Dan Primack

Big shakeup in the LP community, as Sheryl Schwarz is out as head of alternative investments at TIAA-CREF. Actually, alternative investments as a dedicated group is basically gone, with the insurance company opting to integrate it into the broader portfolio management and private placements divisions. My colleague Bernard Vaughan first broke the news in Buyouts Magazine. The question now is what happens going forward. TIAA-CREF reportedly had around $10 billion worth of alternative asset commitments as of 2007, and is known to invest in both venture capital and buyout funds. I spoke to a few secondary market sources who said they haven’t heard about a big portfolio coming to market, and most team members still seem to be around (based on emails/voicemails being operational -- whereas Schwartz's are not).

The Forbes brand has always been associated with financial services, but almost always from the media bleachers. Until now. peHUB has learned that a new effort called Forbes Private Capital Group recently launched, with plans to raise third-party capital for private funds and transactions. Much of the marketing will be aimed at wealthy families and individuals -- i.e., Forbes' target market -- although it also will work to raise money from institutional investors. The man in charge is Todd Morley, who isn't new to this sort of thing. In 1999, he co-founded Guggenheim Partners, which now has $100 billion in assets under management. He more recently founded an investment management firm called G2 Investment Group, which is where Forbes Private Capital Group will be housed. "I have a social relationship with some of the Forbes family from my time with Guggenheim, so they are very familiar with what we did over there," Morley says. "I think they saw this as a natural segue from the media business into the financial services business."

I don't usually feel sorry for Bain Capital. Then again, I'm not usually sweating in the middle of May. Guess there's a first time for everything... Private Equity Insider today reports that investors in Bain's tenth buyout fund are "grumbling" about the firm's slow pace of capital deployment. From its story: They’re especially irate about a recent lack of activity from the $10 billion vehicle, Bain Capital Fund 10. In January 2009, six months after the vehicle’s final close, Bain sent a letter to limited partners stating that it was “well-positioned to benefit from the dislocation in the credit markets.” At the time, the fund was 27% deployed and Bain’s declaration seemed to indicate that the Boston firm would increasingly draw on investor commitments. But since then, it has deployed only $800 million more — leaving the vehicle a mere 35% drawn almost two years after wrapping up marketing. First, a few factual points: (1) The fund is actually $10.8 billion, not including a related co-investment vehicle; (2) The fund closed in February 2008; (3) The fund today is around 37% committed, including for the SkillSoft (closed today) and Dow Styron ($700m equity check, closing by end of June) deals.

State Street today released the latest results of its private equity performance index, which tracks over 1,700 partnerships with combined assets of around $1.6 trillion. These numbers are through the end of Q4 2009, and (not surprisingly) show a slight increase over the prior quarter and marked improvement over the year-ago period. The IRR (since inception) rose to 11.42% for all funds, with European funds coming in slightly higher at 14.91 percent. One-year returns came in at 15% after more than a year or negative data, while one-year returns for mezzanine and distressed came in at a staggering 35.3 percent. Download the entire release here

My weekly segment with Reuters Insider is about the recent news that Barclays Private Equity plans to spin out of its parent bank sometime this summer, and how the so-called Volcker Rule could cause other banks to shed their in-house PE units. The anchor doesn't ask me but, for the record, I generally oppose this provision (whether it be the current weak language or stronger Merkley-Levin amendment). We also don't get into how the rule could eventually impact insurance company investments in private equity (time constraints and all), but it's a feature to keep ours eyes on. Finally, I should have mentioned that all the proposed legislation has a lengthy phase-in period, so Goldman Sachs Capital Partners, Metalmark Capital, etc. will not be forced to spin out immediately. Per usual, filming just inches away from an ancient washer/dryer set:

Gerry Langeler, a managing director of OVP Venture Partners, has garnered attention this week for a NYT op-ed and CNBC appearance arguing against proposed changes to carried interest tax law. The heart of his argument is the following analogy: “We in the industry invest a small percentage of the total dollars in our partnerships, like the house purchase, with our limited partners investing the rest. Our investments are locked up for prolonged periods of time, often five to 10 years before we see any return. There is a real, material risk of loss of capital. In fact, many venture funds in the bubble lost money, including partners’ capital. Like the house situation, our downside loss potential is ‘fixed’ by what we invested, while our upside is unbounded.” In short: GP=Homeowner and LP=Bank. I emailed – and tweeted – my primary objection to this comparison: Since when have mortgage lenders paid homeowners an annual fee?

It’s become reflexive: Whenever a take-private buyout is announced, class-action law firms begin “investigating” whether the company’s board breached fiduciary duty to shareholders. Never mind if it was a competitive process that produced a 60% premium – suggest bad faith first and ask questions later. But at least these vultures typically wait until the deal is actually announced. Not so with a law firm called Bower Piven, which yesterday announced that it has “commenced an investigation into potential breaches of fiduciary duty and other violations of state law by the Board of Directors of Pactiv Corp. in connection with the possible sale of Pactiv Corp. to Apollo Global Management LLC.” Note the operative word is “possible.” Neither Apollo nor Pactiv have announced anything! All we've got is a WSJ article saying that Apollo has offered to buy the company – at a price higher than where Pactiv has traded for the past several years. And today there are reports that strategic players are jumping into the fray.

Manhattan Growth Partners has launched as a new growth equity firm led by Dean Bosacki (former managing director with Friend Skoler) and Patrick McBride (former partner with The Walnut Group). Bosaki says that MGP is utilizing a fundless sponsor model with several family office investors, although he "hates" the term fundless sponsor: "I just think the traditional private equity fund model is kind of broken, and LPs love the transparency and shorter investment cycle that comes with what we're doing," he explains. A typical MGP deal will involve between $10 million and $15 million of equity, in exchange for control positions in growth-stage companies. No official industry focus, although the partners’ backgrounds would suggest consumer products, lifestyle brands and services.

Today's news cycle is all about Richard Blumenthal, the Connecticut senatorial candidate called out for falsely claiming to have "served in Vietnam" (common mistake -- I used to think I stormed the beach at Normandy). This über-gaffe obviously has nothing to do with private equity, but it's worth taking a moment to remember that Blumenthal is the same guy who once sued one of the world's biggest buyout firms for breach of fiduciary duty: Blumenthal was first elected Connecticut's Attorney General in 1990, and had his first private equity encounter later that decade when the state pension system became emroiled in a massive pay-to-play scandal. Federal prosecutors were responsible for sending then-Treasurer Paul Silvester to prison, but Blumenthal was instrumental in helping to recover certain monies and was widely lauded for efforts to stem government corruption. But it was in February 2002 that Blumenthal really caught the private equity industry's attention. That was when he sued Forstmann Little & Co. for breach of fiduciary duty, breach of contract and securities law violations.

Morgan Stanley Investment Management yesterday announced that it has raised $585 million for a new global secondaries fund. From what I understand, however, there is no LPA provision about what will happen if Congress passes the Volcker Rule. Am I the only one who finds this odd? LPs and GPs plan for all sorts of contingencies when designing fund docs, from key-men triggers to LP default protocols to no-fault divorces. Wouldn’t it behoove both parties to know (officially) what happens if the federal government tells banks like Morgan Stanley that they no longer can house private equity funds?