Contour Venture Partners

Contour Venture Partners has raised $14.65 million toward a $50 million target on its second fund, Contour Investments II LLC. The New York-based venture capital firm raised $23 million for its debut fund in 2007. This month the firm invested in a Series A round for OwnEnergy, a wind energy developer based in Brooklyn. Last year the firm led a Series A round of investment in Punchbowl Software Inc., a Framingham, Mass.-based operator of an event-planning website. The firm exited SwapDrive Inc., a Washington, D.C.-based provider of Web-based storage solutions, when the company sold to Symantec Corp. in September 2008.

Next: Columbia Capital

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Columbia Capital

Columbia Capital is raising its fifth venture capital fund to invest in wireless, broadband, enterprise and media companies. The fund, called Columbia Capital Equity Partners V, has a $650 million target. The fund, in tandem with a parallel overseas fund, has closed on $231.8 million to date. Columbia Capital is also raising a co-investment fund with a $100 million target, bringing the total fundraise goal to $750 million. The firm’s prior fund closed in 2006 with $560 million in commitments.

NEXT: Catterton Partners

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Catterton Raising Top-Off Fund; New Fund Coming “In The Future”

Catterton Partners is raising additional capital for its sixth fund, a reflection of the difficult decisions facing buyout firms seeking capital in a dismal environment.

The Greenwich, Conn.-based firm, which last year was expected to come to market with a full-fledged seventh fund, is now seeking to “top off” its sixth fund with an additional $200 million, according to a regulatory filing. The capital raised for Catterton Partners VI-B LP will not be used to support existing investments from the sixth fund; rather it will be used to make new investments alongside the fund’s remaining capital, according to a person familiar with the situation. Catterton had invested almost 60% of fund six as of August 2008.

The effort is not a replacement for Catterton Partners’ seventh fund, a person familiar with the situation said, as that will be raised “in the future.” In August 2008, peHUB reported that the firm was preparing to launch a full-fledged fundraising campaign for fund seven with an expected target of $1.25 billion to $1.5 billion.

Raising “top-off” capital for an existing fund has become more popular in the past year with the decline in the fundraising market. (Catterton’s new capital is not considered an “annex fund,” in which firms raise extra capital to support existing portfolio companies.) A number of firms have successfully raised top-off funds with the aim to invest the capital in new investments. Village Ventures has raised $27 million in new commitments from existing limited partners, which will be added to a $105 million Fund II that originally closed in 2006. KPS Capital topped off its $1.2 billion third fund with an additional $800 million.  MDV and Graphite Capital are both in the process of raising annex funds.

The reason behind Catterton’s decision to raise interim capital likely stems from the unwillingness of cash-strapped LPs to make large commitments. Investors should not be scared by the firm’s track record. In the past year Catterton earned a strong return on two exits: The firm earned around 7x its investement in natural pet food maker Wellness Pet Foods, which it sold to Berwind Group, and it made more than 4x its money when it sold luxury hair product company Frederick Fekkai & Co.

But the consumer products-focused firm isn’t immune to recessionary woes. Portfolio company Lang Holdings, an investment from Catterton Partners V LP, filed for bankruptcy over the summer. The firm agreed to purchase Lang Holdings out of bankruptcy alongside Sun Capital Partners for $25 million. Last year Catterton saw two companies fall into Chapter 11: Sleep Innovations Inc. and Archway Mothers & Cookie Co.

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Live-Blogging Buyouts Texas: Fund-Raising Panel

Greetings from Dallas, where Buyouts Texas has just gotten underway. Beginning at 10:45am ET is a fundraising panel, with:

* Tripp Brower, Managing Partner, Capstone Partners
* Colin McGrady, Managing Director, Cogent Partners
* Kent Muckel, Chief Investment Officer, Baylor University
* Bill Quinn, Chairman, American Beacon Advisors
* Garth Troxell, Partner, Altius Associates

Get the live-blog below:

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CalPERS Launches Placement Agent Review

Just got back to my hotel room in Dallas, and was greeted by an enormous stack of papers sent over by CalPERS.

The first one is a press release, announcing that the pension system is “initiating a special review of the fees paid by its external managers to placement agents and their related activities.” The rest appear to be disclosures made by various external managers about fees paid to ARVCO Financial Ventures, a placement agent led by former CalPERS board member Alfred Villalobos.

peHUB had previously reported that these documents would be disseminated, and that current CalPERS board member Chuck Valdes is currently under investigation for accepting campaign contributions from Villalobos. The SEC and California Attorney General also are conducting investigations into possible pay-to-play at both state and municipal pension funds in California.

CalPERS so far has learned that external managers paid more than $50 million in fees to Villalobos, including by firms like Apollo Management. In fact, the bulk of the CalPERS documents relate to Apollo, while others relate to Ares Management and Aurora Capital Group.

Worth noting that CalPERS could have known about these fees from the get-go, if it had instituted even a modest disclosure policy (it added one recently, and a related state law was signed yesterday). The reason anyone cares is that CalPERS is twofold: (1) How much does someone like Villalobos stand to gain by trading on his CalPERS board relationships; and (2) How much is CalPERS indirectly paying Villalobos, since external managers generally pay placement agents from the pot of management fees contributed by limited partners.

As I’ve said repeatedly over the past year, this is far from over…

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You Can’t Separate Government from Venture Capital

peHUB is hosting a cleantech event in Boston later this month, with a focus on helping investors and executives navigate Washington D.C.’s regulatory and financial landscape. We’ve got a great panel but, truth be told, one of the first cleantech VCs I reached out to turned me down flat. His brief email reply was as follows:

“Thanks, but no, not my thing, getting money from governments. Others are more expert and better at holding their noses.”

I didn’t think too much of his response at the time, except that it further confirmed libertarian sentiments that he’s expressed elsewhere. But then I (finally) got around to finishing Josh Lerner’s new book Boulevard of Broken Dreams, which focuses on the historical relationship between government, entrepreneurship and venture capital. One takeaway was that the VC – and others who think like him – are ignorant of the role that government has played in the VC industry’s formation and sustenance.

For example, Lerner writes about how the rise of Silicon Valley was largely on the back of U.S. military contracts, particularly at pioneering companies like Federal Telegraph, Magnavox, Fairchild Semiconductor and Hewlett-Packard.

Moreover, the federal SBIC program helped build the Bay Area and Route 128 ecosystems that enabled VC-backed companies – and VC firms themselves – to thrive. Finally, the Labor Department’s 1979 clarification of the “prudent man” rule enabled pension fund managers to begin investing in high-risk asset classes like venture capital (not to mention that most or today’s large VC firms receive tons of their own capital from public sources).

To be clear, Lerner’s book is not a wet kiss to Washington or state governments. He finds plenty of faults, and spends most of his time uncovering lessons that should be learned. But he also acknowledges historical realities, which conflict with the notion that venture capital’s “thing” doesn’t involve government involvement on the financial or regulatory fronts. Failing to recognize that history may lead to failing your portfolio companies and, ultimately, your investors.

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Omega Funds Buys Lombard Odier Stakes

Omega Funds, a direct secondaries firm focused on the healthcare sector, has completed three transactions, totaling 25 companies at an original sellers’ cost of more than $125 million. The only identified seller was Lombard Odier, which sold stakes in nine portfolio companies.

PRESS RELEASE

Omega Funds (Omega), a leading healthcare-focused direct secondary investor, announced today the recent completion of three transactions including a direct secondary transaction with Lombard Odier, a Swiss private bank. The transactions comprise a total of 25 companies, for an original sellers’ cost of more than $125 million.

Through the transaction with Lombard, Omega acquired a portfolio of nine life sciences companies based in Europe and the United States, three of which are publicly traded. The transaction was financed directly from one of Omega’s latest Limited Partnership vehicles.

“We are very pleased with the outcome of this transaction, and are confident that the companies involved will benefit from working with Omega Funds,” said Alexandre Meyer, Executive Vice President at Lombard Odier. “We were looking for a fund with very specific experience in the direct secondary market, and Omega’s deep experience was a perfect fit. We were impressed by Omega’s knowledge of and insight into the global healthcare industry, by their speed in performing due diligence for the portfolio, and by their structuring expertise. We also appreciated the creativity and collaboration of the entire team in addressing our specific needs in this transaction.”

“We have seen a substantial increase in the supply of healthcare-related portfolios on the market. Secondary deals are becoming a more established route to liquidity for private equity and venture capital investors,” said Otello Stampacchia, PhD, Advisor for Omega Funds. “We believe these types of transactions are particularly well-suited to healthcare companies - both public and private - as they have a long product development life cycle and high capital intensity that can result in some pressure on traditional venture capital funds.”

“We are delighted to have completed this transaction with Lombard Odier, and look forward to supporting the companies going forward and contributing to their development with additional capital and access to our global, specialized network.”

About Lombard Odier

Lombard Odier is the oldest house of private bankers in Geneva. It is among the largest private banking houses in Switzerland and Europe, with a presence in 17 different countries.

About Omega Funds

Omega Funds is a leading venture capital and growth equity investor, specializing in direct secondary transactions within the broad healthcare sector. Founded in 2004, Omega pioneered the healthcare direct secondary market from established venture capital firms. The firm now operates through investment teams based in Boston and London. Omega manages five limited partnership funds and has closed nearly 30 direct secondary transactions from sellers worldwide. Omega has acquired more than 110 underlying equity positions, and is actively deploying capital into new investments from its latest fund. For further information, please contact Omega at info@omegafunds.net.

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$700 Million is the New $1 Billion in Fundraising

Many buyout firms would like to join the $1 billion club, and they’re so very close. Before the recession, it was almost assumed that your average-performing $700 million firm would come back to market with a $1 billion vehicle. Not the case anymore. As one LP said, “$700 million is the new $1 billion.”

The latest example of this leveling-off of fund sizes is Snow Phipps Group. The New York-based buyout firm has come to market with a $700 million target for its second fund — only a slight jump from its $620 million debut vehicle. “Everyone expected they would raise $900 million or more,” said a source familiar with the situation. Snow Phipps declined to comment.

The firm was founded in 2005 and invests in middle-market companies in the specialty franchising, basic and process industries, apparel and luxury retail, media technology, specialty finance, IT services and telecommunications equipment and industrial components sectors.

A similar “adjusted target” situation occurred with Arlington Capital, which was expected to graduate from a $585 million fund to the $1 billion mark on its third vehicle. Instead, the fund has a $750 million target. The firm’s former placement agent, UBS, viewed even that increase as too steep, leading Arlington Capital to drop UBS for Credit Suisse.

Previously: Arlington Capital Partners Circulates PPMs

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Mass PRIM Bails on Four Hedge Funds

BOSTON (Reuters) - Massachusetts will remove $1.6 billion from hedge fund managers Blackstone (BX.N), Crestline, EIM Management, and Strategic Investment Group as it rethinks its investment strategy after suffering recent heavy losses.

Trustees for the roughly $40 billion fund voted on Tuesday to scrap the four firms, who all invested money in portable alpha, a once popular technique used by pension funds to try and beat markets that underperformed during the financial crisis.

“This is a strategic shift and not a dissatisfaction with the individual managers,” the pension fund’s chief investment officer Stanley Mavromates said.

The Massachusetts state fund, which has bet on hedge funds since 2004 and has long delivered some of the strongest returns among U.S. public funds, had allocated 5 percent directly with hedge funds and had a 6 percent portable alpha investment, leaving it with an 11 percent allocation to absolute return strategies. The state will keep the five managers it uses to make hedge fund investments.

Battered by heavy losses, the trustees voted two months ago to scrap the portable alpha strategy and reduce the fund’s overall allocation to alternative strategies to 8 percent. (Reporting by Svea Herbst-Bayliss; editing by Gunna Dickson)

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First Reserve Adopts UN Investment Principles

First Reserve Corporation, an energy-focused buyout firm based in Greenwich, Conn., has adopted the United Nations’ Principles for Responsible Investing. The principles consist of “a set of global investment best-practices that incorporate environmental, social and governance criteria into investment decision making.”

PRESS RELEASE

First Reserve Corporation, the largest and leading private equity firm specializing in the energy industry, today announced it has adopted the United Nations’ Principles for Responsible Investment (PRI), becoming the first energy-related private equity firm, and one of a handful of private equity firms, to adopt the Principles. First Reserve has also been appointed to a member of the PRI’s private equity steering committee.

Launched in 2006, the Principles are a set of global investment best-practices that incorporate environmental, social and governance criteria into investment decision making with the objective of directly influencing companies to improve performance in these areas.

As part of its commitment to the Principles, First Reserve will, in the course of its examination of a potential investment, consider the ethical, social and environmental integrity of the target investment.

“As a global energy investor, environmental, social and corporate governance issues have always been a meaningful component in our due diligence and investment decision-making processes. We believe that it is imperative to identify and manage ESG issues to mitigate risk and ensure long-term and sustainable value in our portfolio companies” said First Reserve’s Managing Director and Chief Marketing Officer, Cathleen Ellsworth. “Transparency and environmental and social governance is becoming increasingly more important to our investors and broader stakeholders. We believe that First Reserve’s participation with the UN PRI further demonstrates our commitment and leadership in this effort.”

First Reserve recently announced the closing of its global buyout fund, First Reserve Fund XII, L.P. With total commitments of close to $9 billion, Fund XII is the largest buyout fund ever raised in the energy sector and is the largest raised by First Reserve.

ENDS

About First Reserve

First Reserve is the world’s leading private equity firm in the energy industry, making both private equity and infrastructure investments throughout the energy value chain. For more than 25 years, it has invested solely in the global energy industry, and has developed an unparalleled franchise, utilizing its broad base of specialized energy industry knowledge as a competitive advantage. First Reserve invests strategically across a wide range of energy industry sectors, developing a portfolio that is diversified across the energy value chain, backing talented management teams and building value by building companies. Further information is available at www.firstreserve.com.

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Airborne Puts Drama Behind It With (Brand) New Owners

Airborne Health caused its first private equity owners a bit of a headache, but that didn’t stop the nutritional supplement company from taking another dose of buyout money.

The company today sold a controlling interest to GF Capital Management, a buyout firm based in New York. The deal included a co-investment from a new fundless buyout firm called Stockton Road Capital and small equity contributions from senior management.

Stockton Road Capital was founded six months ago by Joe Rhodes, a former partner with Charterhouse Capital. At Charterhouse, Rhodes led the firm’s consumer products investments, including a deal for nutritional products company Amerifit Nutrition. Airborne Health is Stockton Road Capital’s first deal. Rhodes said he plans to continue to seek co-investment deals, using capital from a network of investors. He founded the company six months ago and said he would entertain the idea of raising a proper fund in an improved fundraising environment.

Sawaya Segalas advised the seller, the company’s founder Victoria Knight-McDowell.

You may remember Knight-McDowell, a former second grade teacher, who launched a mildly cheap dig at Summit Partners a year ago through an ad campaign dissing the firm’s management of the company.

I call her move cheap, not because I’m a private equity apologist, but because the company’s troubles stemmed from lawsuits based on false claims and bad evidence that were most likely made while she still owned the company. Before she earned nice chunk of cash selling the company to Summit Partners. Summit may well have been partly responsible for the company’s struggles, too, especially its poorly rated debt after the firm took one of those dreaded dividend recaps. But keep in mind Knight-McDowell was on the board and a minority shareholder during Summit’s ownership, too. Either way, why broadcast it to consumers? Wasn’t the company’s class action lawsuit enough bad press for one year?

GF Capital and Stockton Road Capital hope to move past that, stressing that the company has returned to growth in the past year and remains one of the best-selling products in the “cough-cold category.” The firms brought in Martha (Marti) A. Morfitt to run the company. Morfitt is the former CEO of CNS, Inc., another health products company which Sawaya Segalas advised in a sale. Under Morfitt’s leadership, the company will invest in marketing and development of new products. “The business has worked with the government to bring its marketing in line with regulations, and is in a nice growth trajectory now,” said Rhodes.

GF Capital raised its first fund in 2007 and received a $15 million investment from New Mexico Educational Retirement Board.

Previously:

Airborne Health Founder Slams Summit Partners

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BDCs Are Going For SBICs

BDCs (business development corporations) are now able to qualify for SBIC licenses, which are “back in vogue” with the benefits of access to low-cost capital, according to Mark Kromkowski, a private equity partner at law firm McGuireWoods LLP.

SBICs (small business investment companies) receive up to $150 million in cheap leverage from Uncle Sam. How cheap? “The cost of the SBA’s capital is roughly equal to the 10 Year T-Bills plus 200-225 basis points and is fixed at the time that the SBIC Fund draws down the leverage,” Kromkowski said.

Thanks to a new policy, BDCs can now qualify for SBIC licenses. Mid-market BDC Fifth Street Finance has already applied for one, after its investment committee met in May and received the go-ahead.

Boathouse Capital, a new mezzanine fund formed by former American Capital pros, also applied for an SBIC license. The firm is also in fund-raising mode with a target of somewhere between $75 million and $225 million, peHUB previously reported.

And despite turmoil in the BDC sector, traditional mid-market lenders are considering converting to the fund structure as it may be the most sustainable way to survive the credit crunch. Last month, a source close to Churchill Financial told peHUB that the firm may see the BDC business model as ideal in the aftermath of the credit crunch. “If the BDCs survive mark-to-market, delever and have a pool of assets that post a dividend, they could start to raise new capital,” the source said.

Started in 1958, the SBIC program “remains healthy,” Kromkowski said. It takes anywhere from six months to a year to obtain a license. Kromkowski said the ideal groups for the program have three to five managers who have three to six years of experience together and have exited with an IRR of 10% to 14% or higher. The licensees are able to leverage existing capital by around double and the leverage is available to be drawn down over a five-year period, with repayment within the life of the typically ten-year-long

You can download comments about the SBIC application process and its benefits in an interview with Kromkowski via VentureXpert, a sister product to peHUB, here:

Interview with Mark Kromkowski, a Private Equity Partner at McGuireWoods LLP.

Previously:

The Good News and Bad for SBICs, Per the New Stimulus Bill

What’s Next for Churchill and Peers?

Len Tannenbaum: “There’s Been Major Capitulation”

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CPP Urges PAI Investors To Reject Fund Proposal

LONDON (Reuters) - The Canadian Pension Plan Investment Board (CPP) has asked fellow investors in PAI Partners to reject the buyout house’s plan to slash its fund in half as inadequate, sources familiar with the matter said.

PAI last month proposed shrinking its fifth buyout fund by half to 2.7 billion euros ($4.0 billion) following a boardroom coup which saw chairman Dominique Megret and his right-hand man Bertrand Meunier leave the company. [ID: nLI497838]

CPP wrote to other investors late last month to say it was not prepared to back PAI’s proposal, and would be in touch shortly with a counter-proposal, a source who had received the email from CPP said.

“We are considering that proposal and alternatives to it that might better serve the interests of investors,” said the source, reading from the email.

CPP was not available for comment. PAI declined to comment on what it said was a confidential process.

As sales of private equity-owned companies have ground to a halt, many investors have been starved of cash to back new buyout deals, forcing them to try and renegotiate terms with private equity houses. Any cut in the size of PAI’s fund, which owns stakes in IT services company Atos Origina and building materials firm Xella, would echo similar moves from TPG and Permira, who faced pressure from investors keen to reduce exposure to buyout funds.

One option could be for CPP to demand a steeper cut in the size of the fund, and a second plan could see CPP assemble a blocking minority to push through a winding-up of the fund, the sources said.

While investors may be keen to reduce commitments to private equity, any plan to wind-up the fund or further reduce the size of the fund may hamper the firm’s ability to manage existing investments, another source close to the situation said.

“There is a real concern that a fund reduction of much beyond 50 percent may force the dismantling of the fabric of PAI which would affect the performance of other funds,” the source said.

CPP invested 100 million euros in PAI’s third fund in 2001, 200 million in its fourth in 2005 and committed 350 million to its fifth in 2007, according to data on its website.

CPP has committed some $34 billion to private equity since 2001, of which more that half has been invested. In recent years, it has been boosting its principal investment portfolio, which sees it invest directly in companies, such Alliance Boots, alongside private equity firms.

Investors vote on the proposal tabled by PAI on November 20.

By Simon Meads
(Editing by Dan Lalor) ($1 = 0.6795 euro)

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Laundry Room Chronicles: CalPERS and Pay-to-Play

CalPERS later this week is expected to release several documents related to placement agents who tried — and in some cases succeeded — in getting private equity fund commitments from the pension system. Nothing untoward in that, except that at least one CalPERS board member is being investigated, in part, for accepting campaign contributions from a placement agent who happened to have a batting average that would have made Ty Cobb blush.

Some thoughts, from the laundry room studio:

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VC Fund-Raising: Wait ‘Til Next Year

Venture capital fund-raising hit a 15-year low last quarter, according to data released this morning by the National Venture Capital Association and Thomson Reuters (publisher of peHUB).

Just 17 U.S.-based funds raised $1.6 billion, which is the puniest display since Q3 1994 — when 17 funds raised $938 million. I guess VCs could take a bit of solice that the most recent batch raised more capital per fund than did the 1994 crew, but that really would be damning with faint praise.

VC firms had raised $1.96 billion for 27 funds in Q2 2009, and $8.5 billion for 63 funds in Q3 2008.

The quarter’s top fund-raiser was Khosla Ventures, which secured $750 million for its third fund. The only other three firms to raise over $100 million during Q3 were Draper Fisher Jurvetson, Domain Associates and Longworth Venture Partners.

Much of the fund-raising lethargy can be chalked up to LP liquidity troubles, which has caused most cash-hungry VC firms to postpone fund-raising until 2010. There will be a few Q4 exceptions — both Greylock and Highland Capital Partners should hold closes — but LPs are gearing up for a busy Q1.

The counter, however, will be that industry-wide, 10-year returns will fall off a cliff come January 1, once 1999-vintage returns disappear. That won’t scare off too many long-time VC investors, but could dissuade new institutions from signing up.

You can get more detailed data at the NVCA’s website.

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GI Partners Closes Fund III

GI Partners has closed its third fund with $1.9 billion in capital commitments. Limited partners include Florida Retirement System Trust Fund, Teachers’ Retirement System of Illinois, Capital Dynamics and Partners Group.

PRESS RELEASE

GI Partners announces the final closing of its third private equity fund, GI Partners Fund III L.P. (the “Fund”). Since the Fund’s launch, over $1.9 billion in capital commitments were secured in less than one year from leading institutional private equity and real estate investors. The aggregate size represents over a 35% increase from the previous fund and is indicative of strong support from existing limited partners. In addition, a number of new institutional investors committed to the Fund, including Florida Retirement System Trust Fund and Teachers’ Retirement System of the State of Illinois in the U.S., and Capital Dynamics and Partners Group in Europe. Rick Magnuson, Executive Managing Director, noted “Given the difficult economic environment, we are extremely pleased to have grown our base of new investor relationships by more than 50% and to have secured larger capital commitments from almost all of our existing limited partners. We believe this support stems from our consistent, value-based investment strategy that focuses on acquiring undervalued assets and maximizing opportunities within distressed segments of the market.”

Representative investments already completed in the Fund include Ladder Capital Finance, a U.S. specialty finance company created to take advantage of opportunities in the commercial real estate sector; Care Aspirations, a leading U.K. provider of specialist care for severe learning disabilities; and, most recently, FlatIron Crossing, a joint venture with national regional mall operator Macerich Company. The GI Partners team has acquired significant sector and deal expertise through investments such as Digital Realty Trust, a publicly-listed REIT ranked as one of the best performing since its creation by GI Partners in 2004, and The Cambian Group, a leading U.K. provider of specialist psychiatric rehabilitation services and residential education. With a team of 37 investment professionals and approximately $4.0 billion of assets under management, GI Partners seeks to substantially increase the value of its owned businesses through significant EBITDA growth.

Lazard acted as placement agent for the Fund.

About GI Partners

Established in 2001, GI Partners is a private equity firm that focuses on control-oriented investments across North America and Western Europe in asset-intensive businesses or portfolios of assets that are underpriced relative to their intrinsic value. The team focuses on a number of key sectors, including specialty healthcare, asset-backed IT services, leisure, real estate and financial services. Reach GI Partners in Menlo Park, California on telephone +1 650-233-3600 and London, U.K. on +44 20 7034 1120.

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Blackstone Plans Several Portfolio Co IPOs

DUBAI (Reuters) - Private equity firm Blackstone Group is planning to list up to eight of its portfolio companies, according to a source who received a letter the firm sent to investors on Friday.

The letter details that Blackstone is positioning one company — hospital staffing firm Team Health — for an IPO and evaluating the potential for seven others, the source said.

It also says that Blackstone is in the process of five realizations this year — meaning sales of companies it owns. Of these, four have already been announced and one is imminent, the source said.

One of the exits is Kosmos Energy’s Ghanaian oil interests, the source who has the letter said. Sources previously told Reuters that Exxon Mobil has agreed to buy Kosmos Energy’s stake in the Jubilee field. Kosmos is backed by Blackstone and Warburg Pincus.

Those five realizations are expected to generate aggregate proceeds of $2.8 billion, the source cited the letter as saying.

Blackstone was not immediately available to comment.

One problem private equity firms have faced during the market turmoil is the inability to exit investments through initial public offerings or by selling to companies in the same industry as the target — known as “strategic buyers.”

But private equity firms have been making the most of the improved stock markets to exit some of their investments.

Rival Kohlberg Kravis Roberts & Co’s Dollar General filed for an initial public offering of up to $750 million in August and the company is considering others, sources previously told Reuters.

Blackstone’s chief operating officer Tony James said in August that should the markets hold up and continue their present trend, there will probably be some IPOs from Blackstone’s portfolio in the next 12 months, although he stressed he wasn’t promising a lot of exits.

“There are a couple of companies that are definitely candidates,” James said at the time. “There has also been a rebound in the interest of strategic buyers,” he added.

Details from the letter to investors were earlier reported by the Financial Times, which quoted founder Steve Schwarzman as telling investors that “At least for private equity, the worst is behind the industry,.”

Team Health Holdings Inc, a hospital staffing company owned by a unit of Blackstone, earlier in October filed to raise as much as $100 million in an initial public offering, according to a prospectus filed on Tuesday with the U.S. Securities and Exchange Commission.

By Megan Davies
(Editing by Douwe Miedema and Hans Peters)

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Atlas Holdings Raising Proper Buyout Fund

Atlas Holdings is in the market raising its first traditional buyout fund, two sources familiar with the situation said. The Greenwich, Conn.-based distressed investment firm had previously relied on investors to back deals on a one-by-one basis, typically investing large chunks of its own general partners’ capital. That structure is similar to that of its founders’ prior firm, Pegasus Capital. Atlas Holdings’ general partners intend to make an “abnormally large” capital contribution to the fund.

The firm retained the services of Capstone Partners to advise it in raising a traditional fund with a target of $300 million, the sources said. The reason behind the structure is the “size of the opportunity,” one source said. Atlas Holdings invests in lower middle market distressed companies through a distressed debt-for-control, or “loan-to-own” strategy. That method has picked up steam in recent months as buyout pros look to the bankruptcy courts as a source of deal flow. Many buyout firms have expressed interest in the technique but lack the understanding of debt investing necessary to execute. In one recent situation, buyout firm Irving Place Capital partnered with a firm with experience buying distressed debt, OakTree Capital, to purchase control of Chesapeake Corp. via its debt in a bankruptcy proceeding.

That technique has produced strong returns for Atlas Holdings, place it “at the high end of top decile returns” for some of its investors, a source said. The firm entered the market with its new fund in July and hopes to hold a first close by the end of this year or early next year on north of $100 million, a source said.

Atlas Holdings targets investments in the industrial, chemical, agribusiness and financial services industries. The company purchased the Trus Joint Commercial division of Weyerhaeuser in August for an undisclosed amount. In May the firm teamed up with Blue Wolf Capital Management to purchase the Pictou, Nova Scotia, pulp mill, and associated timberlands business, to from Neenah Paper Inc.

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Pre-Marketed Funds “Officially” Enter Market

Judging by anecdotal evidence and dismal Q3 numbers, not too many buyout firms are testing the fundraising market these days. But according to sources, there are a few brave souls out gathering investor commitments, and they have one thing in common. Firms that spent time pre-marketing their fund are finding the time right to officially enter fundraising mode. “Anyone that’s coming to market now has technically been in the market for a long time,” a fundraising source said.

Mid-market firms Mason Wells, and Riverside & Co. officially begun fundraising after several or more months of “testing the waters” and rounding up soft commitments from investors, peHUB has learned.

Mason Wells, based in Milwaukee, had been “beating the trees” with word of their third fund for more than a year before “officially” coming to market two to three weeks ago, a source said. The firm seeks to raise $250 million with a $300 million hard cap, planning a first close in the first quarter of 2010. In 2006, Mason Wells topped its $250 million target with a $300 million fundraise to invest in engineered products and services,

specialty packaging and paper and outsourcing businesses in the upper Midwest. The firm used Forum Capital as a placement agent for that effort. Mason Wells did not return calls by press time.

Riverside Partners pre-marketed its fourth fund for almost a year before entering the market four months ago. As of July, the firm was nearing a first close on Riverside Fund IV, which has a $250 million target, a slight increase from the firm’s $225 million third fund from 2006. The firm specializes in investments in the health care and technology sectors in companies with annual revenue of between $10 million and $100 million. Riverside Partners did not comment on a prior story highlighting the firm’s fundraising efforts.

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CalPERS Disclosure Woefully Incomplete

Last month, CalPERS sent peHUB a list of private equity firms that used placement agents when pitching their funds to pension officials. It included the fund name, placement agent name and whether or not CalPERS invested. It also claimed to represent proposals received by CalPERS between the beginning of 2002 and the end of 2008.

What I’ve since learned, however, is that the list was woefully incomplete.

Take the example of Wetherly Capital Group, which we wrote about earlier today. CalPERS reported that it pitched 10 funds between 2002 and 2008, receiving six commitments (a steroid-induced batting average). But according to new documents obtained by peHUB, Wetherly actually pitched approximately 30 funds during that period — including a couple of “missing” ones that received investments from CalPERS.

A CalPERS spokesman acknowledges that the list was incomplete — a caveat that was included neither on the original list nor in my original correspondance with CalPERS.

We’ve since requested a revised list, and hope to receive it soon. But no idea if this one would be comprehensive. Part of this is simply that CalPERS didn’t require placement agent records until recently, which means that a lot of the new information is based on voluntary submissions by general partner (some of which were in preemptive CYA mode).

But it also reflects how legal, investment and PR staff at the nation’s largest pension fund are desperately playing catchup, amid intense sniffing from media and prosecutorial hounds. I don’t know if CalPERS intentionally misled us or not. What I do know is that it needs to do better.

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