by Goldman Sachs, Coller Capital, and Lexington Partners. If the firm hasn’t passed the halfway point after a year like this one, I have suspicions about its ability to do so in the future. Indeed, the bloom is off the secondary rose (if it ever was blooming). Buyers of unwanted private equity commitments were the hottest strategy around at the beginning of this year, but the deal flow just hasn’t caught up to the fundraising excitement. Its possible LPs are starting to cool to secondary funds.

Earlier this week David Tom pointed out a key issue facing secondary investors: “Black Friday Syndrome.” It’s the idea that secondary investors, like Black Friday shoppers who put themselves through hell for a few deals, are so hungry to invest in something that they just might buy anything that looks OK, even if they don’t really want it, just to justify the fund they’ve raised. Meanwhile, secondary prices are going up and the feast of amazing deals we all expected seems to exist only in theory. All this bodes poorly for secondary funds currently in the market.

Fort Washington To Buy Sena Group’s Investment Advisory Biz

Fort Washington Investment Advisors has agreed to acquire the investment advisory business of the Sena Group. The deal is expected to bring nearly $1 billion in new assets into Fort Washington’s wealth management group, which currently has around $31 billion in assets under management.


Fort Washington Investment Advisors, Inc. (Fort Washington) announced today a definitive agreement to acquire the investment advisory business of the Sena Group (Bill Sena, Sr., Bill Creviston, Jeremy Moore, Bill Sena, Jr. and Mark Johnson) from Sena Weller Rohs Williams, LLC. The move is expected to increase Fort Washington’s overall assets under management to approximately $32 billion and bring nearly $1 billion in new assets into its wealth management group when the transaction closes in early 2010.

“The Sena Group brings a high level of seasoned guidance and unwavering client focus to the Fort Washington wealth management team,” said Maribeth S. Rahe, Fort Washington’s president and chief executive officer. “Our firms share a common set of values with clients at the core. Together, we look forward to continuing that tradition of trust by remaining focused on client needs and delivering them sustainable results for years to come.”

Sena Weller Rohs Williams (SWRW) will be led by professionals David Osborn, Mike Rohs, Peter Williams, Ed Donohoe and Bill Higgins. The firm will remain independent and will continue to serve its clients with the same personalized investment advisory services that have long been the firm’s hallmark.

Sena Group managers along with several support associates have been offered the opportunity to join Fort Washington’s wealth management team to continue to serve their clients. “The Sena Group has been offering clients portfolio management and financial planning services with a high level of personalized attention since founded by its predecessor firms in 1901,” said Bill Sena, chairman of Sena Weller Rohs Williams. “This transaction allows our team to continue doing what they do best in an environment that leverages the legacy of financial strength and industry leadership of Western & Southern Financial Group.”

“This is a natural evolution for Sena Weller Rohs Williams as we further distinguish ourselves among wealth management firms through a very personalized approach to portfolio management,” said David Osborn of SWRW. “We wish our Sena Group colleagues continued success as part of Fort Washington.”

With the addition of the Sena Group business, Fort Washington’s wealth management team is expected to grow to 13 investment and support professionals with an average of more than 20 years experience in the wealth management industry. Sena Group clients will have access to a wide range of investment strategies from Fort Washington, including fixed income, public equity and private equity.

Fort Washington and the Sena Group are working closely together to assess operations, identify synergies and finalize due diligence to ensure a smooth transition of investment responsibility from Sena Weller Rohs Williams, LLC to Fort Washington. Closing is expected in early 2010 and is subject to typical conditions and contingencies.

About Sena Weller Rohs Williams, LLC
Sena Weller Rohs Williams is a registered investment advisor serving institutions and high net worth individuals throughout the United States. It is based in Cincinnati, Ohio.
About Fort Washington Investment Advisors, Inc.
Fort Washington Investment Advisors, Inc. (Fort Washington), founded in May 1990, is the money management and primary investment arm of Western & Southern Financial Group with more than $29.2 billion in assets.* Fort Washington is a registered investment advisor with expertise in Fixed Income, Public Equity and Private Equity. Clients include institutions and high-net-worth individuals throughout the country. For more information, visit

*As of 9/30/09, does not include Fort Washington Capital Partners Group, the private equity division of Fort Washington Investment Advisors, Inc., with approximately $1.8 billion in commitments under management. Included within this $1.8 billion is $150 million of assets under management and/or advisement by Peppertree Partners, LLC, a wholly owned subsidiary.

About Western & Southern Financial Group
Western & Southern Financial Group (Western & Southern), a Fortune 500 company, is a Cincinnati-based diversified family of financial services companies with assets owned, managed and under our care in excess of $43 billion as of Sept. 30, 2009. Based on Standard & Poor’s ratings, Western & Southern is one of the nine strongest life insurance groups in the world. For more information, visit Western & Southern is the title sponsor of the Western & Southern Financial Group Masters and Women’s Open tennis tournaments.

Turnaround Firm Sun May Be Turning Itself Around

Could Sun Capital be on a roll, after two years of absorbing body blows? I’m not ready to pronounce a turnaround quite yet, but the Boca Raton, Fla.-based firm has scored two impressive exits in the past month and written up its portfolio. It’s even ready to do new deals.

Sun began brightening in October, when it reported modest write-ups for the first half of 2009. Across its portfolio, the firm’s holdings increased in value by 3%, including an 8% write-up for its latest fund. That’s hopeful, although needs to be kept in the context of that last fund being held at 60% of its value at year-end 2008.

That same month, Sun Capital earned back a little respect from investors by allowing them to decrease their commitments to its $6 billion fifth fund. The firm offered to cut commitments by $1 billion, allowing investors to decrease their stakes each by 16.7% and up to 33%, depending on how many chose to do so. That news was welcome to investors and a breath of fresh air to those that felt the firm was deaf to their concerns.

And that was before the firm sold off two investments, earning itself some respectable returns. On November 13, Sun announced the sale of Timothy’s Coffees of the World to Green Mountain Coffee Roasters, Inc. for $157 million. Sun purchased the specialty coffee supplier for $19.9 million in equity, and the sale represents a 5.25x cash-on-cash return and 186% IRR for the firm’s fifth fund, Sun Capital Partners V.

Last week, Sun closed its sale of K.K. Tarami, a Japanese maker of fruit gelatin products. The firm’s fourth fund earned 16.4x its money with a gross IRR of 216%, based on a 2007 investment of $3 million (Sun’s first and last deal in Japan).

In both instances, the firm stressed new product innovation as one of the drivers of profitability and growth. In the case of Tarami, the company was unprofitable at the time of purchase. Through increasing productivity, introducing products and improving material sourcing, the company’s sales increased by 40% and Ebitda increased by 246%.

Now, after extensive cost cutting-$1.3 billion in operating costs since Q4 of last year-Sun Capital’s companies may be poised to exit as the market comes back. Meanwhile, the firm is about to ramp up as a buyer, increasing its deal flow after doing less deals than its usual 20-30 in 2009. The firm plans to increase its deal activity next year, possibly to 2008 levels, when it did 23 deals. Sun Capital was much less active in 2009. The company purchased The Specialized Packaging Group through its paper mill company PaperWorks Industries, and Lang Holdings alongside Catterton Partners out of bankruptcy. It also re-invested in Big 10 Tire and Fluid Routing, two companies it owned which went bankrupt. The firm purchased the assets of Vatter GmbH, a Garman hosiery company and supplier to its portfolio Nur Die Group.

Scott Edwards, a principal with Sun Capital, said the firm does not believe the best time for distressed investing has passed.

“The best returns come not from investing early but more in the middle to end of the cycle,” he said, pointing out that it has become easier in recent months to value and understand what it takes to turn a company around.

The firm’s outlook is positive, Edwards said. “I feel a lot better today than I did back in February of this year,” he said. He listed four reasons for that sentiment:

  • Sun Capital’s fund values are up year to date, as described above.
  • The Ebitda of Sun Capital’s companies is up. “We’ve seen it take off in Q3,” he said, which is a testament that the actions the firm took after Q4 of last year to enhance profitability have worked.
  • The health of the firm’s portfolio is healthier “by every single metric.” That includes everything from liquidity and covenants to operating statistics, he said.
  • The firm has been able to return money to investors.

That doesn’t mean Sun Capital is ready to put the tough times behind it and move forward footloose and fancy free. The firm is concerned about unemployment numbers, as well as underemployment, which is as high as 17%, Edwards said. “That needs to get solved in order for us to see a real rebound,” he said.

It also still has to deal with the past two years of missteps, including 16 portfolio company bankruptcies, multiple rounds of layoffs, quite a few resignations and even its founding partner’s family drama. Moreover, its largest investment, Kellwood, was able to push back its debt maturities until 2014 with a bond exchange, but remained valued in Sun Capital’s portfolio at zero as of October.

So, muted fanfare for now, but that’s a vast improvement from where things had been heading.


PAI Agrees To Fund Cut, Candover Cancels Future Deals

LONDON/PARIS (Reuters) - Disgruntled private equity investors flexed their muscles on Friday, showing embattled buyout firms Candover and PAI Partners they call the shots when it comes to the future of funds and fees.

Crisis-struck private equity house Candover (CDI.L) ditched ambitious plans for its 2008 flagship fund on Friday, shutting off cash supply for further deals, and raising question marks over the firm’s future.

And while PAI investors threw the French buyout house a lifeline, allowing it to continue doing deals, they cut its 2008 raised fund in half to 2.7 billion euros (2.4 billion pounds) and pushing through concessions on fees.

The problems faced by two of Europe’s leading names highlights buyout firms’ fall from grace as investors have lost faith in the asset class following two years of poor returns.

After a torrid year, during which it lost control of luxury boat builder Ferretti, and shocked investors by running out of cash to honour its own 1 billion euro pledge to the 2008 fund, Candover proposed a scale back of future commitments to 100 million euros from 3 billion.

The move will see it retain just enough capital for follow-on funding for oil and gas services business Expro but prevent the firm from doing any new deals.

“I think, over the years, this will be seen as a case study in what can go horribly wrong when you get too ambitious,” said Iain Scouller, an analyst at Oriel Securities.


PAI has faced an equally troubled spell, losing chief executive Dominique Megret to early retirement following a boardroom bust-up and being forced out out of roofing material business Monier by its lenders.

Allowing PAI to get back on the acquisition trail, some 81 percent of investors voted for the fund continuing at half its original size, leaving the firm with 1.9 billion euros available for investment.

But the case demonstrates how private equity firms will have to bend to the demands of increasingly vocal investor groups on issues such as fees and alignment of interest.

PAI will effectively ditch transaction fees — those fees levied on buying and selling portfolio companies — charging only its management fee of around 1.5 percent, a source familiar with situation said.

While out of the market for new deals, Candover will still consider raising new capital for deals once the situation surrounding its 2008 fund has been resolved, a source familiar with the situation said.

Much will depend on how much money Candover can realise from selling existing portfolio companies, as will protecting its four largest investments — Expro, Stork, Parques Reunidos and Alma Consulting — which account for some 75 percent of Candover’s net asset value, Scouller said.

Candover’s fund advisory board has agreed a short extension to the standstill agreement until January 8 to allow the discussions to be concluded.

By Simon Meads and Julien Ponthus


SEC Investigating CalPERS-Broidy Ties

SAN FRANCISCO (Reuters) - U.S. security regulators are investigating possible ties between a former chief executive of California pension fund Calpers and a former Calpers board member, and a financier who has pleaded guilty in a New York pension fund corruption case, The Sacramento Bee said on Saturday, citing court documents.

The U.S. Securities and Exchange Commission has demanded records of any contacts financier Elliott Broidy had with former California Public Employees’ Retirement System CEO Fred Buenrostro and former Calpers board member Alfred Villalobos, among others, the newspaper said.

Broidy pleaded guilty this week to providing nearly $1 million in gifts to New York pension fund officials to win investments for the firm Markstone Capitol Group.

Calpers spokesman Clark McKinley was not immediately available for comment. Broidy’s spokesman declined comment but the financier has said he is cooperating with the SEC.

SEC lawyer Leslie Hakala did not immediately return a phone call for comment.

The California pension fund and other public pension funds across the country have come under increased scrutiny from federal and state officials in recent months for irregularities.

Last month, a Calpers board member agreed to pay $12,500 to settle a campaign contribution dispute related to placement agents, who help sell investments at the pension fund.

Placement agents have also come under increasing scrutiny as a result of a pay-to-play probe in New York that has uncovered a web of connections between placement agent firms, investment firms and public retirement systems across the country.

(Reporting by Poornima Gupta and Jim Christie; Editing by Eric Walsh)


Is Black Friday Syndrome Invading The Secondary Market?

Three years ago, at 4am on the day after Thanksgiving, I rushed my pregnant wife to a Best Buy in Westchester, hunting for a laptop selling far below cost. Expecting to be among the very few crazy enough to shop on Black Friday before sunrise, I was shocked to see a line stretching around the block (including other pregnant women). By the time we were finally allowed into the store, all the best deals had all been snapped up, leaving laggards like us to scavenge through baskets of bargain-priced junk. Determined to have some sort of compensation for our lost hours of sleep, I purchased a deeply discounted DVD— the Arnold Schwarzenegger classic Total Recall. Since this event, I have taken to calling the purchase of a good or service to justify one’s effort “Black Friday Syndrome.”

Now, just a week after Black Friday 2009, I have been asked by several investors in private equity if Black Friday Syndrome might be entering the secondary market for private equity LP interests. Since late summer, we have seen prices increasing in the secondary market. This has been reported by numerous sources and nicely summarized at peHUB by Erin Griffith.

Are secondary investors starting to buy private equity LP interests to justify their fund-raising efforts or is there a more rational explanation? Will buyers be left with the private equity equivalents of Total Recall DVDs? At a secondaries conference I participated in several weeks ago, Dan Primack even speculated that secondary funds will be unable to find investable opportunities and return some of the capital they raised.

Those who believe that Black Friday Syndrome is invading the secondary market point to a need to deploy the large amount of secondary capital raised in 2009. According to Venture Economics, over $15 billion was committed to secondary funds during the first three quarters of 2009, more than double the total amount committed for all of 2008. These commitments also exclude funds-of-funds and other institutional investors who have opportunistically decided to purchase secondary interests in private equity.

Despite the large influx of capital into the secondary market, relatively few transactions closed in the first half of 2009. This disconnect between buyers and sellers of LP interests in private equity has been covered extensively, including in my previous post (The Human Gulf in Private Equity Secondaries).

However, upon closer inspection, the increase in prices in the secondary market is justifiable based on two factors. First, secondary purchases of private equity are typically measured as a discount from FMV— the value of a fund as reported by general partners to their investors. In many cases, FMV continued to decline throughout the early part of 2009. In almost all cases, private equity FMVs have declined on a relative basis when compared to the dramatic public market rally. Therefore, even if secondary funds have maintained a relatively consistent price, the decline of the denominator (FMV) has made the discount to appear to be less. The perceived increase in pricing is in many cases more a function of the declining valuations of private equity portfolios.

Secondly, the increasing stability in the overall economy has made valuations of the underlying portfolio companies easier to determine. As a secondary buyer, we struggled to value companies in private equity portfolios where revenues and profitability had dramatically declined in late 2008 and early 2009. For some companies, a poor Q1 and Q2 2009 reflected a delay of revenue that was subsequently realized later in the year. These stronger companies have often rebounded and are tracking towards growth for the year of 2009. Many other companies were unable to emerge from the financial meltdown. These weaker companies were often shut down or merged in a desperate effort to survive. The difficulty in separating the weak companies from the strong companies during the unprecedented chaos of early 2009 gave seasoned secondary buyers reason for extreme caution.

Despite the rational explanation for the increase in pricing in the secondary market, potential investors should be aware of Black Friday Syndrome when investing with secondary private equity funds. Many firms with limited experience in secondaries have recently raised substantial funds. It is possible that these investors will deploy capital at any cost in order to justify funds raised. As buyers in the secondary market, we have to be cautious of such investors driving prices to potentially inflated levels. Indeed, we have recently seen some portfolios priced as if the risks to the economy have subsided. The restructuring of Dubai World is a stark reminder that the ramifications of the credit crisis still reverberate throughout the world economy. Extreme vigilance is still necessary to avoid Black Friday Syndrome in the secondary market.

David Tom works with VCFA Group, where he focuses on the sourcing of secondary purchase opportunities. You can read his past posts here, or send him an email at


Get Ready For Some Tough Fundraising Times

When your existing LPs refuse to commit capital, you know you’re in for a rough ride. Coller Capital’s latest survey of LPs shows that more than three fourths of LPs will refuse re-ups in 2010 over terms and conditions. It’s not shocking but it means things have gotten worse in the last year, where just 57% said the same thing. Read more details on the survey below.


• Perceptions of private equity have been damaged within many LPs’ own organisations
• Two thirds of LPs have changed how they manage private equity since the credit crunch
• Large growth in capital calls expected in 2010 … and 2010 will be a good-to-great vintage year

Concerns about inadequate GP reporting, conflicts of interest, and fund terms and conditions will lead over three quarters of investors to refuse commitments to new funds from their current managers in 2010, according to Coller Capital’s latest Global Private Equity Barometer.

79% of LPs will refuse re-ups in 2010 because of fund terms and conditions (vs 57% in the Winter 2008-09 Barometer); 76% will do so because of inadequate GP transparency (vs 39% in 2008-09); and 76% will do so because of perceived conflicts of interest (vs 51% in 2008-09).

LPs’ medium-term return expectations have fallen sharply in the last year: the proportion of investors expecting annual net returns of 16%+ over the next 3-5 years has fallen to 29% (from 43% in last Winter’s Barometer). Many LPs report that the poor performance of private equity during the downturn has damaged perceptions of the asset class within their own organisations. In Europe and Asia in particular, half of investors say internal perceptions have been damaged; in North America 28% of investors say the same.

Two thirds of LPs have also changed the way they manage private equity as a result of the downturn: 60% of these LPs say they have changed their risk appetite and investment criteria; around half have deepened their due diligence prior to committing to a fund; and another half have demanded improved reporting from their GPs. 40% of LPs have also strengthened their in-house teams.

Commenting on the Barometer’s findings, Jeremy Coller, CIO of Coller Capital, said: “For many private equity investors it’s a case of ‘once bitten, twice shy’. The growth of private equity as an asset class is inevitable in the long-term, but we should understand that for many LPs, now, private equity is a harder sell internally, and for all LPs, GPs now have more to prove. We should remember, though, that in terms of total capital raised the private equity industry is barely 15 years old. When we look back in a few years, I think we’ll see today’s upheavals as a significant moment in the maturing of the industry.”

Outlook and opportunity
Over three quarters of investors expect a significant increase in capital calls during 2010 – especially North American LPs, 84% of whom expect to see a big uptick in GP drawdowns in the next 12 months. And investors expect this money to be put to good use – 85% of LPs think 2010 will be a good or great vintage.

Two thirds of investors also expect distributions to improve during 2010 – a big turnaround since the summer, when 74% expected distributions to slow. However, most investors (67%) think the improvement in the exit environment will be slight – only one quarter of LPs think there will be a significant improvement in the next two years.

LPs see buyout transactions of less than $1bn in North America and Europe as offering the best private equity investment opportunity, followed by growth capital deals in the Asia-Pacific region. Generally, the best source of good transactions is expected to be GPs buying businesses out of bankruptcy or Chapter 11, and corporations divesting divisions.

– more –

Daniel Dupont, Partner at Coller Capital, said: “It is totally justified that LPs will be more selective, that they will increase their due diligence before committing to a fund and pay more attention to their private equity allocations. However, a majority of them have not lost faith in private equity: 70% of them expect to maintain the same allocation levels in private equity during the course of the next 12 months; 20% of them expect an increase in allocation over the period, whilst only 10% expect it to decrease.”

LPs are far more positive about the near-term prospects for North American venture capital deals (52% of LPs see these as good), compared with the outlook for venture deals in Europe and Asia.

Secondaries market
The Barometer shows how much investor views of the secondaries market have changed in the last couple of years. LPs today see secondaries as an important tool for changing the overall composition and liquidity profile of their portfolios – 92% of LPs now cite the need for liquidity as a reason for investors to sell in the secondaries market (compared with 27% in 2007), and 82% now identify the need to re-balance private equity portfolios (compared with just 39% in 2007).

Placement agents
Most investors (67%) do not expect to tighten restrictions on placement agents in the wake of recent scandals in the industry, suggesting they think they have adequate protections already in place. About 1 in 7 LPs expect to increase their controls on placement agents, even if no new regulation in that area is forthcoming.

- ENDS –
For further information on Coller Capital’s Global Private Equity Barometer, please contact any of the following:

Chris Tofalli +1 914 834 4334
Chris Tofalli PR, New York

Notes to Editors
LPs (Limited Partners) are investors in private equity funds. GPs (General Partners) are private equity fund managers.
Coller Capital’s Global Private Equity Barometer is a unique snapshot of worldwide trends in private equity – a twice-yearly overview of the plans and opinions of institutional investors in private equity based in North America, Europe and the Asia-Pacific.

This latest Barometer captured the views of 108 private equity investors from around the world. The Barometer’s findings are globally representative of the LP population by: investor location; type of investing organisation; total assets under management; and length of experience of private equity investing.
About Coller Capital
Coller Capital, founded in 1990, is the leading global investor in private equity secondaries – the purchase of original investors’ stakes in private equity funds (venture capital, buyout and mezzanine) and the acquisition of portfolios of companies or stakes in companies, from institutions, corporates, government bodies and family offices. Our investment in any one transaction ranges from $1 million to more than $1 billion. Coller Capital’s latest fund, Coller International Partners V, has capital commitments of $4.8 billion from 200 of the world’s leading institutional investors.
Coller Capital’s name is synonymous with the development of the secondaries market. In 1994, the firm launched the first European secondaries fund, and in 1998, the first global secondaries fund. Coller Capital has also been responsible for many of the industry’s most notable transactions, including: the $1 billion purchase of NatWest’s private equity portfolio from the Royal Bank of Scotland; the first major purchase of a corporate venture portfolio – 27 technology companies from Lucent’s Bell Labs; and the acquisition of a $900 million portfolio from Abbey bank.
For more information about Coller Capital, visit the firm’s web site at:


Lone Star Funds Raised $1.2 Billion for Real Estate Deals

(Reuters) - Private equity real estate group Lone Star Funds [LS.UL] has raised more than $1.2 billion for two funds that will invest in commercial real estate and securities, Bloomberg said, citing a person familiar with the matter.

The firm, led by John Grayken, has secured pledges for more than $500 million for Lone Star Fund VII and about $725 million for Lone Star Real Estate Fund II, the news agency cited the person as saying.

Lone Star was not immediately available for comment by Reuters outside regular U.S. business hours. (Reporting by Santosh Nadgir in Bangalore; Editing by David Holmes) ((; within U.S +1 646 223 8780; Outside U.S +91 80 4135 5800; Reuters messaging:


Hudson Clean Energy Seeks Late Stage Clean Energy Growth Plays

(Reuters) - Private equity firm Hudson Clean Energy Partners said on Thursday that it has closed its first fund, having raised more than $1 billion to invest primarily in the emerging green technology sector.

The fund’s major investors include pension funds, both public and private, and financial institutions, the group told Reuters.

Investment areas that interest Hudson Clean Energy Partners are wind, solar, biomass, energy efficiency and energy storage.

The fund would look at grid-scale energy storage as well as automotive applications, said John Cavalier, managing partner.

The group, which is a late-stage expansion growth capital fund, invests about $50 million to $150 million on average in one transaction. It typically does not invest in early-stage technology.

The fund is looking to invest in about 10 to 12 green companies over the next couple of years,

Founded in 2007, Hudson Clean Energy Partners is led by Cavalier, a former vice chairman of Credit Suisse’s investment banking department, and Neil Auerbach, who was previously with Goldman Sachs.

Cavalier said raising the funds was not easy, given the tough economy. “It was very challenging,” he said.

Hudson’s current portfolio includes Element Power, a global utility-scale wind and solar power generator; Recurrent Energy, a distributed solar power company; CaliSolar Inc, a solar photovoltaic wafer and cell manufacturer; SoloPower Inc, which makes solar photovoltaic thin-film cells, and Wind to Power Systems, a Madrid-based manufacturer of power electronics that enable connection of renewables to the grid. (Reporting by Poornima Gupta; Editing by Steve Orlofsky) ((; 415-677-3934; Reuters Messaging:


AIG’s AIA Group to raise up to $10 billion in IPO

(Reuters) - AIA Group Ltd, the Asian life insurance unit of American International Group Inc (AIG.N), could raise between $5 billion and $10 billion in a planned initial public offering, the Wall Street Journal reported, citing people familiar with the situation.

The company would list AIA Group in Hong Kong, the paper added.

AIG was not immediately available for comment by Reuters outside regular U.S. business hours.

(Reporting by Santosh Nadgir in Bangalore; editing by Simon Jessop)


PAI LPs OK Reopening Buyout Fund

(Reuters) - PAI Partners, France’s biggest private equity group, has got the go-ahead from investors to reopen a buyout fund, but on a more modest scale and with governance that is more favourable to them, a source told Reuters.

Private Capital | Financials

“It’s 100 percent certain, the buyout fund is going to reopen, we’re off again,” said the source close to the matter.

The Fifth buyout fund, which has already invested 900 million euros in IT services company Atos Origin (ATOS.PA) and construction materials manufacturer Xella, will be reopened but cut in half to 2.7 billion euros.

The agreement turns the page on a bust-up between the fund and its investors that followed the loss of 256 million euros invested in Monier and the surprise early departure of PAI president Dominique Megret.

PAI declined to comment on the information but said it would make a statement later on Friday.

(Reporting by Julien Ponthus; Writing by Helen Massy-Beresford; editing by John Stonestreet)

((; +33 1 49 49 56 83; Reuters Messaging: