Erin Griffith

A number of buyout pros have shown concern about a draft issues paper the AICPA released this month. The paper provides guidance on how to estimate fair value, particularly in relation to NAV. I combed through it and have to agree with one LP’s assertion that, “The first page or so is all motherhood and apple pie, but by the time you get to the third or fourth page it hardly makes sense…” Of course, I’m not an accountant, but I think the takeaway is worth addressing. More than one PE pro has expressed frustrations to me over the NAV issue. It seems the paper indicates that PE firms should write down a fund if it is trading at a discount in the secondary market, since that is a tangible transaction to go off of. But that doesn’t seem to add up. A saturated, irrational secondary market that’s influenced by LP cash constraints doesn’t necessarily reflect the worth of the underlying assets in PE funds. Just because a desperate LP sells its interest in a fund for 60% of its value, doesn’t mean that fund won’t yield a return. Add that to the fact that not a lot of secondary trades actually come to fruition.

Guess: Who funded the most expensive inauguration ever? Citigroup, Revlon, D.E. Shaw, and several hedge fund names. (Dealbook) Of Course: Someone will benefit from the Madoff scandal, and it may as well be the journalist who called him out in 2001. She's got a book deal. (Dealzone) Love Him or Hate Him: Timothy Sykes' blog made $83,358 in December. Via Abnormal Returns: Why is it that CEOs take offense at good questions? Partly, because they're encouraged by "hangers on." It's the story of failed CEOs and why capitalism collapsed. (Jeff Matthews)

Despite the difficulties facing first-time private equity funds in the market, it seems that plenty of ‘em are pushing ahead anyways, for better or for worse. Earlier today peHUB highlighted newcomer TZP Group, a lower-middle market investor named for a biblical reference. But there are many, many other new firms on the block, which I would like to highlight in a handy list. In the past six months, peHUB has reported on the following first-time funds:

Add one more to the list of first-time funds in the market. TPZ Group, a lower middle-market PE shop focused on business and consumer services companies. The New York-based firm recently made its first investment, sparking speculation that it it had held at least one close (i.e., saving it from fundraising purgatory). As it turns out, a source says that TPZ has held at least two closes toward an undisclosed target for an undisclosed amount. The anchor investor is a large university endowment. The firm's partners declined to comment on any details.

Not So Vitamin-y: Vitamin Water, which you may remember TSG Consumer Partners made a fortune on, is being sued by health advocacy groups that say Coke (Vitamin Water's parent) is selling "sugar water" and "claiming it has vitamins that boost immunity and reduce risk of disease." But what a great branding strategy. (NY Post) Multi Bylines: Watch out. ABC has launched a special investigation as to what is being done with the billions of taxpayer dollars funneled into TARP. Oh, and they point out that the spokesman for Bank of America has been a jerk. (ABC) Lists: 10 most unethical people in business. Plenty to choose from these days. (Marketwatch via Naked Capitalism) Lifeline to Luxury: NRDC is helping out Lord & Taylor, along the same lines as Leonard Green-backed Neiman Marcus' recent layoff news. Dealzone: Poses a very good question-who is going to buy assets from Citi?

It's been expected for months, even years now, but it finally happened today. The Star-Tribune filed for Chapter 11. The company has been a bruise on Avista Capital’s portfolio almost since firm plunked down $530 million for it two years ago. peHUB has covered the development, or rather, deterioration, of the investment pretty extensively here, here, here and here. For non-subscribers, the gist of the coverage is that the deal was both a failed investment thesis and foolish capital structure. Avista entered

Further proof that the buyout bubble is mirroring the tech bubble: GPs and LPs are speaking in hushed tones about GP clawbacks. Meaning, some firms scored big returns via dividend recaps or regular exits in the early days of their fund and took carried interest on them. But now, the fund’s wheels have fallen off […]

You may remember last month’s mention of an informal survey by Semaphore, a PE advising firm. The survey asked some unusual questions, like “Are you confident in your firm’s CEO?” and peHUB got a preliminary look at the results. Now, the official results are in, and Semaphore was kind enough to give us an exclusive […]

Breakfast Wars: A staunch supporter of breakfast sandwiches, I followed Wendy's foray into the breakfast world quite closely. Sadly, I had a hunch as both a consumer and a witness to the company's investor presentations, that the strategy was doomed from the start. Maybe it'll come back after the recession. (Daily Bread) Finance Comics: Bankruptcy Bill, and haikus. Ups and Downs: Schwarzman gets a little good news this week, after an insider trading scandal tainted his firm. The firm is allowed to walk away from Alliance Data without paying the breakup fee. What's Better For the Economy: Fiscal or Monetary policy? (Daniel Gross)

The mad rush to sell commitments to private equity funds on the secondary market isn't without consequence. PE firms are keenly aware that no more than 2% of a fund’s LP interests can sell on the secondary market. If they do, the fund is no longer protected by safe harbor laws that guarantee that all-important “private” status and, more importantly, “private” taxes. If more than 2% trades on the secondary market, it could be audited and deemed a publicly-traded partnership, or PTP. Examples of PTPs include publicly-traded mutual funds. The PE fund is no longer a flow-through vehicle and, as a result, returns end up being taxed twice (GPs get taxed on the income, LPs get taxed on it after distributions). There also are safe harbors for up to 10% if it is sold in large “block transfers;” ultimately this relates to how many LPs there are. Understandably, some firms are concerned about the number of commitments that their LPs will sell on the secondary market. “The other side of the coin is so draconian,” as one source said. But GPs typically have veto power over secondary sales written into their partnership agreement. So, in order to keep their safe harbor guarantee, a number of firms have told eager-to-sell LPs they’ll just have to wait. Get in line for 2009. One lawyer I talked to said there’s a mega-buyout firm that has a two-year waiting list of eager-to-sell LPs.