The Annual Review 2009 - PEI Media

INTERNATIONAL 

The Annual Review 2009 

The year of storm and stress

P R I V A T E EQUITY ANNUAL REVIEW 2009 P A G E 1 

E D I T O R ’ S L E T T E R 

The year of storm and stress 

This marks the 10th year that Private Equity International has 

published our highly regarded Annual Review edition. Many 

of you will note we’ve forgone previous cover formats, which 

made use of a road sign indicative of key themes affecting the 

private equity industry. After much deliberation by the edit 

team, we decided that the enormous challenges and fascinating 

opportunities the industry faced in 2009 simply couldn’t 

be surmised with a static symbol. 

We wanted to use an image that suggested irregularity, 

unpredictability, upheaval and change. One that reflected 

extreme – but temporary – volatility. As we reflected on a 

year whose first half was largely characterised by both GPs 

and LPs working to clean up wreckage or prevent damage 

to portfolios, and a second half marked by determination to 

return to normal investment and exit levels, we felt a chaotic 

storm system, a hurricane, was the most appropriate image 

to define 2009. 

Blending insight, analysis and anecdote, the Annual Review 

looks back at the year’s key issues: the near-total lack of leverage 

that brought the buyout markets to a standstill; the struggle 

of GPs desperate to hold on to their portfolio companies; 

the rise of ever-more powerful LPs; the widely anticipated 

secondary market boom that never happened, to name a few. 

We chronicle the year’s top stories (p. 6), from turmoil in the 

placement industry and regulatory threats around the world 

to private equity firms’ evolution and revolution, including 

the restructuring of teams and funds. 

Then there is our annual awards section, where we detail the 

firms and deals the industry itself believes best weathered the 

storm and stress of 2009 (p. 32). Attracting many thousands 

of votes from all over the world, the results provide evidence 

of the still dynamic and diverse nature of private equity. 

Indeed, from where we are today it is clear that some of 

last year’s headlines heralding the industry’s imminent demise 

were clearly exaggerated. Reading back through the pages of 

this publication, it’s apparent that as the decade drew to a 

close, momentum was building yet again and if that momentum 

carries on, 2010 could deliver a turning point for private 

equity. It will by no means be all blue skies and sunshine – for 

if 2009 was extraordinary, 2010 will be, too. But smart and 

hard-working managers will continue to find ways to mitigate 

any weather that comes their way; therein lies the key to longterm 

prosperity and survival. 

Enjoy the Review, 

Amanda Janis 

Senior Editor, Private Equity 

Senior Editor, Private Equity 

Amanda Janis 

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David Snow 

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P A G E 2 P R I V A T E EQUITY INTERNATIONAL F E B R U A R Y 2010 

Contents 

6. Stories of the year 

How private equity fared through a stressful 12 months 

32. The 2009 Global Private Equity Awards 

The votes have been counted. Find out which firms were named as private equity’s 

‘best of breed’ in 2009 

GLOBAL THEMES 2009 

72. The year of the weird 

A staggering amount of capital was raised for secondaries funds in 2009, but the 

expected surge in deal activity didn’t follow suit 

76. The shoe fits 

As illiquidity continues to plague individuals and investment funds, PEI explores 

some innovative secondary transactions that may become more commonplace 

79. LP Outlook 

How LPs used tough fundraising conditions and beleaguered portfolio 

investments to gain greater leverage in their GP relationships 

81. Two decades of giving and receiving 

Tracking capital flows in and out of the asset class since the 1980s 

82. Keeping calm, carrying on 

LPs assess the private equity opportunity going forward 

84. Lessons from the fundraising trail 

GPs who successfully raised capital in 2009 recount their war stories 

86. Regulation roundup 

How a wave of regulation threatens to change life for private equity firms 

88. Law-abiding citizens 

Fund administrators prepare to face the impact of pending regulation on both 

sides of the Atlantic 

90. Four mistakes not to make 

How to avoid fund admin ‘bloopers’ 

NORTH AMERICA THEMES 2009 

92. First Round: North America 

A sideways look at the year’s North American news stories 

94. Time for a rethink 

Excerpts from PEI’s ‘Stateside’ columns show LPs and GPs re-evaluating some 

of private equity’s most fundamental tenets 

96. Healthy returns 

Mid-market firms in the US found success in 2009 through specialisation, 

with healthcare emerging as an increasingly attractive niche 

98. Where to find value in the mid-market 

Q&A with Jeff Collins, Morgan Stanley Alternative Investment Partners 

12 

84 

116 

32 

76 

110

Rare composure. 

In 2009, MVision grew its global footprint, opening in Hong Kong and expanding into new strategies in private 

equity, real estate, real assets, credit and direct transactions. MVision was placed in every regional category 

of the Private Equity International Awards and for the 8th consecutive year was recognised as the leading 

European placement agent. 

www.mvision.com

P A G E 4 P R I V A T E EQUITY ANNUAL REVIEW 2009 

EUROPE THEMES 2009 

101. First round: Europe 

A sideways look at the year’s European news 

103. Facing adversity 

Excerpts from PEI’s ‘In Europe’ columns reveal an industry battling against an 

economic storm and the threat of regulation 

105. The muscular middle 

The European mid-market may well have proved its mettle over the course of a 

tough 12 months 

108. In it for the long run 

Q&A with Wim Borgdorff, AlpInvest Partners 

EMERGING MARKETS THEMES 2009 

110. Learning the lessons 

It was a tough year for Asian private equity. PEI explores five key themes to 

emerge from 2009 

113. Unlevel playing field 

Excerpts from PEI’s ‘Asia Monitor’ columns show the region presenting 

opportunities and obstacles in equal measure 

114. Growing pains 

Central and Eastern European private equity has been dented but not stopped 

in its tracks 

116. Private is the new public 

With Brazil’s public market not so hot, private equity is finally poised for major 

action 

119 Green light for pensions 

Mexico may be set for substantial growth thanks to local institutions finally 

gaining entry to the asset class 

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122 Private equity desert 

MENA experienced a private equity drought during 2009 

125. Gap year 

GPs found it difficult to access Sub-Saharan Africa’s compelling growth opportunities 

DATA ROOM 

127. The year in numbers 

PEI picks telling data points from 2009 

EXPERT COMMENTARY 

129 Perspectives 

Industry figures discuss the year’s emerging trends 

AND FINALLY 

132. Top 10 

PEI’s highly subjective ranking system charts private equity’s celebrity connections 

© PEI Media Ltd 2010 

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S T O R I E S O F T H E Y E A R 2 0 0 9 

In the eye of the storm 

2009 was marked by both a lack of activity and extreme 

volatility. Scarce credit, firm upheaval, strategy changes and 

limited partner negotiations were some of the year’s major 

themes and events we recall over the following pages 

January: Eyes on the Verizon 10 

February: Auto repairs 12 

March: Candover’s darkest day 14 

April: TPG tops list of 300 largest firms 16 

May: The $900m bank job 18 

June: A leader is born 20 

July: Write-down-o-rama 22 

August: PAI under pressure 24 

September: Power shift 27 

October: Moulton moves on 28 

November: Dubai show stopper 29 

December: Taking it to court 31 

Most read stories in 2009 on 

1. ILPA unveils guidelines on carry, fees, key-man 

2. Merrill Lynch private placement team to spin out 

3. Ex-Lehman unit rebrands as Trilantic Capital 

4. TPG tops list of 300 largest firms 

5. Citi to quit third-party fund placement 

6. KKR fund to charge 1% management fee, 10% carry 

7. Moulton resigns from Alchemy 

8. News analysis: Geithner’s plan 

9. PSERS cancels hundreds of millions in commitments 

10. TPG loses $830m on Aleris bankruptcy

Middle East, North Africa & South Asia 

MENASA 

Turkey 

- Acibadem Healthcare 

Group 

- Numarine 

Jordan 

- Jordan Aircraft Maintenance 

- Dead Sea Company 

for Conferences & Exhibitions 

- Aramex* 

- Maktoob* 

Lebanon 

- Spinneys 

Egypt 

- Al Borg Laboratories 

- Orascom Construction 

Industries 

- Spinneys 

- Egyptian Fertilizers 

Company* 

Saudi Arabia 

- Tadawi 

- National Air Services 

(NAS)* 

Countries of investment area 

Countries outside investment area 

Abraaj offices: Istanbul, Cairo, 

Amman, Riyadh, Dubai, Karachi 

* Exited Investments 

Dubai International Financial Centre, Gate Village 8, 3rd Floor, PO Box 504905, Dubai, United Arab Emirates, 

T: +971 4 506 4400, F: +971 4 506 4600, info@abraaj.com, www.abraaj.com 

Abraaj Capital Ltd. is regulated by the Dubai Financial Services Authority

EnginEEring SuccESS 

Abraaj Capital is the largest private equity group in the Middle East, North 

Africa and South Asia (MENASA). Since inception in 2002, it has raised close 

to US$ 7 billion and distributed almost US$ 3 billion to its investors. Based 

out of Dubai, the Abraaj Group operates six offices in the MENASA region 

including Istanbul, Cairo and Riyadh. 

Pakistan 

- Karachi Electric Supply Company 

- Byco (formerly Bosicor) 

- BMA Capital Management 

- MS Forgings 

India 

- ECI Engineering & 

Construction Co. 

- Man Infraconstruction 

- Osian’s Connoisseurs of Art 

Private 

- Ramky Infrastructure 

Qatar 

- Amwal* 

Oman 

- ONIC Holding* 

united Arab Emirates 

- GEMS 

- Gulf Marine Maintenance & Offshore Company 

- Enshaa 

- ART Marine 

- Air Arabia 

- Emirates Heights Development Company


S T O R I E S O F T H E Y E A R 

J A N | F E B | M A R | A P R | M A Y | J U N E | J U L Y | A U G | S E P | O C T | N O V | D E C 

Eyes on the Verizon 

The trade sale of wireless carrier Alltel scored big for TPG 

and Goldman 

With the markets still reeling from the 

shock of the final months of 2008, January 

arrived with the mergers and acquisitions 

market in a near coma. Lehman 

Brothers had collapsed into bankruptcy 

only months before and the global financial 

services industry was on life support. 

Against this bleak backdrop, however, 

two private equity firms achieved 

the largest private equity exit ever. TPG, 

itself smarting from a $2 billion loss on 

an investment in Washington Mutual, 

and GS Capital Partners sold wireless 

carrier Alltel to Verizon for $28 billion 

after holding the company for about 

a year. The two private equity giants 

scored a profit of about $1.3 billion on 

the trade sale. 

The deal would grow Verizon into the 

largest wireless carrier in the US with 

more than 83 million customers. The telecoms 

company used about $5.9 billion 

of equity in the deal and assumed around 

$22 billion of Alltel’s debt. It borrowed 

$12 billion under a year-long credit facility 

to buy Alltel’s equity and repay some 

of the company’s debt. 

GS and TPG had paid $27.5 billion 

for Alltel in 2007. The deal became the 

largest private equity exit ever, followed 

closely by Kraft’s acquisition in 2000 of 

Nabisco for $18.9 billion. ■ 

Wireless communications: a private equity 

bright spot 

BAPTISM OF FIRE 

CalPERS’ new chief investment officer joined the pension at a challenging time 

The largest pension in the US, the California 

Public Employees’ Retirement System, ended 

a seven-month search for an investment chief 

when it hired Joseph Dear, previously the 

executive director of the Washington State 

Investment Board. 

CalPERS had been searching for someone 

to fill the role since June 2008, when former 

chief investment officer Russell Read left to 

pursue cleantech and environmental investing. 

Anne Stausboll, executive director of 

the pension since the end of 2008, had been 

acting CIO. 

Dear joined CalPERS as the pension was 

struggling with an over-weighted allocation 

to private equity, as the value of its overall 

portfolio had dropped in the market downturn. 

When Dear arrived the pension’s assets 

totaled about $178 billion. They have since 

climbed in value to about $200 billion amid 

the wider market recovery. 

Aside from dealing with the downturn, Dear and Stausboll 

were soon to face another challenge. A scandal was to 

develop in New York over the use of placement agents and 

Dear: pushing for alignment 

“finders” – individuals charging managers 

fees to secure pension fund commitments – 

that would quickly spread to California (for 

more on the unfolding scandal, see p.14). 

The pension subsequently created its own 

placement agent disclosure policy in May and 

initiated a “special review” in October of fees 

paid by investment firms to placement agents 

in connection with the pension. 

In his new position Dear has also railed 

against “crummy” terms and conditions that 

have historically been the standard between 

LPs and GPs. 

“I don’t have any objection at all to paying 

a partner a lot of money … as long as we are 

all along on the ride with them and share in 

that gain over the long haul. It’s what the 

system’s about,” Dear said at a conference 

in the spring. 

“There’s always the tendency for [some 

LPs] to accept the terms of the manager 

[because] even with these crummy terms if you’ve got the 

right manager your investment returns will justify that and 

that’s how we’ve excused this behaviour,” he said. ■

Proven track record in raising Private Equity funds 

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! Experience in all Private Equity Segments: 

Buyout, Venture, Infrastructure, Energy, Secondaries, Emerging Markets 

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Global Private Equity is an associate member of AFIC and EVCA




Auto repairs 

Steve Rattner was the first of several private equity titans 

the US government recruited to help restructure struggling 

auto companies, including former Cerberus portfolio 

company Chrysler 

Wheels come off: private equity brings its tool kit 

The Quadrangle Group’s co-founder and 

former managing principal Steve Rattner 

in February left the firm to head up a government 

task force mandated to overhaul 

the American automotive sector. 

“The Obama administration’s selection 

of Steve represents … a rare opportunity 

for him to help facilitate our country’s 

economic recovery,” a statement from 

Quadrangle said at the time. “While we 

will clearly miss Steve, we recognise the 

utmost importance of this appointment.” 

His appointment was particularly noteworthy 

because in addition to being a key 

driver for the US economy and employment 

levels, the auto industry is tied to 

many private equity firms via portfolio 

companies that directly or indirectly participate 

in the sector. One obvious recent 

example of this would be Cerberus Capital 

Management, which in 2007 acquired 

Chrysler, the US’ third-largest automaker, 

in a $7.4 billion deal with about 100 coinvestors. 

As Chrysler continued to struggle, 

Cerberus reportedly shouldered billions 

in Chrysler debt and eventually conceded 

its equity position to help facilitate a government 

bailout programme. This by no 

means appeased the public and politicians 

– the firm was forced to issue a statement 

at one point noting that it was not “a 

deposit-taking institution that can act as 

an ATM machine for its portfolio companies”. 

Despite the restructuring work 

and multiple government rescue packages, 

Chrysler fell into bankruptcy in April 2009 

and agreed to be sold to Italian automaker 

Fiat as part of its restructuring. 

The Rattner-led auto task force was 

able to guide both Chrysler and fellow 

automaker General Motors though bankruptcy 

proceedings to restructure massive 

debt loads. 

In July, Rattner resigned from the 

task force, but that did not end private 

equity professionals’ supervision of the 

restructuring of the troubled auto industry. 

Later that month, US Treasury Secretary 

Timothy Geithner turned to private 

equity veterans to help populate the board 

of the regoranised General Motors. TPG 

co-founder David Bonderman and Daniel 

Akerson, a senior executive with The Carlyle 

Group, were named to the board, as 

was Stephen Girsky, most recently president 

of Centerbridge Industrial Partners, 

an affiliate of Centerbridge Partners. ■ 

DEFENDING THE 

FRANCHISE 

3i made swift moves to shore 

up its balance sheet 

Publicly traded private equity firm 3i 

in February said it would de-list its 

quoted private equity fund, valued 

at £355 million (€400 million; $517 

million). 

The move made it the third global 

private equity group in four months 

to decide to acquire a publicly traded 

affiliate. Both American Capital and 

Kohlberg Kravis Roberts were so disheartened 

by their Euronext-quoted 

vehicles’ performance that they opted 

to de-list them. 

3i floated its 3i QPE fund in June 

2007, raising approximately £400 million 

to invest in listed European smalland 

mid-sized companies without 

taking them private. The aim was to 

apply private equity-style shareholder 

activism to public markets companies. 

“Since the onset of the dislocation 

to the credit markets in autumn 2007, 

3i QPE’s share price has traded at a significant 

discount to its net asset value,” 

3i said in a statement. 

Delisting the fund resulted in a 

£110 million net cash inflow for 3i. It 

was only one of a series of defensive 

moves by the firm, which worked to 

pare down debt throughout the year. 

The group’s net debt had been as high 

as £1.9 billion in March 2009, but by 

the end of August that was reduced to 

£858 million via a series of measures, 

such as the completion of a £732 million 

rights issue, a £60 million sale of 

a stake in its listed infrastructure fund 

and the sale of a large portion of its 

venture capital portfolio. ■

An Industrial Approach to Investing 

TOTAL CAPITAL 

RAISED SINCE START 

€ 13 

BILLION 

ANNUAL 

GROWTH IN NUMBER 

OF EMPLOYEES 

12% 

IN PORTFOLIO COMPANIES 

ANNUAL 

EARNINGS GROWTH 

19% 

IN PORTFOLIO COMPANIES 

TOTAL 

51 31 

RETURN 

INVESTMENTS 

4.5X EXITS 

AMOUNT 

DISTRIBUTED 

BETWEEN DEC 2006 AND NOV 2009 

€4.5 

BILLION 

AMOUNT 

INVESTED 

BETWEEN DEC 2006 AND NOV 2009 

€ 2 

BILLION 

VALUE CREATION 

THROUGH INDUSTRIAL 

ACCELERATION 

78% 

Want to know more about EQT? 

Welcome to our web site www.eqt.se 

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Candover’s darkest day 

The listed firm backed out of a €1bn anchor commitment 

March saw the senior management of 

one of the European private equity’s 

longest-running firms explain to assembled 

analysts how it had been brought 

almost to its knees. Candover had historically 

operated an unusual ownership 

structure, whereby a listed parent company 

– Candover Investments – committed 

capital from its balance sheet to 

funds managed by its subsidiary Candover 

Partners. 

With the slowdown in private equity 

distributions, the parent found itself 

unable to honour a €1 billion commitment 

to Candover Partners’ 2008 

buyout fund. The fund, which had by 

this point garnered €3 billion in commitments 

from limited partners, was 

forced to enter long discussions with 

its LPs as to whether it had a future. 

While the firm lives on, by the end of 

the year, the firm’s LP advisory board 

had backed a proposal to terminate the 

2008 fund. ■ 

THE BIG APPLE’S BIG SCANDAL 

A pension pay-to-play scandal unveiled in New York 

reverberated throughout the industry 

Perhaps the biggest private equity scandal ever erupted in March 

after New York’s attorney general, Andrew Cuomo, unveiled an 

investigation into a wide-ranging kick-back scheme involving the 

state’s massive public pension and its numerous private equity 

general partners. 

The scandal centred on so-called “pay-to-play” payments, 

whereby individuals collected sham finder’s fees from investment 

firms in order to solicit commitments from the pension fund. 

Cuomo initially charged two people he alleged were the ringleaders 

of the conspiracy: David Loglisci, the former chief investment 

officer of the New York Common Fund; and Henry Morris, 

Cuomo: kicking the 

kick-back scammers a former top political advisor to former New York State Comptroller 

Alan Hevesi. To date, seven people have been charged 

in the investigation. 

The investigation had been going on behind closed doors for two years before exploding 

into the public eye. It soon spread beyond New York’s borders to New Mexico and 

California. Those states are also running their own investigations into “pay-to-play”. 

The scandal has led to some of the most wide-reaching and permanent changes 

to the private equity industry ever instituted, including numerous bans on placement 

agent interaction with public pensions in various states, including New York. The US 

Securities and Exchange Commission, which launched a separate investigation into 

“pay-to-play” practices, is currently considering a nationwide ban on placement agent 

solicitation of public pension money. 

Cuomo has reached settlements with several private equity firms – none of which 

were accused of any wrongdoing – as a result of the investigation. The implications of 

the scandal have not yet been fully felt and will continue to play out during 2010. ■ 

t h e n u m b e r s d i d n ’ t a d d u p 

In March 2009 Candover Investments’ 

commitment to the 2008 fund dwarfed 

the firm’s net asset value 

€1bn 

€248m 

(£224m) 

Net asset value 

Source: Candover 

Commitment to 

Candover 2008 

FROM THE ASHES 

Trilantic Capital emerged 

from the wreckage of 

Lehman Brothers with 

a war chest of $1.7bn 

More than 300 limited partners in Lehman 

Brothers Merchant Banking funds 

approved a management spin-out from 

the bankrupt investment bank, giving rise 

to Trilantic Capital Partners. 

Management, investors, and executives 

of Lehman Brothers had been working 

for months on the future of Lehman’s 

private equity funds after the bank’s dramatic 

bankruptcy in September 2008. 

The spin-out was funded through a joint 

venture between management and Reinet 

Investments, the vehicle of South African 

billionaire Johann Rupert. 

Trilantic is led by Charlie Ayres along 

with four partners, Danny James, Vittorio 

Pignatti, Joe Cohen and Javier Banon. The 

firm has about $1.7 billion in dry powder 

and has closed in on several deals since the 

spin-out, including a $130 million growth 

investment in portfolio company Enduring 

Resources, which acquires and exploits 

properties with natural gas resources. ■

This announcement appears as a matter of record only. 

is pleased to announce the closing of 

Tripod Capital China Fund II, L.P. 

A China Focused Growth Equity and Buyout Fund 

$262,565,000 

Limited Partnership Interests 

The undersigned acted as financial advisor and 

placement agent for the limited partnership interests. 

www.stanwichadvisors.com 

December 2009




TPG tops list of 

300 largest firms 

The 18-year-old firm led by David Bonderman 

took top honours for raising more capital 

for direct private equity investment than any 

other firm over a 5-year period 

TPG leapfrogged Goldman Sachs and the Caryle Group to take 

first place on 2009’s PEI 300, PEI's annual ranking of the world's 

largest private equity firms. Results from last year's list dominated 

the headlines during April on PrivateEquityOnline.com 

Fort Worth, Texas-headquartered TPG raised $52.35 billion for 

direct investment from 1 January 2004 through 15 April 2009. The 

figure takes into account the fund-size decreases that TPG offered 

to its limited partners, many of whom were struggling with liquidity 

issues caused by the denominator effect post-credit crunch. 

TPG allowed LP's in its fifth Asian fund, closed on $4.25 billion 

in 2008, and LPs in its sixth global fund, closed on $19.8 billion 

in September 2008, the chance to cut their commitments by up to 

10 percent. For the Asia fund that amounted to a grand total of 

reductions worth about $420 million, while the global fund faced a 

reduction of up to $2 billion. 

The firm twice offered investors the chance to scale back commitments 

to its $6 billion financial services fund, reducing the total fund 

size down to about $2.5 billion. TPG said they offered to downsize 

the fund because the deal environment became less attractive after 

the US government intervened and bailed out several US banks. 

TPG's fundraising totals unseated The Carlyle Group, which was 

ranked by PEI as the largest firm in both 2007 and 2008. ■ 

t h e p e i 3 0 0 

The top 10 firms on 2009’s PEI 300, our proprietary 

ranking of the world's largest private equity firms. 

1) TPG 

2) Goldman Sachs Principal Investment Area 

3) The Carlyle Group 

4) Kohlberg Kravis Roberts 

5) Apollo Global Management 

6) Bain Capital 

7) CVC Capital Partners 

8) The Blackstone Group 

9) Warburg Pincus 

10) Apax Partners 

A complete list of the 300 largest firms, as well as an 

executive summary of the PEI 300, is available at 

www.peimedia.com/pei300 

SWAP SINKS YACHT DEAL 

The fate of Ferretti came to symbolise an unpleasant trend 

among private equity-backed portfolio companies in 2009: 

a restructuring that saw its debt cut in half plus an €85 

million equity injection left its lenders and management at 

the helm and threw its private equity sponsors overboard. 

Candover Partners had owned a 50.2 percent stake in 

Ferretti before the restructuring, while fellow buyout firm 

Permira had held a 10 percent minority stake. Neither featured 

in the restructured business’ capital structure. 

Ferretti, whose flagship product, the 881, retails at over 

€5.5 million, was unable to service its €1.1 billion in debt 

as the super-cyclical market for luxury yachts declined. It 

defaulted on a debt repayment in February. 

Candover bought its stake in Ferretti from Permira in 

October 2006 in a deal that reportedly valued the yachtmaker 

at €1.7 billion. ■ 

GETTING OUT 

Ferretti 881: yours for €5.5m 

A debt-for-equity swap saw control of 

luxury yacht maker Ferretti wrested from 

Candover and Permira 

Citi kicked off a trend when it wound 

down its placement unit 

Citi said in April it would close its third-party private equity 

fund placement platform by the end of the year, ending more 

than a decade of external fundraising by Citi Alternatives 

Distribution Group. Before long both Bank of America/ 

Merrill Lynch and Deloitte said they would reduce or halt 

placement activities. Deloitte said the move was motivated 

by adverse market conditions coupled with “an increasingly 

complex regulatory environment in this area”. Employment 

changes naturally followed suit for many fundraisers, including 

Michael Ricciardi, Enrique Cuan and Alan Pardee, senior 

ex-Merill fundraisers who formed Mercury Capital. ■

Award winning offshore legal and fiduciary services 

Welcome to Ogier 

At Ogier our vision is clear… to offer the most innovative and 

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The $900m bank job 

Private equity firms bailed out one of the biggest US banks 

to fail in 2009 

BankUnited: Mega-firms make $900m deposit 

A consortium of private equity firms and 

co-investors in May 2009 backed a $900 

million buyout of Florida-based BankUnited. 

With 86 offices, BankUnited was 

the largest independent bank in Florida 

and was among the biggest US bank 

failures in 2009. 

The Blackstone Group, The Carlyle 

Group, Centerbridge Partners and WL 

Ross joined institutional co-investors 

such as a UK-based charity The Wellcome 

Trust to buy the failed bank, which at 

the beginning of May 2009 had assets of 

$12.8 billion and deposits of $8.6 billion. 

Led by ex-chairman and chief executive 

officer of New York-based North 

Fork Bancorporation John Kanas, the 

buying syndicate won a four-month auction 

process run by the Federal Deposit 

Insurance Corporation (FDIC), the 

government financial body that guarantees 

the safety of US savers’ bank 

deposits. 

At the time FDIC said it was going 

to develop “the appropriate terms” 

to allow more private equity firms to 

acquire depository institutions that 

have fallen into receivership, prompting 

many industry observers to anticipate a 

surge in financial services-focused deal 

flow. That surge didn't happen in part 

because, according to TPG, the deal environment 

became less attractive after the 

US government intervened and bailed 

out several US banks. The firm as a result 

allowed LPs to scale back existing commitments 

to its financial services fund 

(see p. 16). 

The UK saw its first private equitybacked 

acquisition of a deposit-taking 

bank in May, when financial servicesfocused 

buyout firm AnaCap Financial 

Partners acquired Ruffler Bank. 

The Ruffler acquisition was not a distressed 

deal like BankUnited, however. 

Including the £80 million (€91 million; 

$127 million) the bank was to receive 

from AnaCap, it would have had a Tier 

One capital ratio of more than 40 percent, 

one of the highest in the country. ■ 

KICKING BACK 

Resignations, indictments and subpoenas: the 

placement agent kick-back scandal rolled on 

New York's attorney general widened the investigation into a kickback 

scheme unearthed at the New York State Common Retirement 

Fund, which ultimately led to far reaching implications across the 

US private equity industry. 

The investigation initially focused on Henry Morris, a former 

political official for former New York Comptroller Alan Hevesi, 

and David Loglisci, former deputy controller and chief investment 

officer of the $126 billion public New York State Common Retirement 

Fund. The two were accused of running a scheme to collect 

sham finder’s fees from investment firms seeking commitments from 

the public pension, whose target allocation to private equity is 8 

percent (though at press time exposure was closer to 9.9 percent). 

Attorney General Andrew Cuomo issued more than 100 

subpoenas in May and said he would cooperate with attorney 

generals in other states to "shed light on a process that has been 

perverted". The wave of subpoenas included 49 for investment 

firms that allegedly paid unlicensed placement agents for securing 

public pension capital. 

Separate investigations by the Securities and Exchange Commission 

and Cuomo's office resulted in a series of indictments, 

including that of Saul Meyer, founder of Dallas-based private equity 

advisory firm Aldus Equity. He later pleaded guilty and faced up 

to four years in prison for paying illegal kick-backs to Morris in 

exchange for business with the New York State Common Retirement 

Fund. Meyer was also accused of helping one of Hevesi’s 

sons, Dan Hevesi, secure a $25 million commitment from the New 

Mexico State Investment Council (SIC) while Aldus was employed 

as a private equity advisor to SIC. ■

Accepting 

what’s offered. 

Choosing 

what works. 

The more choices you have, the more exacting a 

strategy you can craft to grow your firm’s assets. 

With the resources and expertise of Citi’s services 

for private equity firms, you can select from a suite 

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value chain. 

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partner with Citi. And that’s why Citi never sleeps. 

Private Equity and Venture Capital Services 

Fund Accounting and Administration 

Tax Compliance 

Limited Partner Communications 

Portfolio Company Accounting 

Web-based Reporting 

Please visit us at: 

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John Vancura 

+1 617 824 1396 

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+1 917 326 5227 

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+1 415 627 6377 

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used and registered throughout the world.




A leading light 

In a ‘sign of the times’ PEI named Jeremy Coller as its 

second annual Private Equity Leader 

Coller: industry leader 

CREDITABLE 

MOVE 

CD&R became the latest 

firm to size up opportunities 

in the credit market 

Long-time GSC Group executive Christine 

Vanden Beukel in June joined Clayton 

Dubilier & Rice's London office. 

The hire of the debt market veteran signalled 

a potential new direction for 30-yearold 

CD&R, known predominantly as an 

operational turnaround specialist. A push 

into credit investments would be in line 

with initiatives taken by many other private 

Jeremy Coller, founder and chief executive 

of secondaries giant Coller Capital, 

was awarded PEI’s second annual 

Private Equity Leader award. He said 

it was a “sign of the times” that a secondaries 

player should be recognised 

as 2008’s leader. 

With liquidity a struggle for many 

institutions around the world, sales of 

private equity portfolios and fund interests 

were widely expected to rise dramatically. 

While significantly fewer secondaries deals 

than expected have closed, Coller Capital 

continued to deploy capital in complex 

transactions. 

In the 2009 awards, revealed in this 

issue on p. 34, the firm won both private 

equity and venture capital deals of the year 

in Europe. 

Coller’s $4.5 billion fifth fund – the 

world's largest when it closed in 2007 – 

was one of a growing number of capital 

pools poised to take advantage of opportunities. 

The firm was widely expected 

to go to market for a $6 billion fund 

in 2010. ■ 

equity firms to capitalise on opportunities 

caused by the financial crisis and stagnant 

credit markets. LBO France, BC Partners, 

CVC Capital Partners, EQT Partners and 

Providence Equity Partners were all among 

the firms that have raised credit-focused 

funds or signalled an interest in the sector. 

Vanden Beukel joined CD&R as a 

senior managing director, ending a 10-year 

career with mezzanine specialists GSC. She 

joined the credit-focused alternative asset 

manager when it spun out from Travelers 

Group in 1999, steering the firm’s European 

mezzanine lending and collateralised 

corporate debt activities. She’d previously 

worked for Greenwich Street Capital Partners, 

GSC’s predecessor under the Travelers 

umbrella, since its 1994 founding. ■ 

Natural resources: an African strongpoint 

AFRICA BECKONS 

The continent’s ‘vast and 

unexploited’ natural resources 

continued to pique the interest 

of international investors 

Africa continues to offer significant 

opportunities for private equity investors, 

despite the negative impact of the global 

economic crisis. That was the key message 

Michael Cohen, executive managing 

director at global alternative investment 

specialist Och-Ziff Capital Management, 

gave delegates at the PEI Africa Forum in 

London in June. 

Of particular interest, he said, were 

the continent's “vast and still underexploited” 

natural resources, as well as 

strategies benefitting from many countries' 

black economic empowerment 

(BEE) legislation. 

But he also pointed to challenges, 

including the high cost of doing business 

in Africa due to poor infrastructure, 

public health problems, underdeveloped 

capital markets, a lack of transparency 

and corporate governance. He highlighted 

corruption as a particularly significant 

and wholly “unacceptable” aspect of 

African business life. 

Och-Ziff, which manages $21.5 billion 

of assets, invests in Africa through a joint 

venture with Mvela Holdings, an investment 

vehicle co-founded by South African 

entrepreneur Mosima Gabriel "Tokyo" 

Sexwale, and Palladino Holdings. ■

is pleased to announce the closing of 

CBPE Capital Fund VIII 

formerly known as Close Brothers Private Equity 

FUND VI 

£ 202,000,000 

2002 

FUND VII 

£ 360,000,000 

2004 

FUND VIII 

£ 405,000,000 

2010 

BerchWood Partners has acted as 

the global placement agent for CBPE since 2000. 

www.BerchWoodPartners.com




Write-down-o-rama 

Fair value hit LP portfolios in Sacramento and beyond 

CalPERS HQ: rollercoaster year 

INHOSPITABLE 

Private equity firms with hotel 

and gambling assets went on a 

losing streak in 2009 

Colony Capital-backed casino operator Station 

filed for bankruptcy in July, wiping out 

some $1.28 billion from the private equity 

real estate firm’s two most recent funds. 

Meanwhile, Harrah’s Entertainment, owned 

by The Blackstone Group and Apollo, was 

written down dramatically, as was Blackstone’s 

big investment in Hilton Hotels, purchased 

in July 2007 for $26 billion. The 

famed hotel chain owns the Waldorf Astoria 

line, with its flagship property located 

right next to the Blackstone offices. This 

must have served as a constant reminder 

that much work and luck were required to 

make Hilton well again. ■ 

The year 2009 saw the advent of an 

accounting rule forced private equity 

GPs to say what their portfolio companies 

would be worth if sold today. Fair 

value came at just the wrong time – no 

GP in their right mind was going to sell 

in Q1 2009, but fair value required that 

they imagine just this scenario and hold 

assets at “sell-today” valuations. 

The resulting write-downs were steep, 

exacerbated as they were by heavy leverage, 

collapsed public markets and weaker 

earnings. These were then passed on the 

limited partners, who were under their 

own pressure to conform to fair value. 

The market certainly took notice in July 

when two of the largest backers of private 

equity funds in the world reported massive 

losses in their alternatives portfolios. 

The California Public Employees’ 

Retirement System (CalPERS) and the 

California State Teachers’ Retirement 

System (CalSTRS), each with massive 

holdings in private equity, reported faithshaking 

results for their fiscal years ending 

in March. CalPERS saw a private equity 

value decline of 31.4 percent over the trailing 

12-month period. CalSTRS reported a 

27.6 percent private equity drop. 

The alarming performances, hardly 

unique to California’s public pensions, 

came at a time when many limited partners 

were worried about meeting their commitment 

obligations due to weak cash positions 

and over-allocation to alternatives. 

It’s hard to explain why you need to plow 

cash into an asset class that is (at least on 

paper) tanking. 

Somewhat mitigating the bad news was 

the overall picture – each pension had total 

declines that were just as bad. Still, the 

problems in the private equity portfolio 

had influential consequences, starting with 

CalPERS’ decision to begin negotiating 

with managers for lower fees. 

Private equity performance had 

improved by the end of the year, thanks to 

factors largely beyond its control – mostly 

in the form of stock prices. Still, the sudden 

swoon reminded market participants that 

while they believe private equity to be a 

long-term asset class, it now gets reported 

on a quarterly basis and many influential 

people receiving these reports, like 

board members and voters, aren’t familiar 

enough with the asset class to distinguish 

between realised losses and interim 

accounting. ■ 

Wheel of fortune: private equity presses 

its luck 

TURNED TO 

SALT LAKE 

Citi CFO turns to LBOs 

It was a good year to quit a TARPinfected 

bank holding company and join 

a private equity firm with an untouched, 

new $1.2 billion fund. This is exactly 

the trade made by Gary Crittenden, the 

former chief financial officer of Citigroup, 

who left in July to join Salt Lake 

City, Utah-based Huntsman Gay Global 

Capital as a managing director. The 

firm was founded by Utah industrialist 

Jon Huntsman and former Bain Capital 

director (and pal of Mitt Romney) 

Robert Gay. ■




PAI under pressure 

A key man departure at one of Europe’s largest firms proved 

an expensive executive shuffle 

NOT JUST AN 

LBO SHOP 

KKR started flexing capital 

markets muscle 

Zinsou: delighted with fund consensus 

PAI Partners was not the only major firm 

in 2009 to be buffeted by the downturn, 

but the Paris-headquartered private equity 

firm was hit harder than most. 

PAI Partners is one of the largest firms 

in Europe and, according to the PEI 300, 

it was the 25th largest private equity firm 

in the world in 2009. That ranking is set 

to drop precipitously after its LPs voted to 

slice its fund size in half following a key 

man departure. 

The turmoil at PAI came to light in 

August, when it was revealed that an internal 

coup pushed chief executive Dominique 

Mégret, a 35-year veteran, out of the firm. 

He was succeeded by Lionel Zinsou, LPs 

were told. Zinsou had joined PAI in 2008 

from Rothschild & Cie. 

Another senior executive, Bertrand 

Meunier, also left the firm. Meunier had 

been with PAI for 27 years and had been 

expected by some to be next in line after 

Mégret. 

Zinsou had joined PAI two months after 

the firm closed its fifth fund, which raised 

€5.4 billion. The change in the firm’s leadership 

gave limited partners the option of 

opting to shut down the investment period, 

or curtail the fund’s size. By December, the 

investors had made their choice – PAI 

Europe V was slashed by 50 percent to 

€2.7 billion: not a bad amount of capital 

to have available in a diminished private 

equity market, but a dramatic change that 

wounded the PAI franchise. 

The firm may have escaped the full brunt 

of certain investors – Reuters reported that 

the Canada Pension Plan Investment Board 

had wanted to cut much deeper than 50 

percent. Zinsou put a positive spin on 

things with the statement: “The partners of 

PAI are delighted to have found consensus 

with our investors and we thank them for 

renewing their trust in the team.” 

The management changes and resulting 

fund fallout came after PAI had been on 

the wrong end of a protracted and highprofile 

financial restructuring of portfolio 

company Monier. PAI had bought Monier, 

a French roofing business, for €1.6 billion 

in a 2007 buyout. The company had been 

hit hard by the downturn in residential 

construction since the onset of the credit 

crunch and in June, PAI sent a letter to 

investors in its fourth buyout fund saying 

that it had written its €256 million equity 

investment in Monier down to zero. 

Then in July, following two unsuccessful 

restructuring proposals from PAI – the 

latter of which would have seen the buyout 

house inject €135 million and retain 50 percent 

of the equity – the French firm lost 

control of the business to a consortium of 

lenders led by Apollo Global Management, 

TowerBrook Capital Partners and York 

Capital Management. The senior lenders 

agreed to extend a €150 million credit line 

to the businesses, reduce its cash debt by 

over a half and reduce its interest payments 

by around 80 percent. ■ 

The market was cheered to see a rare 

thing in July – a private equity-backed 

IPO, in this case Dollar General, a discount 

chain owned by Kohlberg Kravis 

Roberts. The $750 million listing included 

a $200 million dividend to KKR as well 

as some other attractions for the firm. 

Through its new capital markets division, 

KKR was the lead underwriter for Dollar 

General, part of a move toward paying 

itself fees for arranging capital markets 

transactions once handled exclusively by 

third-party firms. 

If KKR is to convince investors that 

it should receive a nice valuation on the 

public markets, it must show a diversified 

revenue stream. Establishing an 

investment bank to compete with Wall 

Street stalwarts was a strong move 

toward this goal. ■ 

HEALTH JUICE 

General Atlantic triumphed 

with healthcare IPO 

No IPO this summer meant more to 

a firm than Emdeon did for General 

Atlantic. The Nashville-based medical 

payment-cycle manager had received 

$485 million from General Atlantic – the 

largest single dose of equity ever invested 

in a portfolio company by the Greenwich, 

Connecticut-based firm (Emdeon 

also received an investment from Hellman 

& Friedman). By the close of trade 

on day one, General Atlantic’s equity 

position was valued at nearly double its 

cost. The IPO was evidence that private 

equity firms who own growing, stable, 

recession-proof companies possess gold 

in the eyes of public market investors. ■

Same story. New chapter. 

Kingdom Zephyr Africa Management has secured capital commitments of US $492 million 

for its follow-on private equity fund, Pan-African Investment Partners II (PAIP II). 

And so it continues... 

PAIP II invests across the continent in high-growth, strong demand sectors that address the needs of the 

growing African middle class. Kingdom Zephyr’s investment focus is on building regionally expanding, 

globally competitive businesses throughout Africa. 

Active in Africa for over fifteen years, Kingdom Holding and Zephyr Management, L.P. continue to 

partner with established, local African businesses providing the capital and on-the-ground assistance 

to strengthen corporate governance, improve strategy and enhance operational efficiency, enabling the 

companies to grow into multi-country enterprises. 

Kingdom Zephyr’s portfolio of regionally expanding businesses provide jobs and drive the sustainable 

economic development that helps African economies thrive. 

PAIP II: Same story. New Chapter. 

Accra Johannesburg London New York 

www.kingdomzephyr.com 

info@kingdomzephyr.com

250 People running the Athens Marathon 

Commemorating 2500 year since Pheidippides’ run 

Aiming to raise €2.5 million for charity 

© UNICEF/ HQ00-0952/Roger LeMoyne 

We are delighted to be able to announce the support of the following patrons for the 

Marathon of Marathons charity event, taking place in Athens on 31 October 2010. 

Many of our patrons will be with us in Athens and running or walking alongside us. 

George Anson, HarbourVest Partners 

David Blitzer, Blackstone Group 

Jeremy Coller, Coller Capital 

Sir David Cooksey, former Chairman EVCA and 

BVCA, Chairman of UKFI 

Thierry Deau, Meridiam Infrastructure 

Javier Echarri, EVCA, the European Private 

Equity and Venture Capital Association 

Todd Fisher, Kohlberg Kravis Roberts 

Peter Kulloi 

Dwight Poler, Bain Capital 

Jonathan Russell, 3i 

Nikos Stathopoulos, BC Partners 

Oliver Stocken, Home Retail Group and MCC 

Maarten Vervoort, AlpInvest 

Urs Wietlisbach, Partners Group 

David Wilton, International Finance 

Corporation and World Bank Pension Fund 

And Eddie Izzard whose extraordinary achievement in 2009 of running 

43 marathons in 51 days is an inspiration to us all. 

Training advice is starting under the guidance of former Olympian and European 

champion Bruce Tulloh who was the trainer of the GB marathon team at the World 

Championships in Athens in 1997. 

Get fit and join us whether you walk or run! 

For more information on how to participate visit 

www.MarathonOfMarathons.org 

includes a video message from unicef 

ambassador Ewan McGregor 

E-MAIL INFO@MARATHONOFMARATHONS.ORG 

TELEPHONE CAMPBELL LUTYENS ON +44 (0)20 7439 7191




Power shift 

During the boom times of 2006 and 2007, 

many GPs could sit back and watch as LPs 

competed to get access to their funds. But 

as The Carlyle Group co-founder David 

Rubenstein said during a conference in 

early 2009, LPs rather than fund managers 

would hold the “balance of power” for 

the next few years. 

Any doubts about the willingness of 

LPs to flex their new-found muscles in 

2009 were dispelled in September, when 

the Institutional Limited Partners Association 

(ILPA) revealed a set of investorfriendly 

guidelines general partners were 

urged to follow. 

Among the terms and conditions laid 

Rubenstein: LPs take control 

ILPA’s priciples unveiled in September demonstrated how 

much the GP-LP relationship has changed 

out by the influential group – ILPA members 

represent some $1 trillion of private 

equity assets – was that GPs should adopt 

a European-style distribution waterfall so 

that LPs are repaid all contributed capital, 

plus a preferred return, before GPs begin to 

receive carried interest. ILPA also called for 

management fees to be “stepped down significantly” 

once a follow-on fund is formed 

and for more power to be given to LPs 

to suspend, terminate or dissolve a fund. 

While some of these demands may 

have sounded drastic to many GPs, they 

couldn’t help but take them seriously, as 

ILPA’s membership includes 220 of the 

most influential private equity investors 

in the world, who together control roughly 

$1 trillion in commitments. They also 

came at a time when the power pendulum 

had swung squarely back to the side 

of investors. 

The $185 billion California Public 

Employees’ Retirement System (CalPERS) 

publicly endorsed the guidelines, saying 

they marked the beginning of a “new chapter” 

in the private equity industry. Other 

investors like the Asian Development Bank 

and the UK’s CDC Group followed suit, 

while the Oregon Investment Council and 

Utah Retirement System released their 

own sets of conditions – including management 

fee reduction initiatives – that they 

will consider before making investments. 

Many GPs are now grappling with 

how to approach the guidelines in trying 

to appease their LPs. One head of a global 

private funds group said that based on 

examples he had seen in the market, GPs 

who think that adopting only a few of the 

guidelines will be enough to satisfy their 

investors may be in for a rude awakening. 

LPs today increasingly view the ILPA 

guidelines as a checklist. A new fundraising 

paradigm may emerge in which the GP 

that ticks the most boxes will have the 

most painless access to capital. 

That said, it’s also not necessarily 

the case that every single box will have 

to be ticked, either. As Wim Borgdorff, 

AlpInvest’s managing partner, said at a 

conference in London last autumn, the 

ILPA principles should help drive discussion 

and action constructive for the private 

equity industry, but “not in a set-in-stone, 

10 Commandments kind of way”. (For 

more on the evolving LP-GP nexus, turn 

to page 77). ■ 

Market participants share their initial reactions to the guidelines with PEI 

While most of the “preferred terms” in the report are on many LPs' 

standard “wish list”, several of the suggested terms go well beyond 

what we regularly see LPs request. The best funds are those that 

generate the best returns net of fees, not the firms that charge the 

lowest fees. It is not clear that deferring or reducing GP incentives 

will always lead to better net returns; it could be counterproductive. 

Michael Harrell, co-chair of the private funds group 

for Debevoise & Plimpton 

I have read the ILPA publication and did not find many surprises 

in there, though some of the issues they propose do not, 

in my mind, resonate a true alignment of interest. For example, 

clawback being pre-tax will/can leave the GP in a negative cash 

position if a refund is not available, or if there is a mismatch of 

capital loss and ordinary income. 

Julia Corelli, partner at law firm 

Pepper Hamilton




Moulton moves on 

One of private equity’s most vocal captains jumped ship 

When Jon Moulton launched Better 

Capital in October, it marked the end of 

a tumultuous few weeks that began with 

a vey public resignation from the firm he 

co-founded in 1997. 

The drama began in early September 

when Moulton resigned from Alchemy 

Partners following a spat over the firm’s 

strategy with his partners, including buyout 

head Dominic Slade. Moulton’s letter to 

investors explaining his motives, widely 

available on the internet, was bound to 

become an industry classic, what with the 

damnation of his former colleagues’ abilities 

and track record, the call for the firm to 

be wound down, expressions of personal 

regrets and an apology to investors. Suffice 

it to say, the private equity industry - and 

tellingly, a far broader audience courtesy 

of the letter's widespread distribution - had 

seen nothing like it. 

The departure seemed all the more 

poignant because Moulton’s scheduled 

retirement was just over a year away. 

Tensions within the partnership must 

have been intense to say the least if he 

couldn’t see a way to last until then, let 

alone try to fix its problems. But maybe the 

outspoken Moulton was always unlikely 

to simply retire. “Jon loves drama,” one 

market insider said at the time. “Was he 

ever going to go quietly?” 

Moulton ended his resignation letter by 

saying if he had to do it all over again, he 

would, but “better”. He took that promise 

quite literally and opened turnaroundfocused 

Better Capital in October, just 

around the corner from Alchemy’s offices 

in London’s Covent Garden. 

Rather than raise a traditional private 

equity fund, Better went on to publicly 

list on London’s AIM exchange, 

raising £142 million, less than originally 

planned. ■ 

KKR GOES 

PUBLIC 

A reverse merger with 

its Euronext-listed affiliate 

saw KKR move closer to 

an NYSE listing 

The long-awaited “KKR” ticker came 

to life in October when Kohlberg Kravis 

Roberts began trading on Amsterdam’s 

Euronext exchange. The listing was 

the result of a reverse-merger with its 

Euronext-traded fund, KKR Private 

Equity Investors (KPE), which had been 

trading at a significant discount to net 

asset value. Seen as a nimble way to sidestep 

choppy equity markets and end the 

“widespread frustration” within KKR at 

KPE’s performance, the Euronext listing 

was seen as a stepping stone to an 

eventual listing on the “Big Board”, the 

New York Stock Exchange. KKR originally 

filed for a $1.25 billion IPO of its 

management company in 2007, before 

financial conditions deteriorated. ■ 

BOUNCE 

Private equity write-downs 

reverse 

After five straight quarters of losses, private 

equity finally got some good news on 

the valuation front in October when data 

released by the State Street Private Equity 

Index showed fund values were written up 

an average of 5.48 percent in the second 

quarter. 

The news was a welcome sign to many 

market observers that private equity fund 

performances had finally reversed their 

precipitous declines. However, State Street, 

which tracked more than 1,600 private 

equity funds to compile its figures, also 

warned about the possibility that industry 

could be in store for another drop before 

a longer-lasting recovery. 

In the meantime however the news has 

remained promising, with third quarter 

numbers showing another slight uptick 

in valuations of 5.83 percent. Most significantly, 

distressed and mezzanine investments 

continued their impressive rebound 

after taking a one-year loss of 32.6 percent 

4.17% 

10.89% 

5.76% 

8.55% 

as of the first quarter of 2009, with valuations 

written up by an average of 16 percent 

in the second quarter and 13.4 percent in 

the third quarter. 

Such numbers showed that while the 

industry is not out of the woods, there are 

more and more reasons for optimism. ■ 

Private equity fund valuations rose in the second quarter of 2009, the first positive 

uptick in more than a year 

Quarterly internal rate of return (IRR) 

20% 

15% 

10% 

5% 

0% 

-5% 

-10% 

-15% 

-20% 

State Street Private Equity Index 

09/2006 

12/2006 

03/2007 

06/2007 

09/2007 

3.18% 

2.26% 

-0.87% -1.51% 

12/2007 

03/2008 

-8.35% 

06/2008 

09/2008 

-16.32% 

12/2008 

03/2009 

-6.46% 

06/2009 

5.83% 

5.48% 

09/2009




Dubai show stopper 

Cirque du Soleil: portfolio management takes centre stage, Istithmar says 

When Dubai World couldn’t meet its interest obligations on 

$60bn of outstanding debt, a shadow was cast over the fate 

of its private equity subsidiary Istithmar 

In late November, Dubai World – the 

investment platform owned by Dubai’s 

government – requested that its creditors 

accept a six-month debt standstill on its 

$60 billion of debt. It wasn’t immediately 

clear what implications this would have 

for its wide-ranging global portfolio of 

private equity investments. 

Through its subsidiary platform Istithmar 

World, the group holds stakes in a 

diverse selection of companies, including 

Standard Chartered bank, hedge fund 

GLG Parnters, luxury department store 

Barneys New York and entertainment 

group Cirque du Soleil. 

Dubai World released a statement 

saying that Istithmar World would be 

unaffected by the high profile restructuring 

of its parent company. Less than two 

months later, however, Istithmar World’s 

chief executive, David Jackson, left to 

“pursue other opportunities”. 

He was replaced on a temporary basis 

by Andy Watson, Istithmar World's chief 

investment officer. Watson, a former 

Barclays Capital director, has an extensive 

background within Dubai World, 

according to Aidan Birkett, chief restructuring 

officer at Dubai World. “His experience 

will be vital in actively managing 

the portfolio of assets held by Istithmar 

World,” Birkett said. 

In a nod to the near-term strategy 

of the business Birkett added: “Today, 

Istithmar World is focused on the steadystate 

management of existing assets to 

maximise value rather than on private 

equity investment.” 

That effectively made Istithmar the 

second Dubai-backed private equity 

group to halt fresh private equity investments. 

In February 2009, Dubai International 

Capital switched over its management 

team as its focus shifted from 

dealmaking to portfolio monitoring. 

A spokesman for DIC at the time said 

that as a result of the economic crisis, 

DIC’s emphasis was now on “the return 

of equity, not the return on equity”. ■ 

PARCELS-A-PASSING 

Private equity sponsors picked up the pace with sales to one another 

Frozen foods: heating up secondary buyouts 

Deal activity finally began to show signs 

of an uptick towards the end of 2009, 

in part because an increasing number of 

firms were trading assets among themselves. 

David Walker, a partner at law firm Clifford 

Chance, told PrivateEquityOnline.com that 

secondary buyouts were finding favour as 

they were considered “clean” targets amid 

a market in which quality assets were still 

in short supply. 

Here’s a sampling of some of the secondary 

buyout activity that took place in 

November: 

• In Europe, Matrix Private Equity 

scored a 3.2x exit with the sale of Pasta 

King to NGBI Private Equity. 

• In the US, Vestar Capital sold Birds 

Eye to The Blackstone Group for $1.3 

billion, having initially lead a $175 million 

recap of the frozen food company's 

US division in 2002. 

• In Asia, Unitas Capital received nine 

bids for retailer Buy The Way, with the 

majority of the offers from private equity 

firms and Asian banks worth more than 

$260 million. ■

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Taking it to court 

Terra Firma started litigation against Citi, 

alleging the investment bank mislead it 

during the bidding process for music 

publisher EMI 

In mid-December, UK-based private 

equity firm Terra Firma filed a lawsuit 

against Citi, alleging that the 

investment bank not only tricked it 

into paying £4 billion for EMI in 

2007, but that it had also since tried 

to push the business into insolvency. 

Terra Firma is seeking damages 

worth “billions of dollars”, said a 

source close to the process. 

Citi was investment advisor and 

lender to EMI and sole financier to 

Terra Firma, earning around £92.5 

million in fees from the transaction, 

according to a court filing. Terra 

Firma alleged that during the auction 

process for EMI, Citi banker 

David Wormsley led the private 

equity firm to believe that another 

bidder, Cerberus Capital Management, 

was still in the process, when 

in fact all other bidders had withdrawn. 

This, according to the lawsuit, led 

to a “fraudulently inflated” price. “Had 

Citi not misrepresented Cerberus’ participation in the bidding 

process, among other matters, Terra Firma would not have 

bid for EMI on that Monday,” read the complaint. 

The filing goes on to allege that since the acquisition of 

EMI in 2007, Citi “recklessly disregarded” Terra Firma’s 

rights and interests in connection with EMI, and is trying to 

push it “into, or to the brink of, insolvency”. 

The reason for this, it is alleged, is that a weaker EMI 

could be a likely merger target for US music group Warner, 

a deal on which Citi could potentially earn further fees. 

The lawsuit pointed to a note issued by a Citi analyst in 

September that highlights four factors pointing towards a 

tie-up between EMI and Warner. 

While EMI has indeed been under intense pressure 

Boies (seated): hired hand vs. Citi 

– causing Terra Firma to significantly write-down the value 

of the investment – Citi denied that it or any of its bankers 

has done anything wrong, and said it will defend the lawsuit 

“vigorously”. 

Making the lawsuit even more dramatic, Terra Firma 

brought in an attorney who is widely known as a “superlawyer” 

and has worked on some of the most high-profile 

cases in recent court history. The 

attorney, David Boies, founder 

and chairman of Boies Schiller 

& Flexner, was lead counsel for 

former US vice president Al Gore, 

who disputed the election results 

in Florida in the 2000 presidential 

election. Boies was also special trial 

counsel for the US Department of 

Justice in its successful anti-trust 

suit against Microsoft. The case 

against the technology giant, which 

resolved in the favour of the US 

government, prompted Microsoft 

chief executive officer Bill Gates to 

complain that Boies was “out to 

destroy Microsoft”, according to 

media reports. 

Florida attorney Dexter Douglass, 

who worked with Boies on Al 

Gore’s team during the recount, 

told PEO in an interview “if [Boies] 

is on the other side, you better tell 

your other lawyers to quit the bar 

and get to work”. 

One Terra Firma LP expressed some skepticism about the 

lawsuit in an interview with PrivateEquityOnline.com, saying 

Terra Firma should have been firm on a price it deemed appropriate 

for the asset, rather than be influenced by an auction 

process. 

“Saying your bank advisors didn’t tell you someone had 

dropped out, or that they dropped out at a lower price than 

you were looking at paying, seems a strange line to take,” the 

LP said. “You would expect them to make their own line up 

about the right price to pay. 

“It almost sounds like, ‘they’re bidding this much, if you 

want to get it you have to up your offer,’” the LP said. “You 

would think they’d say, ‘this price is sensible to pay’, or not, 

and walk away if you think the price is too high.” ■


Leading the pack 

Welcome to the 2009 Private Equity International Awards. 

For the 10th successive year we bring you the firms that 

have powered through adverse conditions to be crowned 

industry leaders 

While you’ve just finished reading about 

some of the top news stories of 2009, it’s 

within the following pages that even more 

detail on the year’s twists and turns can 

be found. PEI’s journalists in Asia, Europe 

and the US chronicle each award winners’ 

actions over the year and offer thoughts on 

why industry peers bestowed a particular 

firm or transaction with top honours. 

As we said in our last Friday Letter of 

the year, 2009 could have been called the 

year of the adjective. Weird, challenging, 

interesting, humbling, Darwinian, revolutionary, 

chastening and thrilling were 

among the terms that have been used by 

industry insiders to describe the period. 

With fundraising and credit markets 

closed for most of the year and portfolio 

companies battling global recession, industry 

contractions (and in some cases towering 

debt obligations), many frustrated GPs 

became increasingly determined to turn a 

corner. 

By September, not only were activity 

levels starting to tick up again, spirits were 

slowly rising among industry professionals, 

a crucial element in helping secure a return 

to sustainable deal flow, dependable exits 

and fundraising success. 

These awards, voted on by thousands 

of the industry’s direct participants around 

the globe, represent the firms, funds and 

deals that best survived the year’s turbulent 

financial and economic conditions. It also 

showcases those who thrived because of 

them. 

Among the themes reflected in this year’s 

results, was that what for one private equity 

firm was a misfortune, was quite often a 

fellow firm’s gain. This was most evident in 

restructuring situations, as firms like Oaktree 

Capital Management - which swept the 

distressed debt investment categories in the 

US, Europe and Asia - were frequently on 

the winning end of difficult restructuring 

and bankruptcy situations involving private 

equity sponsors.There were also investors 

that benefitted from the liquidity and overcommitment 

issues plaguing others. A drastic 

drop in beleaguered SVG Capital’s share 

price, for example, allowed Coller Capital 

a below-market entry point for increased 

exposure to Permira funds. The secondary 

firm’s purchase of shares in fund of funds 

SVG was voted European private equity 

deal of the year. 

Events like these remind us once again 

of private equity’s dynamic nature and 

its continuing evolution. This year, we’ve 

broadened the scope of the awards, making 

them even more diverse and comprehensive 

of current market activity by adding categories 

like best distressed debt and best 

turnaround fund managers. There are some 

exciting new names in the results, alongside 

some of the industry’s veterans. 

In addition to honouring the private 

equity industry’s standout players in 2009, 

the following pages provide a blueprint for 

which firms and funds are considered best 

placed for 2010 and beyond, particularly if 

an expected wave of industry consolidation 

begins to materialise. 

Quite simply, they are the world’s 

most highly regarded private equity 

professionals. 

Congratulations to all the winners and 

runners up, and very best of luck next year 

to everyone else. ➛

stephan schäli Head Private Equity, Adam Howarth Private Equity Secondaries and erik Kaas Co-Head Investment Solutions 

passion for private markets 

P a s s i o n f o r P r i v a t e M a r k e t s 

Over 360 employees based in ten offices around 

the globe focus on what they do best - making 

our clients' private markets investment programs 

a true success. That's all they do. 

And they do it with passion. 

• PRIVATE EQUITY 

• PRIVATE DEBT 

• PRIVATE REAL ESTATE 

• PRIVATE INFRASTRUCTURE 

www.pArtnersgroup.com 

ZUG | SAN FRANCISCO | NEW YORK | LONDON | GUERNSEY | LUXEMBOURG | SINGAPORE | BEIJING | TOKYO | SYDNEY


The roll of honour 

2 0 0 9 W i n n e r 2 0 0 8 W i n n e r 

e u r O p e 

Large-cap firm Apax Partners CVC Capital Partners 

Mid-market firm Advent International Advent International 

Venture capital firm Sofinnova Partners Sofinnova Partners 

Benelux Gilde Investment Management AAC Capital Partners 

Central and Eastern Europe Mid Europa Partners Mid Europa Partners 

Germany BC Partners TVM Capital 

Iberia Investindustrial Mercapital 

Israel Sequoia Capital Sequoia Capital 

Italy Investindustrial Clessidra 

Nordic EQT Partners Nordic Capit al 

Russia Baring Vostok Capital Partners Baring Vostok Capital Partners 

Switzerland Capital Dynamics Capvis 

UK CVC Capital Partners 3i 

France AXA Private Equity AXA Private Equity 

Law firm (fund formation) SJ Berwin SJ Berwin 

Law firm (transactions) Clifford Chance Clifford Chance 

Debt provider Barclays Capital Deutsche Bank 

M&A Adviser Rothschild Rothschild 

Placement agent MVision Private Equity Advisers MVision Private Equity Advisers 

Fund of funds Capital Dynamics Partners Group 

Secondaries firm Coller Capital Coller Capital 

Distressed debt firm Oaktree Capital Management n/a 

Special situations/ turnaround firm Rutland Partners n/a 

Mezzanine firm Intermediate Capital Group Intermediate Capital Group 

Limited partner Partners Group AlpInvest Partners 

Private equity deal of the year SVG Capital stake Migros 

Venture capital deal of the year 3i portfolio Sulfurcell Solartechnik 

Private equity exit of the year Orangina Jet Aviation 

Venture capital exit of the year CoreValve n/a 

n O rt h a m e r i C a 

Large-cap firm Hellman & Friedman Hellman & Friedman 

Mid-market firm Pine Brook Road Welsh Carson Anderson & Stowe 

Venture capital firm Accel Partners Sequoia Capital 

Canada Canadian Pension Plan Investment Board Teachers’ Private Capital 

Law firm (fund formation) Debevoise & Plimpton Kirkland & Ellis 

Law firm (transactions) Kirkland & Ellis Kirkland & Ellis 

Debt provider JPMorgan JPMorgan 

M&A Adviser Goldman Sachs Goldman Sachs 

Placement agent Credit Suisse Credit Suisse 

Fund of funds HarbourVest Partners HarbourVest Partners 

Secondaries firm Landmark Partners Lexington Partners 


Special situations/ turnaround firm KPS Capital Partners n/a 

Mezzanine firm TCW/Crescent Mezzanine TCW/Crescent Mezzanine 

Limited partner Employees Retirement System of Texas CalPERS 

Private equity deal of the year BankUnited Getty Images 

Venture capital deal of the year Twitter LinkedIn 

Venture capital exit of the year Zappos n/a 

Private equity exit of the year Avago Alltel 

a s i a 

Private equity firm Kohlberg Kravis Roberts Affinity Equity Partners 

Growth investor SAIF Partners n/a 

Venture capital firm Sequoia Capital India SAIF Partners 

Australia Pacific Equity Partners CHAMP Private Equity 

China CDH Investments CDH Investments 

Japan The Carlyle Group The Carlyle Group 

India IDFC Private Equity ICICI Venture 

Law firm (fund formation) Debevoise & Plimpton Debevoise & Plimpton 

Law firm (transactions) Clifford Chance Allen & Gledhill 

Debt provider Standard Chartered HSBC 

M&A adviser Goldman Sachs Goldman Sachs 

Placement agent Capstone Partners Credit Suisse 

Fund of funds Partners Group Squadron Capital 

Secondaries firm Partners Group n/a 


Special situtations/ turnaround firm Oaktree Capital Management n/a 

Mezzanine firm Asia Mezzanine Capital Group Asia Mezzanine Capital Group 

Limited partner Government of Singapore Investment Temasek 

Corporation (GIC) 

Private equity deal of the year Oriental Brewery: Tokyo Star Bank 

Kohlberg Kravis Roberts 

Venture capital deal of the year Borqs Oak Pacific 

Private equity exit of the year Shenzhen Development Bank Himart 

L at i n a m e r i C a , a F r i C a , m i d d L e e a st 

Latin America Advent International Advent International 

Africa Actis Actis 

Middle East Abraaj Capital Abraaj Capital


the 2009 

eurOpean 

aWards 

e u r O p e a n L a r g e - C a p p r i v a t e e Q u i t Y 

F i r m O F t h e Y e a r 

1. Apax Partners 

2. CVC Capital Partners 

3. TowerBrook Capital Partners 

China: providing liquidity to 

Apax LPs 

Who says giving LPs a chance 

to reduce outstanding commitments 

has to mean sacrificing 

the size of your fund? Apax 

Partners, the firm behind 

Europe’s largest private equity 

fund, certainly didn’t. Rather 

than reducing its fund size, it 

sealed an unusual deal with a 

powerful new LP: the $200 billion 

sovereign wealth fund, China Investment Corporation (CIC). In 

addition to taking a 2.3 percent stake in the management company, 

CIC offered to invest up to €800 million to acquire undrawn commitments 

from existing LPs in Apax’s €11.2 billion 2007 vintage 

fund. It was the first example of a fund manager finding a new investor 

to backstop commitment reductions to an already closed fund. 

These were not Apax’s only industry-leading feats in 2009. The 

firm boosted its financial services portfolio with the purchase of 

Israel’s largest asset manager, Psagot Investment House, in a $620 

million deal. It also clinched the hotly contested auction for clinical 

trial logistics company Marken, further grabbing headlines by 

writing a £975 million equity cheque (a debt package would be 

arranged later) to buy the asset from management and Intermediate 

Capital Group. 

e u r O p e a n m i d - m a r K e t p r i v a t e e Q u i t Y 

F i r m O F t h e Y e a r 

1. Advent International 

2. Bridgepoint 

3. Silverfleet Capital 

Only 10 of the 50 largest private equity firms in the world 

sold more than they bought during a five-year period ended 

mid-April 2009. You may not be surprised to learn that 

PEI Media found Advent International was one of the few 

net sellers during that period, which was characterised by 

sky-high prices and bidding wars. During 2009 alone, the 

firm fully exited eight investments and partially realised 

another two. While by no means immune to the troubles 

many private equity portfolio companies faced last year 

– indeed, the firm wrote off a €140 million investment in 

the struggling Spanish construction sector – the fact that 

Advent had realised a great deal of its portfolio through 

2009 meant it had the luxury of focusing more intently on 

fresh deals than on fixing portfolio problems. It agreed eight 

deals last year, setting records along the way. In Europe, it 

sealed Germany’s largest private equity deal of the year with 

the purchase of MEDIAN Kliniken, the country's largest 

care home operator, alongside real estate investment firm 

Marcol. Among its other European deals was the purchase 

of Poland’s largest educational publisher, Wydawnictwa 

Szkolne i Pedagogiczne. 

e u r O p e a n v e n t u r e C a p i t a L F i r m O F 

t h e Y e a r 

1. Sofinnova Partners 

2. Index Ventures 

3. Doughty Hanson Technology Ventures 

Think European venture capitalists are a dying breed? You might 

reconsider after examining the recent success of French venture 

capital firm Sofinnova Partners. Led by managing partners Antoine 

Papiernik, Denis Lucquin and Jean Schmitt, the Paris-headquartered 

firm completed three major trade sales in the life sciences sector during 

2009. The first of these, the $700 million-plus sale of medical device 

company CoreValve to US trade buyer Medtronic in February, was 

expected to generate a return of 10x and was the largest ever exit by 

value in Sofinnova’s 35-year history. To Papiernik the successful exit 

represented a long-awaited vindication of the venture capital model, 

which has been overshadowed by the faster, larger returns generated 

by large buyout groups. “People called us fools and told us we ➛

INDUSTRIAL SOLUTIONS AND CAPITAL 

AWARDS 2009 

Best Private Equity 

firm in Italy 

Investindustrial 


Best Private Equity 

firm in Iberia 

Investindustrial 

Recognized as the 

best private equity firm 

both in Italy and Spain 

www.investindustrial.com


Antoine Papiernik: ‘last of 

the Mohicans’ 

were the ‘last of the Mohicans’ doing 

early stage investment,” Papiernik 

told PrivateEquityOnline.com at the 

time. Sofinnova capped off the year 

with two more exits: the 6.6x sale 

of Fovea Pharmaceuticals, whose 

€370 million price tag represented 

one of the largest ever sales of a private 

biotech company in France; and 

the sale of pharmaceutical company 

Novexel to trade giant AstraZeneca, 

which netted Sofinnova about $505 

million. 

on ITV Bulgaria to its SEE Pay TV platform and acquiring Hungarian 

telecommunications provider Invitel Holding via a series of 

transactions. The investments were made from Mid Europa’s third 

fund, a €1.5 billion vehicle that closed in 2007 and is around 30 

percent deployed, according to its website. Led by managing partner 

Thierry Baudon, Mid Europa spun out from EMP Global in 2005. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n g e r m a n Y 

1. BC Partners 

2. Wellington Partners Venture Capital 

3. Pamplona Capital Management 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n b e n e L u X 

1. Gilde Investment Management 

2. Waterland Private Equity Investments 

3. GIMV 

Gilde Investment Management has long been considered one of 

the best Benelux private equity firms, having won this category 

most recently in 2007. Last year, an academic who specialises 

in private equity-related statistics created a ranking of bestperforming 

GPs and found Gilde's buyout division – which also 

invests in Switzerland, France, Germany and Austria – came 

fifth in the world in terms of performance. Oliver Gottschalg, 

associate professor at HEC School of Management in Paris, 

found that firms specialising in niche markets like Gilde often 

boast the best performance. “You have to look at those niches 

and know how to play them to get outstanding performance,” 

Gottschalg said. PEI visited Gilde in August last year, at which 

point it had about half of its €150 million 2006 Benelux fund 

to invest. Bas Glas, a Netherlands-based partner at the firm, 

was predicting an uptick in the amount of distressed sales, as 

pressure mounted on highly leveraged businesses in sectors hit 

hard by the downturn. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n C e n t r a L 

a n d e a s t e r n e u r O p e 

1. Mid Europa Partners 

2. Enterprise Investors 

3. 3TS Capital Partners 

Eleven-year-old Mid Europa Partners sealed the first leveraged buyout 

in Central and Eastern Europe post-Lehman Brothers collapse, when 

in July 2009 it bought UPC Slovenia, a Slovenian cable and broadband 

operator. For the deal, valued at €119.5 million, Mid Europa 

lined up European banks ING, UniCredit, BNP Paribas, West LB 

and Natixis for the related €63 million financing package, illustrating 

that banks would indeed lend for the right deal. Mid Europa 

continued to add to its telecom holdings throughout the year, bolting 

One of the most spectacular European exits of 2009 was scored 

by international private equity firm BC Partners. Along with coinvestor 

Apollo Global Management, BC sold Unitymedia, the cable 

platform that owns the rights to the German football league, to a 

US strategic for €3.5 billion. The deal netted BC Partners, which 

first invested in the German company eight years ago, an internal 

rate of return of around 40 percent. 

BC‘s original investment was made 

in 2003, when it pipped rival private 

equity buyers – including Apollo – to 

the €510 million acquisition of Deutsche 

Bank-owned Tele Columbus. 

In 2005 BC merged Tele Columbus 

with another German cable business, 

Apollo-owned Iesy, to form 

the country’s second largest cable 

company behind Kabel Deutschland. 

BC took a 35 percent stake in the 

resulting entity, named Unitymedia, 

and Apollo took 29 percent, with 

the remainder shared between the 

company’s management and hedge funds. Under their ownership, 

more than €750 million was invested in Unitymedia’s network and 

triple play services, as well as the purchase of rights to broadcast 

German football games. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n i b e r i a 

1. Investindustrial 

2. HgCapital 

3. Gala Fund Management 

German football: a profitable 

business for BC 

Southern Europe-focused Investindustrial applied a tried-and-tested 

investment strategy in Iberia during 2009: investing in roller coasters. 

The firm made a €95 million equity investment to take a 50 

percent stake in Southern Europe’s largest theme park, Barcelona’s 

PortAventura. Investindustrial previously owned Italy’s Gardaland 

theme park and associated hotel, theatre and conference centre. It sold 

those assets in 2006 to Merlin Entertainment, which is owned by The 

Blackstone Group. The PortAventura deal, which includes additional ➛

10 YEARS AS A LEADING BUYOUT FIRM IN 

CENTRAL AND EASTERN EUROPE 

Global Machinery 

Producer 

Polish Quadruple- 

Play Operator 

Croatian Cement 

Manufacturer 

Czech Mobile & 

Broadcasting Operator 

Acquired February 

2006 

Acquired March 

2006 

Acquired June 

2006 

Acquired November 

2006 

Lithuanian & Latvian 

Mobile Operator 

Serbian Cable & 

Satellite Operator 

Polish Healthcare 

Provider 


Provider 

Acquired February 

2006 

Acquired June 

2007 

Acquired October 

2007 


2007 

Austrian Mobile 

Operator 


Provider 


Provider 

Global Machinery 

Producer 


2007 

Acquired August 

2008 

Acquired September 

2008 

Acquired September 

2008 

ITV PARTNER 

ЦИФРОВАТА ТЕЛЕВИЗИЯ НА БЪЛГАРИЯ 

Czech Mobile & 

Broadcasting Operator 

Slovenian Triple- 

Play Operator 

Bulgarian Cable TV 

Operator 

Hungarian Telecoms 

Provider 

Acquired November 

2008 

Acquired July 

2009 





WITH OVER 3 BILLION OF ASSETS UNDER MANAGEMENT 

AND TWENTY-SIX INVESTMENTS IN FOURTEEN COUNTRIES 

www.mideuropa.com BUDAPEST LONDON WARSAW


PortAventura: Investindustrial surges 

ahead in Spain 

undisclosed financing from 

Spanish bank La Caixa, is 

“Spain’s largest deal in 2009 

by enterprise value”, according 

to an Investindustrial 

spokesman. 

Investindustrial, currently 

investing a €1 billion 

fund closed in early 2008, 

was an early mover in the 

development of the Southern European private equity market. It 

evolved from a division of the BI-Invest Group, an Italian financial 

and industrial group owned by the Bonomi family, which was 

established in the 1970s to manage a non-core investment portfolio. 

Investindustrial is chaired by Andrea Bonomi. 

This year sees mid-market firm Mercapital unseated as private 

equity firm of the year in Iberia for the first time in the history of the 

Private Equity International Awards. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n i s r a e L 

1. Sequoia Capital 

2. Carmel Ventures 

3. GIZA Venture Capital 

Since its formation in 1972 by Don Valentine, sometimes 

called “the grandfather of Silicon Valley venture capital”, 

Sequoia Capital has built an awesome reputation among the 

wider venture capital community for being able to pick real 

winners from its base in Menlo Park, California. Some of the 

home runs to have benefitted from Sequoia’s backing include 

Cisco Systems, Oracle, Apple Computer, YouTube and Google. 

Outside of the US, Sequoia invests in both China and India, 

as well as Europe from its base in Herzelia, Israel. The Israel 

office capped off 2009 with the sale of Jajah, a VoIP (Voice 

over Internet Protocol) provider, to European wireless network 

operator Telefonica in a €145 million all-cash transaction. 

Jajah has offices in both Israel and the US. Other notable 

milestones for the firm in 2009, such as funding rounds for 

portfolio companies Contendo and Pontis alongside such 

firms as Benchmark Capital, Norwest Venture Partners and 

Accel Partners, convinced PEI readers that Sequoia remains 

the pre-eminent venture capital force in Israel. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n i t a L Y 

1. Investindustrial 

2. Xenon Private Equity 

3. Ambienta 

The global financial crisis has begun to separate the winners 

from the losers and Investindustrial, a Southern European buyand-build 

specialist, has made a strong case for inclusion in the 

former group. The firm experienced success both in raising new 

capital and sourcing new investment opportunities. In October 

it closed a €100 million annex fund – with commitments 

coming largely from existing investors – to fund buy-and-build 

opportunities for the existing portfolio companies in its €500 

million 2005 fund. The fund caught the industry’s attention, 

not only because it was an example of follow-on funding being 

raised at a time of scarce liquidity, but also because the terms 

of the fund were understood to allow LPs greater transparency 

and power as regards the 

fund's investment decisions. 

On the investment 

side, InvestIndustrial 

partnered with French 

firm Alpha in September 

to delist Milan-listed 

“architectural envelope” 

maker Permasteelisa for 

€353 million. Permasteelisa’s 

“envelopes” – or 

curtain walls – have been used in such structures as the Sydney 

Opera House and the Shanghai World Financial Center. Several 

senior executives joined InvestIndustrial during the year, 

including Filippo Gaggini and Luca Destito, who both came 

from rival Italian firm Investitori Associati. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n t h e n O r d i C 

r e g i O n 

1. EQT Partners 

2. Nordic Capital 

3. Altor Equity Partners 

Sydney Opera House: a Permasteelisa 

project 

The private equity industry during the closing months of 2009 

was characterised by a return to deal-making. At the heart of 

this flurry was Stockholm-headquartered powerhouse EQT 

Partners. Some of the eye-catching deals struck by the firm 

included the acquisition of Swedegas, an owner and operator 

of Sweden’s gas transmission network, on behalf of its infrastructure 

fund and the agreed acquisition of publishing group 

Springer Science+Business Media from rival firms Candover 

and Cinven. For the latter of these deals, EQT partnered with 

GIC, the private equity arm of the Singapore government, to 

buy the company in a transaction that, said sources, valued 

the publisher at €2.3 billion. 

EQT set records in November with its first Polish deal. 

Following the establishment of its Warsaw office in 2008, the 

firm completed the largest ever public-to-private transaction 

in Poland by a private equity fund when it delisted medical 

device manufacturer HTL-Strefa for PLN886 million (€210 

million; $293 million). 

EQT takes back its crown as best private equity firm in the 

Nordic region from last year’s winner, Nordic Capital. ➛

Winners 

Equity 

2001, 2002, 2003, 2004, 2005, 

2007, 2009 PEI Award winner 

‘Best Private Equity Firm for 

the Benelux Region’ 

www.gilde.com 

Despite the stormy financial market conditions Gilde continued to invest in 

successful, leading businesses with the acquisitions of Powerlines Group in 

Austria and Plukon Royale in The Netherlands. We are proud that in recognition 

thereof we were voted ‘2009 Private Equity Firm for the Benelux Region’ 

by Private Equity International. 

Rooted in the Benelux since 1982, Gilde Buy Out Partners has grown to become 

one of continental Europe’s premier mid market private equity firms managing 

over EUR 1.3 billion of capital. 

We are grateful to the management teams we have backed and to our 

investors and advisors whose continuous support and trust are paramount to 

our lasting success.


t h e b e s t p r i v a t e e Q u i t Y F i r m i n r u s s i a 

1. Baring Vostok Capital Partners 

2. VTB Capital 

3. TPG 

The fragile Russian private equity market has been rocked by 

the global financial crisis and is still reeling from the effects. 

Even the longest-established firms – such as Baring Vostok 

Capital Partners – have been battling to steer portfolios through 

strong headwinds. In a September interview posted on the firm’s 

website co-managing partner Michael Calvey, who along with 

Alexei Kalinin runs the firm, said that much of the partners’ 

time was being expended on managing through the crisis. 

“Obviously, there are three or four difficult situations that 

we have in our portfolio,” he said. “Out of seventeen companies 

there are three or four problem companies on which 

we’re spending a tremendous amount of time right now either 

working out liability and balance sheet issues or fundamental 

organisational and structuring, which is necessary. The other 

businesses all have important issues but most of them are 

opportunities rather than threats.” With $2 billion of committed 

capital ready to deploy on new investments, Baring Vostok is 

well positioned well to seize these opportunities. 

t h e b e s t p r i v a t e e Q u i t Y F i r m 

i n s W i t Z e r L a n d 

1. Capital Dynamics 

2. Capvis 

3. Zurmont Madison Private Equity 

A landmark industry consolidation 

deal helped Capital Dynamics, 

a Zug-based fund of funds and 

advisory firm, knock long-time stalwart 

Capvis off the Swiss top-spot 

for 2009. In July, CapDyn closed a 

deal with Silicon Valley-based HRJ 

Capital and its lender Silicon Valley 

Bank to assume management of 

HRJ’s private equity and real estate 

funds of funds. The deal boosted 

CapDyn’s assets under management 

Kubr: industry consolidator 

by more than $2 billion and added 

certain professionals to the team. 

The founders of HRJ – Ronnie 

Lott and Harris Barton – joined CapDyn as managing directors, 

whilst HRJ’s real estate head, Howard Fields, joined CapDyn to 

continue in this role. Lott has since left the firm. Notably for the 

Swiss alternatives firm, the deal bought it new relationships with 

elite venture capital GPs and a toe hold in the real estate fund of 

funds business, something it had not previously boasted. For details 

on a significant mandate win for Capital Dynamics turn to p. 45. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n t h e u K 

1. CVC Capital Partners 

2. 3i 

3. Anacap Financial Partners 

The crowning of CVC 

Capital Partners as the 

UK’s private equity firm 

of the year could be considered 

as recognition of 

the London-based firm’s 

achievements overseas 

as much as its exploits at 

home. The world’s seventh iShares: the one that got away 

largest private equity firm, 

according to the PEI 300, 

was behind one of the highest value leveraged buyouts of the 

year: the acquisition of the Central European operations of 

brewing giant Anheuser-Busch InBev for up to $3 billion. 

In the UK, CVC was involved in a number high-profile 

sale processes that captured the attention of the wider market 

but ultimately did not bear fruit. It agreed in April to acquire 

iShares – an exchange traded fund (ETF) platform – from 

parent company Barclays in what would have been a £3 billion 

(€3.3 billion; $4.4 billion) deal. Barclays later, however, 

decided to sell iShares’ parent unit, Barclays Global Investors, 

to BlackRock in a $13.5 billion transaction. CVC had also 

reportedly been eyeing a £2 billon privatisation of the UK’s 

Royal Mail. Ultimately, however, the UK government pulled 

the plug on the potential sale of a stake in the postal service 

pending an improvement in market conditions. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n F r a n C e 

1. AXA Private Equity 

2. LBO France 

3. Edmond de Rothschild Investment Partners 

Senequier: diverse portfolio 

Since it was founded in 1996, 

AXA Private Equity has – under 

the stewardship of chief executive 

office Dominique Senequier 

– diversified its investment activity 

into a multitude of strategies, 

including leveraged buyouts, venture 

capital, funds of funds, mezzanine 

and infrastructure. 

AXA’s increasing focus on infrastructure 

investment led to a 

number of investments during 

2009, such as the acquisition of 

Babcock & Brown International 

Group’s wind assets in France ➛

Building Russia’s Leading Businesses 

for More Than 15 Years 

Thanks to the readers of PEI and PEO 

for voting Baring Vostok 

the “Best Private Equity Firm in Russia” 

for the fifth consecutive year. 

Ducat place II, U1. Gasheka Suite 750, Moscow, 123056, Russia 

Tel: +7 (495) 967-1307 

Fax: +7 (495) 967-1308 

Email: info@bvcp.ru


and a joint venture with Tozzi Group to invest in the Italian 

renewable energy sector. 

Overall the firm ranked among the top 10 firms of 2009 in 

terms of putting capital to work, completing a total of €2 billion 

of deals, according to data from Mergermarket. It is also among 

the world’s top 10 firms in terms of investment performance, 

according to research published by Oliver Gottschalg, associate 

professor at HEC School of Management in Paris, as reported 

by in December. The research ranked rated using a blend of 

six different performance indicators. 

t h e b e s t L a W F i r m ( F u n d F O r m a t i O n ) 

i n e u r O p e 

1. SJ Berwin 

2. Clifford Chance 

3. O’Melveny & Myers 

Once again the firm credited with originally designing the private 

equity partnership model is leading the European pack in terms 

of fund formation. SJ Berwin lays claim to one of the world’s 

largest dedicated funds teams in the world, and the firm went to 

great lengths during 2009 to extend its reach yet further. During 

the first half of 2009, it opened its first two non-European offices. 

SJ Berwin’s China and East Asia practice was unveiled in March, 

to be founded by partners Daniel Liew, who is also the firm’s Asia 

managing partner, Peter Tse and Hans Thomas Kessler. A month 

later the firm unveiled plans for an office in Dubai to cover the 

Middle East and surrounding Asian and African countries. Led by 

private equity funds partner Benjamin Aller, who moved from Paris, 

and international arbitration partner Tim Taylor, who moved from 

London, the initial focus of the office would be investment funds, 

private equity and dispute resolution, the firm said at the time. 

t h e b e s t L a W F i r m ( t r a n s a C t i O n s ) 

i n e u r O p e 


2. Ashurst 

3. Freshfields Bruckhaus Deringer 

Clifford Chance retains 

its crown after another 

year spent at the heart 

of many of Europe’s 

most significant private 

equity deals. The law 

firm’s private equity 

group capped off 2009 

British Car Auctions: Clifford by assisting Clayton 

Chance advised on CD&R’s Dubilier & Rice on its 

secondary buyout 

acquisition of British 

Car Auctions from Montagu Private Equity, in a deal that 

valued the business at £390 million (€432 million; $620 

million). The transaction, signed in late December, followed 

on the heels of the sale by long-standing client Duke Street 

of Simple and the acquisition by Permira of Just Retirement, 

for both of which Clifford Chance were lead counsel. 

Clifford Chance’s German practice worked with Montagu 

on the €212.5 million sale of sausage skin manufacturer 

Kalle to Silverfleet Capital in August. 

The firm also found itself on the oppposite side of the 

table from the financial sponsors in December, when it 

acted as legal advisor to Anheuser-Busch InBev on the 

sale of its Central European operations to CVC Capital 

Partners. 

t h e b e s t d e b t p r O v i d e r i n e u r O p e 

1. Barclays Capital 

2. Credit Suisse 

3. HSBC 

Debt was hard to come by in 2009, but some of the largest 

deals to be done tapped Barclays Capital for financing. Barclays’ 

investment banking operation, led by chief executive 

officer Bob Diamond, was behind one of Europe’s most eyecatching 

private equity deals: the $3 billion acquisition of 

the Central European operations of brewing giant Anheuser- 

Busch InBev in October by CVC Capital Partners. The bank 

was also behind Silver Lake’s $2.2 billion acquisition of 

65 percent of VoIP (Voice over Internet Protocol) business 

Skype from web giant eBay. 

Outside of Europe, Barclays provided financing for The 

Blackstone Group-backed Pinnacle Food’s $1.3 billion acquisition 

of frozen food business Bird’s Eye. It was also involved 

in the $1.65 billion acquisition of TASC by General Atlantic 

and Kohlberg Kravis Roberts. 

Barclays Capital was set up in 1986. The team is led an 

executive committee that includes Diamond; Jerry del Missier, 

Barclays Capital president and co-chief executive officer 

of corporate and investment banking; Rich Ricci, co-chief 

executive of corporate and investment banking and Iain 

Abrahams, a managing director focusing on risk, liquidity 

and private equity. 

t h e b e s t m & a a d v i s e r i n e u r O p e 

1. Rothschild 

2. Hawkpoint 

3. Houlihan Lokey 

Rothschild was at the centre of many of Europe’s private equity 

deals last year. The investment bank, which has been established 

for more than 200 years, advised on more than 20 transactions 

in 2009, some of which were the biggest deals of the year.

AXA Private Equity 

LONDON 

PARIS 

FRANKFURT 

MILAN 

ZURICH 

VIENNA 

SINGAPORE 

Since 1996, the AXA Private Equity teams have supported the development 

and long-term growth of its portfolio companies while generating 

sustained and stable returns. 

AXA Private Equity, a diversified private equity firm with international 

reach across Europe, Nord America and Asia provides investors with funds 

across the full range of private equity offerings: infrastructure, funds of 

funds, direct funds and mezzanine. 

US$ 25billion 

Funds of funds 

US$ 13.8 billion 

• Primary 

• Secondary 

• Early Secondary 

• Mandates 

of assets managed or advised. 

Direct Funds 


• Venture 

• Small Cap 

• Mid Cap 

• Co-Investment 

• Eastern and 

Central Europe 

Infrastructure 


• Brownfield 

• Greenfield 

Mezzanine 


• Arranger 

• LBO financing 

• Acquisition 

financing

Is your team 

reaDy for 2010? 

PeI training 2010 

Date Training Course Course Location 

Length 

16-18 February Private Equity 101 3 days London 

23-25 February The Fundamentals of private equity 3 days New York 

and venture Capital 

2-3 March Private Equity Investor Relations 2 days London 

16-17 March Distressed Real Estate 2 days New York 

23-25 March Private Equity 101 3 days Zurich 

27-29 April The Fundamentals of private equity 3 days San Francisco 


10-12 May The Fundamentals of private equity 3 days New York 


13-14 May Distressed Real Estate 2 days New York 

June Private Equity 101 3 days Hong Kong 

June Private Equity Investor Relations 2 days Hong Kong 

June Private Equity 101 3 days London 

July Private Equity Investor Relations 2 days London 

September Private Equity 101 3 days Frankfurt 

September The Fundamentals of private equity 3 days San Francisco 


September Distressed Real Estate 2 days San Francisco 

October Private Equity 101 3 days Hong Kong 

October Private Equity Investor Relations 2 days Hong Kong 

October 

The Fundamentals of private equity 3 days New York 


October Distressed Real Estate 2 days New York 

November Private Equity 101 3 days London 

November Private Equity Investor Relations 2 days London 

IN-House Courses 

We can also offer bespoke, in-house training, where you define the course requirements and we provide 

the right people and the right structure to deliver a unique training experience expressly for your own people. 

We continue to send 

our analysts to these 

highly practical 

courses to further 

build their knowledge 

of private equity 

from seasoned 

practitioners 

Jane Sutherland, 

Operations Director, 

MVision Private Equity Advisers 

Delegates from the following companies have attended a PEI Training course: 

u 3i 

u Abraaj Capital 

u Abu Dhabi 

Investment Authority 

u Actis 

u August Equity 

u Brunei Investment 

Agency 

u Cambridge Associates 

u Coller Capital 

u Dunedin 

u Finnfund 

www.peimedia.com/training 

u Fondinvest Capital 

u Greenpark Capital 

u Lyceum Capital 

u MVision Private 

Equity Advisers 

u Permira 

For more information or to book, contact Kapriel Kasbarian 

email kapriel.k@peimedia.com or call +44 207 566 5437 

u Ontario Teachers’ 

Pension Plan 

u SJ Berwin 

u Standard Bank 

u The Carlyle Group 

u UBS 

London | New York | Singapore 

www.peimedia.com


Rothschild advised Advent International and real estate 

investor Marcol on their acquisition of MEDIAN Kliniken, the 

country’s largest care home operator. Though financial details 

were not disclosed, Marcol said the transaction was the largest 

private equity deal in 2009. Rothschild also served as an 

advisor on Bridgepoint’s exit of Pets at Home. Bridgepoint was 

considering taking the company public, but hired Rothschild to 

explore possible M&A transactions for the company. Earlier 

this year, Rothschild’s advisory work paid off as Kohlberg 

Kravis Roberts agreed to acquire the company for £955 million, 

giving Bridgepoint an 8x total return multiple on its investment. 

Rothschild also advised The Blackstone Group and Lion 

Capital on their exit of Orangina Schweppes for €2.6 billion, 

one of the largest European exits of 2009. 

t h e b e s t p L a C e m e n t a g e n t i n e u r O p e 

1. MVision Private Equity Advisers 


3. JPMorgan Cazenova 

Guen: speaking out 

for agents 

MVision Private Equity Advisers 

takes the crown for the 

eighth year running as best 

placement agent in Europe. 

Since its formation in 2001, 

MVision has worked on more 

than 250 general partnership 

funds. In 2009 the firm added 

a 100 million annex fund for 

Southern European buy-andbuild 

specialist Investindustrial 

and a $200 million debut fund 

for Beijing-based Keytone Ventures. 

CHAMP Private Equity 

and Abraaj Capital were among 

the other groups for which MVision helped raise capital 

in 2009. 

MVision was founded by chief executive officer Mounir 

Guen and executive director Charles Nicholson. Guen 

previously spent 13 years at Merrill Lynch as a managing 

director responsible for building up the international 

non-US business on the general partner and investor level. 

Nicholson was a founding shareholder at private equity 

firm Cinven. 

Aside from his clients’ fundraising mandates, Guen turned 

his attention in 2009 to the turbulence hitting the wider 

placement agent industry. In defense of the role of legitimate 

placement agents, he sent a letter to the US Securities 

and Exchange Commission: “Placement agents are legitimate 

businesses that provide wide-ranging and valuable 

professional services to investment advisors, services that 

ultimately benefit institutional investors, including public 

pension plans,” Guen wrote. 

t h e b e s t F u n d O F F u n d s i n e u r O p e 

1. Capital Dynamics 

2. Partners Group 

3. HarbourVest 

Adding to its gong for private equity firm of the year in Switzerland, 

Capital Dynamics pips compatriot group Partners 

Group – last year’s winners – to earn the crown of European 

fund of funds of the year. 

Before boosting its assets under management by taking over 

HRJ Capital (for more details see p.42), CapDyn firm kicked 

off 2009 with a significant mandate win. The $10 billion plus 

Government Pension Fund (GPF) of Thailand selected the Zugbased 

advisory firm to oversee its entry into international private 

equity. The mandate sees CapDyn manage a programme 

worth approximately $330 million to be invested over a period 

of three years. GPF had been a long-time investor in domestic 

private equity. Katharina Lichtner, a managing director and 

head of research at Capital Dynamic, told PrivateEquityOnline.com 

at the time the firm was selected in a tender process 

that involved approximately 10 private equity asset managers. 

CapDyn was chosen because of its global reach and its 

outstanding investment and portfolio and risk management 

expertise, she said. 

t h e b e s t s e C O n d a r i e s F i r m i n e u r O p e 

1. Coller Capital 


3. HarbourVest 

Coller Capital stepped up in 

2009 to find opportunity in a 

distressed environment. The firm 

was behind two of the year’s most 

widely admired acquisitions. In 

September it established a £170 

million (€195 million; $265 million) 

fund along with Harbour- 

Vest Partners to buy 30 European 

venture portfolio investments 

from 3i. The fund, called Encore 

1, was to provide “significant 

Coller: private equity leader 

follow-on capital” for the companies 

over the next few years 

(for more details, see p. 49). The 

3i deal followed an earlier acquisition that saw Coller pick 

up a 24 percent stake in London listed private equity investor 

SVG Capital (for more details, see p. 49). 

Both investments were made from Coller’s $4.5 billion fifth 

fund, which closed in 2007. Coller is expected to start raising 

its sixth fund in 2010 with a target of up to $6 billion. 

Chief investment officer Jeremy Coller founded his


eponymous firm in 1990, having pioneered the acquisition 

of private equity secondaries at Imperial Chemical Industries 

Investment Management. Regular readers of PEI won’t be 

surprised to find Coller’s firm rising to prominence 10 years 

later. Eight years ago, the outspoken secondaries guru told 

PEI that “you need a visionary” to lead a firm to prominence, 

because “if you do it by committee, it’s bound to be mediocre”. 

t h e b e s t d i s t r e s s e d d e b t F i r m i n e u r O p e 

1. Oaktree Capital 

2. Apollo Global Management 

3. TowerBrook Capital Partners 

The glut of dramatic 

restructurings widely 

anticipated in 2009 did 

not materialise in earnest 

with many debt-laden 

companies negotiating to 

amend and extend their 

debt packages, rather 

Bavaria Yachtbau: new captains than overhaul their capital 

structures. However, a 

at the helm 

few high profile cases, in 

which lenders managed to wrest control of businesses from 

their financial sponsors, captured the limelight. One such deal, 

which saw control of German yacht maker Bavaria Yachtbau 

taken from private equity firm Bain Capital in October, contributed 

to the fact that readers voted Oaktree Capital as the 

inaugural European distressed debt firm of the year. 

Oaktree, alongside Anchorage Capital, had been a lender to 

the boat maker for more than a year, having purchased a total 

of roughly €900 million in debt related to Bain’s €1.3 billion 

2007 leveraged buyout. The two lenders said in October that 

they had taken control of 95 percent of the company’s €960 

million in debt and had been “working collaboratively” with 

Bain on the restructuring. 

A similar deal, in which control of French roofing company 

Monier was taken from financial sponsor PAI Partners, earned 

lenders Apollo Global Management and TowerBrook Capital 

Partners a place on the awards podium. 

t h e b e s t s p e C i a L s i t u a t i O n s / t u r n a r O u n d 

F i r m i n e u r O p e 

1. Rutland Partners 

2. Kelso Place Asset Management 

3. Endless 

A long track record of turnaround success helped UK-based 

Rutland Partners win the inaugural European special situations/turnaround 

firm of the year. The firm had a relatively 

quiet 2009, although in September it did complete the £52.2 

million (€59.8 million; $83 million) carve-out of the CeDo 

group of companies from German holding company Delton. 

The deal was Rutland’s third investment from its £322 million 

second fund and was financed by Lloyds TSB Commercial 

Finance and Indigo Capital. Other investments in its 

Fund II portfolio include Pulse Home Products and Attends 

Healthcare. 

Rutland has operated as a private equity fund since 2000. 

Prior to that the team, led by managing partners Paul Cartwright 

and Nick Morrill and chairman Michael Langdon, ran 

a public company whose investment focus was very similar to 

today’s private equity fund. 

Rutland beat two rival UK-based firms to the top spot: 

Kelso Place Asset Management, which raised £100 million 

for its first institutional fund; and Endless, which acquired a 

number of businesses, including Vasanta Group, a beleaguered 

Yorkshire-based office supplies company formerly owned by 

private equity firm Electra Partners. 

t h e b e s t m e Z Z a n i n e F i r m i n e u r O p e 

1. Intermediate Capital Group 

2. Park Square Capital 

3. 17 Capital 

Though it is best known for 

its mezzanine activities, by the 

beginning of 2010 Intermediate 

Capital Group was preparing to 

take a 47 percent stake in patent 

licensing business CPA. The 

move is part of a recent effort 

by ICG to diversify its portfolio 

with the purchase of minority 

equity stakes. One such acquisition 

has paid off handsomely 

for the firm: its minority interest 

in pharmaceutical logistics company 

Marken resulted in ICG’s 

Marken: just what the doctor 

ordered 

largest-ever balance sheet gain – a profit of £68 million 

(€78 million; $108 million) – when the business was sold 

to Apax Partners in December 2009. 

The firm has also had success in amassing dry powder to 

capitalise on upcoming opportunities. In November, ICG 

announced that it had raised €544 million for the ICG 

Recovery Fund 08 with an eye toward participating in balance 

sheet restructurings of good businesses. 

The firm’s mezzanine holdings remain central to many 

high-profile restructurings of European private equity portfolio 

companies. It recently sold its mezzanine position in 

Gala Coral – a gaming group owned by Permira, Cinven 

and Candover – to Apollo, Cerberus Capital Management 

and Goldman Sachs.


t h e b e s t L i m i t e d p a r t n e r i n e u r O p e 


2. AlpInvest Partners 

3. The Wellcome Trust 

With CHF 20.2 billion (€14 billion; $19 billion) in private equity 

assets under management and a global team of over 220 private 

equity professionals in 10 offices, Switzerland-headquartered 

Partners Group is already one of the world’s largest private equity 

asset managers. The firm’s ability to make direct investments, as well 

as secondary and primary fund commitments, is key to keeping it 

a leader in an industry poised for consolidation, Alfred Gantner, 

Partners Group co-founder and managing chairman, said in a statement 

in December. 

Among its accomplishments in 2009, publicly traded Partners 

blew past a €2 billion target to close its third global secondaries 

fund on €2.5 billion. One of the new LPs the fund attracted was 

Australia’s HOSTPLUS, whose A$100 million (€59 million; $84 

million) commitment marked the superannuation fund’s first-ever 

secondaries-focused investment. That was on the heels of the Korea 

Investment Corporation awarding the firm a $100 million separate 

account mandate to invest in secondaries. 

Partners’ traction in Asia among powerful pools of state-backed 

capital will not be surprising to regular PEI readers. In 2007, Partners’ 

executive vice chairman, Urs Wietlisbach, signalled the Swiss 

asset manager planned to work more closely with sovereign wealth 

funds. In late 2007, the firm moved former co-head of markets, 

Erik Kaas, to the business development committee, which he now 

co-heads, to oversee the build-up of important investor base segments 

like sovereign wealth funds. Clearly that strategy has paid off. 

e u r O p e a n p r i v a t e e Q u i t Y d e a L O F t h e Y e a r 

1. SVG Capital stake: Coller Capital 

2. StarBev (InBev's CEE operations): CVC Capital 

Partners 

3. Bavaria-Yachtbau: Oaktree Capital Management / 

Anchorage Capital Partners 

Over-commitment strategies gone wrong were a key theme 

for many funds of funds in 2009: as distributions and realisations 

slowed, so too did the ability to honour capital calls. 

This was quite publicly illustrated by London-listed Permira 

investor SVG Capital, which flagged the fact it would have 

trouble making its €2.8 billion commitment to Permira IV. 

This prompted Permira to allow LPs to reduce commitments 

by up to 40 percent to its €11.1 billion buyout fund (the 

offer was taken up by 10 percent of LPs, reducing the fund 

to about €9.6 billion). Its apparent liquidity concerns coupled 

with other wider market factors had an adverse effect 

on SVG’s stock price, which is what made it such a unique 

secondaries target. SVG sought to boost liquidity with a 

£171.3 million (€195.5 million; $267.9 million) rights issue 

and placement offer, £50 million of which was snapped up 

by secondaries specialist Coller Capital (an existing Permira 

LP). While Coller doesn’t tend to invest in public equities, 

the 24 percent stake in SVG allowed it access to Permira 

funds at a significantly lower entry point than it would have 

found had it bought access to the same LP interests on the 

traditional secondary market. 

e u r O p e a n v e n t u r e C a p i t a L d e a L O F 

t h e Y e a r 

1. 3i portfolio: DFJ Esprit / Coller Capital / HarbourVest 

2. Spotify: Wellington Partners / Northzone Ventures 

3. Wonga: Balderton Capital Management / Accel 

Partners / Greylock Partners 

If 2009 was heralded as 

“Year of the Secondary”, 

it may have ultimately 

proved disappointing in 

terms of the volume of 

transactions completed. 

However, the venture 

capital deal of the year 

was also one of the 

year’s largest secondaries fastbooking: part of the package 

deals. Coller Capital and 

HarbourVest acquired 

around 30 of 3i’s portfolio investments via Encore I, a 

£170 million ($280 million; €192 million) fund, which will 

provide "significant follow-on capital" for the companies 

over the next few years. The fund is managed by Encore 

Ventures, an affiliate of venture firm DFJ Esprit. Among 

the investments transferred to Encore's stewardship were: 

hotel booking site FastBooking, wireless broadband provider 

The Cloud and orthobiologics company ApaTech. 

e u r O p e a n p r i v a t e e Q u i t Y e X i t O F t h e Y e a r 

1. Orangina: The Blackstone Group / jLion Capital 

2. Wood Mackenzie: Candover 

3. Unitymedia: BC Partners/Apollo Management 

As the financial markets swung upward in the latter half of 

2009, The Blackstone Group and Lion Capital achieved a 

lucrative exit for a portfolio company the firms had held since 

2006. Japanese brewer Suntory Holdings bought Orangina 

Schweppes for €2.6 billion, making the deal one of the largest 

of 2009. Lion, a consumer sector-focused firm, and global 

private equity firm Blackstone bought the company for about 

€2.2 billion in a carve-out from confectionary and drinks giant 

Cadbury Schweppes. The two firms more than doubled their 

initial investment of €300 million each, representing a 30 percent 

annual return.


Suntory had been working to 

expand its international presence 

and took over a portfolio of 22 

brands selling into more than 60 

markets, including labels like Orangina, 

Schweppes, Oasis, Trina, Pulco 

and La Casera. Suntory also added 

distribution rights to the Schweppes 

and Oasis brands in North East 

Asia. 

After the exit, Lion’s portfolio 

contained two remaining drinks 

Orangina: deal with the 

producers: Russian Alcohol 

most fizz 

Group and Nidan, two Russian 

businesses acquired in 2008 and 

2007 respectively. Blackstone and Lion were advised on 

the deal by Rothschild, JPMorgan, Citigroup, Blackstone 

Corporate Advisory, RBS and Nomura. 

e u r O p e a n v e n t u r e C a p i t a L e X i t O F t h e Y e a r 

1. CoreValve: Sofinnova Partners 

2. Playfish: Accel Partners / Index Ventures 

3. Gomez: Doughty Hanson Technology Ventures 

Antoine Papiernik, Sofinnova Partners’ managing partner, 

complained in early 2009 about those who questioned the 

viability of early-stage venture capital investment in Europe. 

Such doubters likely had to eat some humble pie following 

Sofinnova’s $700 million-plus trade sale of medical device 

company CoreValve. 

The deal was the largest exit in the firm’s 35-year history, 

and netted a return in excess of 10 times its original investment. 

It was also a vindication for Papiernik, who had resisted 

previous offers to buy the company despite increasing pressure 

from investors. Papiernik’s response was that Sofinnova knows 

European early stage investment better than anyone else. 


nOrth ameriCan 

aWards 

n O r t h a m e r i C a n L a r g e - C a p p r i v a t e 

e Q u i t Y F i r m O F t h e Y e a r 

1. Hellman & Friedman 

2. Kohlberg Kravis Roberts 

3. First Reserve Co. 

Hellman & Friedman helped give 

a boost to the subdued fundraising 

market in October when it 

closed its seventh fund – the largest 

in the firm’s history – on $8.8 

billion, which will be deployed 

in 2010 with a focus on “largescale, 

equity-related” investments 

of between $300 million 

and $1.2 billion, primarily in the 

US and Europe. 

Hellman, the 14th largest private 

equity firm in the world, saw 

Hammarskjold: promoted 

re-up commitments from 75 percent 

of existing investors, while 

international investors increased their proportion of the fund 

from around 25 percent to 40 percent of the total. Part of its 

ability to attract increasing amounts of capital from outside 

the US was in recognition of the growing contribution of its 

European effort, with the firm completing a number of investments 

across the continent in 2009, the firm said. 

LPs were clearly unfazed by top management changes during 

2009, which saw Philip Hammarskjold become chief executive, 

succeeding Brian Powers, who took the chairman’s role from 

founder Warren Hellman. Patrick Healy, head of the London 

office, became deputy chief executive. 

n O r t h a m e r i C a n m i d - m a r K e t p r i v a t e 

e Q u i t Y F i r m O F t h e Y e a r 

1. Pine Brook Road 

2. The Riverside Company 

3. General Atlantic 

Although it has only been around since 2006, Pine Brook 

Road Partners was recognized as the top mid-market firm in 

North America last year in part due to a $1.4 billion close on 

its debut fund. Despite the tough fundraising environment, the 

final figure was just a hair under the original $1.5 billion target. 

In addition to its rapid growth, Pine Brook Road differs from 

its private equity brethren in that its strategy calls for starting 

businesses instead of buying companies, investing equity to 

grow them and not using financial leverage to create returns. It 

uses a “line of equity” structure that advances capital over time. 

➛


The firm believes there is a wealth of opportunities in the 

financial services and energy sectors, which will be targeted 

with investments of between $100 million and $200 million 

from its first fund. 

It also made sure to staff up last year in anticipation of an 

increase in activity in 2010. In September former Eton Park 

Capital Management partner Oliver Goldstein joined the firm 

as managing director with responsibility for energy investing 

activities, while Eric Leathers was brought on from Capital Z 

Partners to handle financial services investments. With nearly 

a billion and a half to spend, Goldstein and Leathers should 

certainly have their hands full this year. 

n O r t h a m e r i C a n v e n t u r e C a p i t a L F i r m O F 

t h e Y e a r 

1. Accel Partners 

2. Kleiner Perkins Caufield & Byers 

3. Khosla Ventures 

In 2009, Silicon Valley stalwart Accel Partners proved that 

companies offering game-changing new services and technologies 

can win even in the most baleful economy of a lifetime. 

The monetisation events that Accel and its LPs enjoyed were 

also an amazing validation of the venture capital asset class 

– at least when the strategy is executed by the right people. 

You may have been in too much pain to celebrate, for example, 

a 2 percent investment in Facebook that valued the social 

network at $10 billion, and therefore valued Accel’s reported 

10 percent ownership of the company at $1 billion – a nice 

step up from the original $21 million invested. Other exits 

were impressive – ever heard of AdMob, SpringSource or BBN 

Technologies? The sale of all three meant $870 million in 

proceeds to Accel. 

It was a year in which the IPO market has never been worse, 

and yet Accel had in its portfolio roughly $2 billion in perceived 

value that the firm was able to realise. The world is changing 

quickly, and the best venture investors own the ideas that will 

capture this change, regardless of macroeconomic conditions. 

Change is also coming from the East, where Accel grew 

in 2009, having hired Neeraj Bharadwaj from Apax to join 

Accel India Ventures. 

t h e b e s t p r i v a t e e Q u i t Y F i r m O F t h e Y e a r 

i n C a n a d a 

1. Canada Pension Plan Investment Board 

2. Teachers Private Capital 

3. Onex 

If the surge in private equity investment activity witnessed at 

the end of 2009 can be taken as an indicator of its plans for 

2010, then big things can be expected from the Canada Pension 

Plan Investment Board. The investment division of the giant 

C$123.8 billion (€83.2 billion; $120.1 billion) Canada Pension 

Plan teamed with TPG in November to purchase pharmaceutical 

information provider IMS health in a deal valued at $5.2 

billion. In the two months before the pension partnered with 

Sterling Partners to buy Livingston International for €175 

million and increased its stake in Indian software firm Aricent 

alongside Kohlberg Kravis Roberts. 

It is going into 2010 with its sights set on growth: a fact 

which was underlined, the organization said at the start of the 

year, by its promotion of private investments chief Mark Wiseman 

to lead all private equity, real estate, and public transactions. 

The move came after the firm in November reported a 

C$7.2 billion gain in the value of its investment fund since 30 

June, buoyed by recovering public equity markets. However, 

while the gain is significant, it is still just a small step toward 

the pension’s overall growth targets for the next seven years. 

Wiseman has said that CCPIB expects its investment fund to 

actually double in size in the next five to seven years. 

t h e b e s t L a W F i r m ( F u n d F O r m a t i O n ) 

i n n O r t h a m e r i C a 

1. Debevoise & Plimpton 

2. Simpson Thacher & Bartlett 

3. Proskauer Rose 

The private equity partnership has 

always been something of a genteel 

battleground, but in 2009 issues that 

were once viewed as worthy of debate 

took on greater rancour. Debevoise & 

Plimpton were in the middle of these 

LP-GP discussions working to see that 

all parties agreed on artful alignments 

of interests that allowed the GPs to 

get on with what they are paid to do 

Harrell: fund former – generate returns. 

The Debevoise North American fund 

formation team is led by partners Michael Harrell and David 

Schwartz. The group has since 1995 advised private equity firms 

on the formation of some 1,200 funds, including the recent 

Prudential Capital Partners mezzanine fund, which rounded up 

$965 million in commitments. It also advised on the $5 billion 

new buyout fund from Clayton Dubilier & Rice. 

Including the North America team, Debevoise has 60 lawyers 

around the world focused exclusively on fund formation, 

making it among the largest and most global firms offering 

this service. 

Bespoke fund structures are going to proliferate as investors 

demand changes to standards terms and conditions, and as 

business circumstances open up new opportunities for creative 

co-investing. It won’t be surprising to see team Debevoise 

continue to advise on all this complex activity.

t h e b e s t l a w f i r m ( t r a n s a c t i o n s ) i n 

n o r t h a m e r i c a 

1. Kirkland & Ellis 

2. Simpson Thacher & Bartlett 

3. Ropes & Gray 

In a relatively quiet year for 

mergers and acquisitions, Chicago-based 

Kirkland & Ellis 

remained one of the busier 

firms. According to Mergermarket, 

during the first three 

quarters of 2009, the firm 

ranked second as an advisor 

Birds Eye: Kirkland advised on sale to US middle-market deals by 

way of value, and second in 

the Midwest, Northeast and Southern states by way of volume. 

It also advised on some eye-catching deals, including The Blackstone 

Group’s purchase of Birds Eye Foods from Vestar Capital 

Partners for $1.3 billion. 

Kirkland scored a coup last year when it expanded its team with 

the addition of M&A lawyers, David Fox and Daniel Wolf, who 

joined from rival Skadden, Arps, Slate, Meagher & Flom. They will 

be based in Kirkland's New York office. A source told the New York 

Times that Kirkland sees the hires as part of a strategy to “build 

the firm. . . into one of the top five worldwide M&A advisors”. 

Beyond North America, Kirkland also grew, with a new office in 

Shanghai that, according to a press release, will focus “on complex 

transactions involving China for international private equity firms 

and corporations and will represent Chinese entities active abroad”. 

If the firm can establish the kind of deal foothold in China that 

it has in North America, it has a very bright future indeed. 

t h e b e s t d e b t p r o v i d e r i n n o r t h a m e r i c a 

1. JPMorgan 

2. Goldman Sachs 

3. Bank of America/Merrill Lynch 

Let’s be clear – in 2009 the volume of financial sponsor loan financing 

globally was $14.3 billion, according to data provider Dealogic. 

The figure for 2008 was $144.3 billion. That said, in the second 

half of 2009, the high-yield bond market came roaring back, cutting 

somewhat into the infamous LBO “wall of debt” and spelling nice 

fees for investment banks that arrange these types of financings. The 

number one beneficiary of this trend was debt Goliath JPMorgan, 

which was ranked by Thomson Reuters as the top fee earner for debt 

underwritings at the third quarter of 2009. 

Private equity knows JPMorgan well as a font of syndicated 

debt. This much was clear from an interesting profile written about


JPMorgan vice chairman Jimmy 

Lee and his lending prowess in 

TheStreet.com midway through 2009. 

The reporter noted: “There is no doubt 

Lee is still viewed by many executives 

in high places – particularly among the 

private equity set – as the man who 

holds the keys to JPMorgan's vault. [A] 

litany of big names like The Blackstone 

Group's [Stephen] Schwarzman, News 

Lee: yield to him 

Corp Chairman and CEO Rupert Murdoch 

and former General Electric chief Jack Welch readily returned 

TheStreet.com's calls to give Lee a full-throated endorsement.” 

Silver Lake co-founder Glenn Hutchins, who was pleased to see 

JPMorgan debt supplied to make possible the firm’s exit of Skype, 

said: “The most important thing about Jimmy is he can deliver.” 

t h e b e s t m & a a d v i s e r i n n O r t h a m e r i C a 


2. JPMorgan 

3. Houlihan Lokey 

Goldman Sachs had bigger fish to fry in 2009 than advise on private 

equity deals, but as the global economy returns you can be sure that 

its dominance in the M&A market will translate into continuing 

to serve financial sponsors in a big way. It is notable, for example, 

that Goldman Sachs was involved as an advisor on five of the ten 

largest US deals during 2009. It is also striking that not a single 

one of those deals was private-equity backed. 

That said Goldman was also dominant as an M&A advisor in 

the US middle-market, where private equity deals were far more 

likely to be completed. The firm, along with Bank of America/ 

Merrill Lynch, Barclays Capital, Evercore Partners, and JPMorgan 

acted as financial advisors to TPG and CPPIB on proposed the 

buyout of IMS Health, the largest private equity deal of the year 

at $5.2 billion. 

In particular, private equity needs IPOs in 2010 if it is to be 

resuscitated as a functioning asset class, and here Goldman has 

the opportunity to help out and earn major fees in the process. A 

wave of Goldman-advised IPOs would be such a welcome development 

that GPs may even forget to complain about competition 

from the bank’s huge private equity principal investment division. 

t h e b e s t p L a C e m e n t a g e n t i n n O r t h 

a m e r i C a 


2. Probitas Partners 


It was just about the toughest year on record for placement 

agents. It was bad enough that raising funds from institutional 

investors was like pulling 

teeth. On top of that, US 

placement agents found 

themselves smeared in a 

pension fund “pay-to-play” 

scandal, being compared to 

sleazy influence peddlers. 

And finally, placement 

agents at major banks often 

saw their jobs cut. Merrill 

Credit Suisse: New York digs 

Lynch, once a major player, 

got out of the placement 

business, so did Citi. 

But Credit Suisse still stands. The firm’s private funds group, 

led by John Robertshaw, Raymond Cosman and Anthony 

Bowe, worked on some impressive fund closings in 2009, 

including a $1.3 billion Pomona secondaries fund and a $1.5 

billion Odyssey Investment Partners Fund. 

Credit Suisse also played a prominent role in arguing against 

a proposed SEC ban on placement agent-public pension interaction. 

As private equity becomes more difficult, GPs will need more 

sophisticated fundraising services to take them to difficult-toreach 

investors around the world. Unless they can build this 

capability in house, they will need to rely on placement agents 

with large networks and deep expertise like Credit Suisse. 

t h e b e s t F u n d O F F u n d s i n n O r t h a m e r i C a 

1. HarbourVest Partners 

2. Adams Street Partners 

3. Portfolio Advisors 

In an interview with Private Equity 

International last year, Brooks Zug, 

the co-founder of Boston-based fund 

of funds giant HabourVest Partners, 

seemed to almost relish the ongoing 

downturn in private equity. Sure, he 

said, GPs will raise less capital. “Some 

won’t be able to raise any money,” he 

continued. “Historically, that usually is 

the time when performance improves, 

Zug: since 1982 

because there’s less capital, less competition 

and less pressure on pricing.” 

HarbourVest can clearly recognise a market cycle, having 

been in business since 1982. The firm is ambidextrous enough 

to engage in many forms of private equity activity where the 

opportunities present themselves, but steadfast in its belief that 

one must stay committed to the asset class through all kinds 

of markets in order to succeed. In his PEI interview, Zug, who 

also offers major secondaries funds, wondered aloud if there 

was too much money going into secondaries, when in fact a 

less heralded success may be just around the corner – venture ➛

“North American 

Law Firm of the Year 

(Fund Formation)” 

“Asian Law Firm 

of the Year 

(Fund Formation)” 

— P R I VAT E E Q U I T Y I N T E R NAT I O NAL 

We thank our 

clients for the 

opportunities 

that have made 

this honor 

possible. 

N E W YO R K 

W A S H I N G TO N , D. C . 

LO N D O N 

PA R I S 

F R A N K F U R T 

M O S C OW 

H O N G KO N G 

S H A N G H A I 

W W W. D E B E VO I S E . C O M


capital, for example. “A lot of people are shying away from [VC] 

because it’s been so long since we’ve seen performance,” said 

Zug. It is this kind of herd mentality that HarbourVest argues is 

corrected through consistent investment in HarbourVest vehicles. 

t h e b e s t s e C O n d a r i e s F i r m i n 

n O r t h a m e r i C a 

1. Landmark Partners 

2. Lexington Partners 


Landmark Partners, now led by Chairman Francisco Borges, 

actually started life in 1984 as Technology Transitions, a venture 

capital firm. In 1989, the firm changed its name and strategy, 

and announced a major secondary deal – the $100 millionplus 

acquisition of a portfolio of 54 venture capital partnership 

interests from financial services corporation Cigna. A 1989 

press release from Landmark notes: “The concept of acquiring 

existing venture capital portfolios is believed to be a relatively 

new approach.” 

The secondaries strategy is no longer new but it is still gaining 

fans – most LPs today say they are most excited about the 

secondaries strategy within their portfolios. A mix of this excitement 

and Landmark’s track record allowed the firm to recently 

close on more than $1.5 billion in commitments for Fund XIV, 

among the largest Roman numerals in the industry. Although 

the Simsbury, Connecticut-based firm originally targeted $2 billion, 

it was still ahead of the $1.2 billion raised in 2005 for the 

prior fund. In 2007, the firm raised $155 million for a one-off 

secondary deal involving seven buyout partnership interests. 

Its other interesting accomplishments in 2009 included the 

creation of a preferred annex fund structure for a $165 million 

(oversubscribed) vehicle raised to aid portfolio companies in 

MatlinPatterson’s $1.6 billion Fund II. 

t h e b e s t d i s t r e s s e d d e b t F i r m i n 


1. Oaktree Capital Management 

2. Oak Hill Advisors 

3. Avenue Capital Group 

Arguably no firm was better placed to capitalise on last year's 

market volatility and private equity backed-companies' covenant 

woes than Howard Marks-led Oaktree Capital Management. 

In the first year the PEI Awards has offered the distressed 

debt investor category, Oaktree swept the polls with wins across 

North America, Asia and Europe. 

Headquartered in Los Angeles, Oaktree pursues multiple 

investment strategies but remains best associated with distressed 

debt-for-control plays. Among the most high-profile 

Marks: finding value in 

distress 

of these last year was the fight for 

struggling aluminium manufacturing 

giant Aleris International. 

Aleris had been a TPG portfolio 

company that fell into bankruptcy in 

February (wiping out $830 million 

in equity for TPG). It then received 

roughly $1 billion in debtor-in-possession 

(DIP) financing and credit facilities 

to continue operating during the 

bankruptcy/reorganisation process. 

Oaktree, along with Apollo Management 

and Bain Capital affiliate Sankaty 

Advisors, provided roughly half of the DIP package, controversially 

receiving more seniority in the capital structure than 

first lien lenders holding pre-bankruptcy loans. Later agreeing 

to backstop a $690 million debt-and-equity rights offering, the 

three DIP lenders were expected to take control of a reorganised 

Aleris sometime in 2010. 


F i r m i n n O r t h a m e r i C a 

1. KPS Capital Partners 

2. Sun Capital Partners 

3. Monomoy Capital Partners 

After a year of intentionally 

staying on the sidelines, KPS 

Capital Partners came out in 

force in 2009. The firm had 

three marquee deals last year. 

One was the acquisition of certain 

assets from bankrupt china 

and crystal maker Waterford 

Wedgwood, a complex transaction 

that gave new life to an 

Wedgwood: KPS adds to 

collection 

iconic Irish company. The second was a series of acquisitions 

for North American Breweries, the firm’s national beer and malt 

beverage platform: Anheuser-Busch’s Labatt USA division, High 

Falls Brewing Company, and a license for two beverages from 

the US arm of French company Pernod Ricard. The third was 

the acquisition of the assets of FormTech Industries, a maker 

of forged auto parts, by KPS portfolio company Hephaestus 

Holdings. 

Perhaps KPS's most notable accomplishment last year was 

the ease with which the firm upsized its $1.2 billion Fund 

III to $2 billion. In two weeks the firm received $1.2 billion 

of soft circle commitments for the supplemental fund, but 

chose to take in just $800 million. Even more impressive: 

the firm, which is one of the few remaining GPs charging 

25 percent carry, raised the money without making concessions 

on terms. 

➛

Pioneered The Market 

Now 

Leading Its Evolution 

Landmark pioneered the secondary market in 1990 with the first institutional 

secondary market transaction. Since then Landmark has acquired interests in over 

1,000 private equity and real estate funds and partnerships. 

With a 20‐year proven track record, Landmark has the most experienced dedicated 

team providing creative liquidity solutions to private equity and real estate fund 

investors, as well as structured capital solutions to fund sponsors. Landmark is the 

clear choice for investors who want to leverage our unparalleled expertise in 

transaction structuring and execution to actively manage their alternative portfolios. 

Private Equity and Real Estate Secondary Investing 

Boston, MA 

One Federal Street 

Boston, MA 02110 

(617) 556-3910 

Headquarters 

Simsbury, CT 

10 Mill Pond Lane 

Simsbury, CT 06070 

(860) 651-9760 

www.landmarkpartners.com 

London, UK 

29-30 St James’s Street 

London, SW1A 1HB England 

+44 20 7343 4450


t h e b e s t m e Z Z a n i n e F i r m i n n O r t h a m e r i C a 

1. TCW/Crescent Mezzanine 


3. Northstar Capital 

Drexel Burnham Lambert bankers Mark Attanasio, Robert 

Beyer and Jean-Marc Chapus founded Crescent Capital Corporation 

in 1991 to invest in high yield bonds. In 1995, Crescent 

formed a strategic partnership with Trust Company of the 

West, and TCW/Crescent Mezzanine was born. 

Today, the firm invests solely in subordinated debt and equity 

securities in leveraged buyouts, acquisitions, recapitalisations, 

project financings, and growth financings. When the credit 

markets dried up in 2008 and remained somewhat desiccated 

in 2009, TCW/Crescent mezzanine stepped into the gap. 

In February, the firm provided senior subordinated notes and 

equity securities for Veritas Capital’s and GS Direct’s secondary 

buyout of Global Tel*Link, a provider of telecom, software and 

technology products and services to prison inmates, investigators 

and administrators. 

Then in September, TCW/Crescent Mezzanine provided 

senior subordinated notes and equity securities in connection 

with Vestar Capital Partners’ sale of Press Ganey Associates, 

a provider of healthcare performance improvement solutions. 

t h e b e s t L i m i t e d p a r t n e r O F t h e Y e a r i n 


1. Employees Retirement System of Texas 

2. CPP Investment Board 

3. Oregon Investment Council 

The Employees Retirement System of Texas was one of the few 

public US pensions that had a healthy (and fresh) appetite for 

private equity in 2009. The $21 billion pension scheme has 

an 8 percent allocation to private equity. Having entered the 

asset class in 2008 with the goal to put roughly $1 billion per 

year to work over the next four years, it’s sitting on a sizable 

chunk of change still to be deployed. A statement from pension 

board documents makes clear that the institution's chiefs 

realise their entry point is well timed: “It is expected that there 

will be a robust pipeline of high-quality opportunities that will 

be available in the coming 12 months.” 

The ERS committed more than $800 million in fiscal 2009, 

with the two largest commitments made to TA Associates ($150 

million) and CVC European Partners V ($110 million). The 

pension supported four managers with commitments of $100 

million each: the Carlyle Group, Lexington Capital Partners, 

Hellman & Friedman and Riverside Capital. Charterhouse 

Capital Partners also received $74.4 million for its ninth fund; 

$65 million went to Wind Point Partners VII; $60 million 

to Navis Asia Fund VI; and $37.5 million to Brazos Equity 

Fund III. 

n O r t h a m e r i C a n p r i v a t e e Q u i t Y d e a L O F 

t h e Y e a r 

1. BankUnited: The Blackstone Group / The Carlyle 

Group / Centerbridge / WL Ross 

2. Johnson Diversity: Clayton Dubilier & Rice 

3. Eastman Kodak: KKR 

BankUnited: private equity to 

the rescue 

One of the largest and most 

impressive PE-backed bank 

rescue efforts in 2009 was 

achieved by a heavy hitting 

group of private equity 

players: The Blackstone 

Group, The Carlyle Group, 

Centerbridge Partners and 

turnaround specialist WL 

Ross. The private equity 

firms joined institutional coinvestors 

such as a UK-based 

charity The Wellcome Trust to take over Florida's largest independent 

bank, BankUnited, in a $900 million bailout. 

With 86 offices, BankUnited is the largest independent bank in 

Florida and was among the largest retail banks to fail in the US 

last year. 

Led by John Kanas, ex-chairman and chief executive officer of 

New York-based North Fork Bancorporation, the buying consortium 

won a four-month auction process run by the Federal Deposit 

Insurance Corporation. 

The syndicate had the good fortune to take over BankUnited 

before the FDIC began determining "the appropriate terms” to allow 

more private equity firms to acquire failed depository institutions. 

Among the rules the FDIC later set were that private equity-backed 

banks must adhere to a 10 percent Tier 1 capital ratio and must 

remain in their financial sponsors' portfolio for at least three years. 

WL Ross founder Wilbur Ross told the Wall Street Journal that 

had the new rules been in effect during bidding for BankUnited, the 

buyout consortium's offer would have been reduced by a couple of 

hundred million dollars. 

n O r t h a m e r i C a n v e n t u r e C a p i t a L d e a L O F 

t h e Y e a r 

1. Twitter: T. Rowe Price / Insight Venture Partners / 

SPARK Ventures / IVP / Benchmark Capital 

2. Clovis Oncology: Domain Associates / NEA / 

Aberdare Ventures / Abingworth / ProQuest 

Investments / Versant Ventures / Frazier Healthcare 

Ventures 

3. Fisker Automotive: Kleiner Perkins Caufield & Byers 

Many people don’t understand the point of microblogging 

service Twitter, or more accurately, exactly how the site will 

generate revenue. So the $100 million round of financing that ➛

KPS 

Capital partners, lp 

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Manager of private equity limited partnerships with 

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485 Lexington avenue, 31st Floor 

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Tel: 212.338.5100 Fax: 646.307.7100 

www.kpsfund.com


Twitter: business model in 

progress 

Twitter secured from a 

consortium of established 

venture capital firms in 

September 2009 created 

a great deal of buzz. 

The round, reportedly 

being used to dramatically 

expand Twitter’s 

50 million user base, was 

estimated to value the 

company at an eye-popping 

$1 billion. Its previous 

round of financing, raised just a few months earlier in 

February 2009, had valued the company at around $250 

million. 

Insight Venture Capital and T. Rowe Price were new 

investors in Twitter in the September round, while SPARK, 

IVP and Benchmark were already backers of Twitter. The 

new capital is reportedly being used to dramatically expand 

Twitter’s user base, currently around 50 million. 

The venture investors tout the flexibility and openness 

of Twitter’s platform and its thousands of applications. As 

for coming up with a concrete plan to generate revenue, 

IVP’s Todd Chaffee has told reporters: “Relax, it is coming.” 

n O r t h a m e r i C a n v e n t u r e C a p i t a L e X i t 

O F t h e Y e a r 

1. Zappos: Sequoia Capital / Venture Frogs / Millennium 

2. Admob: Accel Partners / Sequoia Capital / Draper 

Fisher Jurvetson / Northgate Capital 

3. ScanSafe: Balderton Capital 

Amazon.com’s acquisition 

of online shoe retailer 

Zappos wasn’t just a standout 

deal in a tough year 

for the venture industry, it 

was also the largest-ever 

purchase made by acquisition-hungry 

Amazon. In a Zappos: direct secondaries fan 

deal valued at nearly $900 

million, Amazon purchased Zappos with 10 million Amazon 

shares and also gave Zappos employees $40 million in cash 

and restricted stock. 

For people in the private equity and venture capital communities, 

Zappos’ sale was highly interesting because it 

provided a headline-grabbing example of successful direct 

secondaries investment. While Sequoia Capital and Draper 

Richards were among the VCs that backed Zappos in seven 

traditional financing rounds thought to have raised up to 

$60 million, Zappos had more than 100 investors, many 

of whom, like Goldman Sachs, JPMorgan, and Millennium 

Technology Value Partners, came in via secondary transactions. 

Even some of Sequoia's position in Zappos was 

secured via a company-instigated share buyback programme 

it underwrote in 2006. 

Millennium did seven separate transactions for Zappos 

stock ahead of its sale to Amazon. The Blackstone Group 

spin-out declined to provide financial details as to 

expected returns save to say it was "pleased". Its involvement 

with Zappos demonstrates "that even in the very 

best, highest-performing companies, even when reasonably 

likely exit events are on the horizon, constituents in the 

capital structure still want, need, or appreciate liquidity 

with certainty earlier than the ultimate exit of the company,” 

said Sam Schwerin, Millennium co-founder and 

managing partner. 

n O r t h a m e r i C a n p r i v a t e e Q u i t Y e X i t 

O F t h e Y e a r 

1. Avago: Kohlberg Kravis Roberts / Silver Lake 

2. Westcorp: THL / Quadrangle Capital Partners 

3. Ovation: GTCR Golder Rauner 

Major exits were a truly 

scarce commodity in 2009. 

In this environment, many 

saw KKR’s and Silver Lake’s 

public float of semiconductor 

company Avago Technologies 

as a beacon of hope – and 

Avago: a ray of light 

hopefully the beginning of a 

bullish trend. 

Listed in August on the Nasdaq exchange, the IPO was 

one of the largest recorded in the US last year; it priced at 

the top of its range, selling 43.2 million shares to raise a 

total of $648 million, and valuing the company at $3.5 billion. 

The stock closed up nearly 8 percent on its first day of 

trading, pushing the company’s valuation to $3. 8 billion. 

The investor group led by KKR and Silverlake, which 

bought Avago in 2005 for a reported $2.7 billion, sold 

nearly 22 million shares worth a total of about $326 million 

in the IPO. In early 2010, the group furthered exited 

the company by selling $435 million-worth of shares in a 

secondary offering. 

In addition to setting what many hoped would be a continuing 

IPO exit trend, the Avago float also marked the first 

time KKR flexed its capital markets muscle. KKR’s capital 

markets arm was one of the IPO’s underwriters, a role that 

has traditionally been played by investment banks. Many 

market observers believe KKR and other large private equity 

fund managers with diversified platforms, such as Apollo 

Global Management, will increasingly look to circumvent 

the investment banks and add to their own revenue streams 

instead.



asian 

aWards 

a s i a n p r i v a t e e Q u i t Y F i r m O F t h e Y e a r 

1. Kohlberg Kravis Roberts 

2. Affinity Equity Partners 

3. Bain Capital 

Bae: no retreat from 

Asia 

While some firms stood still – or even 

beat a retreat from Asia – in 2009, 

Kohlberg Kravis Roberts went ahead, 

under the leadership of Asia head Joe 

Bae, and closed the largest buyout of the 

year, Oriental Brewery (see also: Private 

Equity Deal of the Year in Asia). 

And though Oriental Brewery was 

undoubtedly the high point for the 

firm, it was by no means the only Asian 

string added to KKR’s bow. In October, 

the firm led a consortium including 

GIC Special Investments and CICC Private Equity in a $160 million 

investment in International Far Eastern Leasing Company, 

a Chinese financial leasing provider. One month earlier, it had 

upped its stake in Indian communications software firm Aricent 

to 79 percent by investing a further $255 million in the company 

alongside Canada Pension Plan Investment Board (CPPIB). 

The firm also beefed out its advisory presence in the region in 

2009, with one notable appointment being that of Singapore-based 

former Standard Chartered chief executive officer, Michael Denoma, 

to advise on Asia, the Middle East and Europe. 

a s i a n g r O W t h i n v e s t O r O F t h e Y e a r 

1. SAIF Partners 

2. Baring PE Asia 

3. The Carlyle Group 

Last year it won Asian Venture Capital Firm of the Year. This 

year SAIF Partners has taken the Asian crown for investments 

of a slightly larger scale. 

Having closed deals in companies as diverse as a goat milk 

products manufacturer in China (Yayi International) and an 

Indian media conglomerate (Network 18) in 2009, SAIF has 

clearly established itself as a go-to firm for growth capital in its 

core markets of China, India, Hong Kong and Taiwan. 

It also made the most of a jump in performance of the 

Bombay Stock Exchange to exit PIPE investments in engineering 

firm Thermax and IT solutions company MindTree. Both 

exits generated more than 2x returns for the firm. 

Its approach is winning influential fans, like the California 

Public Employees’ Retirement System, which in December committed 

$120 million to SAFI IV. Though the firm keeps details of 

its fundraising activities a closely guarded secret, it is reportedly 

targeting $1.2 billion for this latest fund. 

a s i a n v e n t u r e C a p i t a L F i r m O F t h e Y e a r 

1. Sequoia Capital India 

2. Intel Capital 

3. Norwest Venture Partners 

Though also a growth investor, it is for its venture capital 

investments that Sequoia Capital India has caught PEI readers’ 

attention this year. 

The year 2009, however, was a relatively quiet one for 

venture investments: in January the firm led a second round of 

financing in internet and mobile consumer services company 

Apnapaisa, and in November the firm committed $13 million 

to Hyderabad-based mobile services company IMImobile. 

However, it is the portfolio of investments the firm has built 

up over a decade in the country that have secured it the prize 

in this year’s awards: Sequoia has made 48 early stage investments 

across the mobile, internet, outsourcing, healthcare, 

consumer services and financial sectors. 

And with the addition of a New Delhi office in 2009 – the 

firm’s third in India – that number of investments looks set to 

grow even more in 2010. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n a u s t r a L i a 

1. Pacific Equity Partners 

2. Archer Capital 

3. Goldman Sachs JB Were 

Last year was a mixed bag for Pacific Equity Partners (PEP). 

The Sydney-based firm hit the headlines when it settled a 

much publicised dispute with advertising group WPP, to which 

it had sold former portfolio company The Communications 

Group, only to have WPP’s chief executive subsequently tell


an Australian newspaper that more 

legal action would be initiated. 

On a happier note, however, the 

sixth largest private equity firm in 

Asia, according to 2009’s PEI Asia 

30, clinched a close to 50 percent 

stake in Australian energy company 

Energy Developments. It had pipped 

private equity firms Archer Capital, 

and reportedly 3i, to a partial stake 

Sims: high profile in the company, which had been the 

object of private equity advances 

since June 2009. 

PEP, led by co-founder and managing partner Tim Sims, is 

currently investing from its fourth and largest fund, the A$4 

billion (€2.5 billion; $3.5 billion) PEP Fund IV, which closed 

in March 2008. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n C h i n a 

1. CDH Investments 

2. The Blackstone Group 

3. Hopu Investment Management 

While many other fund managers are 

struggling with a tough fundraising 

environment, China-focused CDH 

Investments is working out investor 

allocations for its heavily-oversubscribed 

fourth fund CDH Fund IV, two 

sources told sister publication PEI Asia. 

According to one of the sources, 

the fund was originally targeting $2 

billion but lowered its target in light 

of the difficult fundraising environment 

last year – a decision, which 

seemed unnecessary on hindsight. 

Under pressure from the fund’s lead investors, it was capped 

at $1.4 billion. However, CDH could have easily have raised 

double that amount, a source said. The fund is expected to 

hold a final close in the first quarter of 2010. This is the second 

win in a row for CDH, led by key partners including Stuart 

Schonberger and ShangZhi Wu. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n J a p a n 

1. The Carlyle Group 

2. Bain Capital 

3. Unison Capital 

Schonberger: capital 

magnet 

The Carlyle Group is widely acknowledged by industry practitioners 

as one of the most successful Western private equity 

firms in Japan, a notoriously difficult market to penetrate. While 

other Western firms shuttered their operations in Japan amid 

the financial crisis, largely due to a lack of deal flow, Carlyle has 

consistently invested in the country over time. Last year Carlyle 

continued to deploy its massive Japan focused buyout fund, the 

¥215.6 billion (€1.7 billion; $2.4 billion) Carlyle Japan Partners II. 

Last year, the firm acquired auto software provider Broadleaf 

and restaurant and pub operator Chimney Co for an estimated 

¥19.5 billion and ¥20.7 billion respectively. 

Despite the departure of Haruyasu Asakura, the Japanese 

growth capital team head, in August 2009, Carlyle has stated 

that it is continuing its investments in the country’s SME space. 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n i n d i a 

1. IDFC Private Equity 

2. India Value Fund 

3. SAIF Partners 

IDFC Private Equity was started in 2002 by current president 

and chief executive officer, Luis Miranda. “I knew nothing of 

infrastructure in India, other than that it was terrible and a lot 

of people were investing in India and expecting huge growth 

that wouldn’t happen unless infrastructure improved,” he told 

magazine Business India in an interview at the end of 2009. 

Miranda’s knowledge has no doubt developed rapidly since 

those early days as the firm, which is wholly owned by IDFC 

(Infrastructure Development Finance Company), now purports 

to be India’s largest and most active infrastructure-focused private 

equity investor. It is now investing its INR28.3 billion (€508 million; 

$700 million) third fund and manages more than INR57 billion. 

During 2009 IDFC PE the firm executed a share swap deal with 

Bombay-listed GMR Infrastructure, exiting its stake in Delhi International 

Airport. It also added to its clean technology portfolio last 

year when it acquired BP Energy India, a subsidiary of the oil major. 

t h e b e s t L a W F i r m ( F u n d F O r m a t i O n ) i n a s i a 

1. Debevoise & Plimpton 


3. Goodwin Proctor 

Ostrognai: more RMB 

funds on the way 

Despite 2009 being a difficult year 

for fundraising globally, Debevoise 

& Plimpton is currently wrapping 

up some large fund raises, according 

to sources. This fact has clearly not 

escaped the voters’ attention, as the 

firm retains its title for the second 

year running. 

With offices in Hong Kong 

and Shanghai, Debevoise is led by 

Hong Kong-based managing partner 

Andrew Ostrognai. Including ➛

Fundraising 

to the next level 

We have a successful track record in raising 

capital for private equity and real estate firms 

from around the world. 

Our ability to differentiate our clients in a highly 

competitive market and our longstanding 

relationships with active investors in North 

America, Europe, Asia and the Middle East are 

key to our success. 

We are partners with each of our clients, helping 

them reach the next level in fundraising. 

www.csplp.com 


North America 

One Galleria Tower, 13355 Noel Road, Dallas, Texas 75240 

+1.972.980.5800 

Europe 

Grand-Rue 19, 1260 Nyon – Switzerland 

+41.22.365.4500 

Asia 

339 Xikang Road, Shanghai 200040 – China 

+86.21.5213.6959


Ostrognai, Debevoise has a five-strong team dedicated to fund 

formation in Asia. 

As global private equity firms increasingly view Asia – and 

more specifically China – as a new focal point for global private 

equity, the establishment of RMB funds is increasingly 

seen as the key to tapping China’s enormous pools of capital. 

Debevoise is accordingly getting increasingly involved in the 

raising of RMB funds, says Ostrognai. 

t h e b e s t L a W F i r m ( t r a n s a C t i O n s ) i n a s i a 


2. Paul Hastings 

3. Paul, Weiss, Rifkind, Wharton & Garrison 

As the Asian private equity market continued on its trajectory 

of growth, 2009 saw Clifford Chance beef up its private equity 

team across the region, where it has offices in Bangkok, Beijing, 

Hong Kong, Shanghai, Singapore and Tokyo. 

Last year the law firm: promoted Hong Kong-based Neeraj 

Budhwani to counsel; relocated London-based partner Simon 

Cooke to Hong Kong and promoted Beijing-based Terence 

Foo to partner. Hong Kong-based Andrew Whan leads the 

practice in Asia and is supported by Cooke, Foo and Lee Taylor 

in Singapore. 

Private equity deals Clifford Chance advised on last year 

included the $200 million buyout of Beijing Leader & Harvest 

Technology by Affinity Equity Partners and the privatisation 

and consolidation of the listed businesses of oil and gas services 

provider KS Energy into a S$320 million ($227 million; €163 

million) joint venture with Actis. 

t h e b e s t d e b t p r O v i d e r i n a s i a 

1. Standard Chartered 

2. JPMorgan 

3. HSBC 

Standard Chartered’s strong standing in 2009 can be attributed 

to its strong balance sheet and the fact that many of its 

key markets across Asia and Africa were less affected by the 

financial crisis than many of those of its peers. 

The bank was part of the 16-strong consortium of banks that 

handled $850 million in financing for Kohlberg Kravis Roberts’ 

$1.8 billion acquisition of South Korea’s Oriental Brewery from 

Anheuser-Busch InBev, Asia’s largest private equity transaction 

of 2009. It wasn’t just the headline-grabbing deals like Oriental 

Brewery, however, in which StanChart participated. It remained 

active among smaller transactions, providing financing packages 

such as a $51 million facility for Actis’ acquisition of a 

stake in Egypt’s Commercial International Bank. 

Sumit Dayal, the global head of Standard Chartered’s 

leverage finance team, leads 30 professionals around the world, 

of which more than 75 percent focus on Asia. 

t h e b e s t m & a a d v i s O r i n a s i a 


2. Deutsche Bank 

3. Nomura International 

Goldman: towering 

over competition 

Asia did not see too many large 

buyout transactions in 2009, but 

when it did, Goldman Sachs was in 

the thick of the action. This is the 

third consecutive year the investment 

banking giant has won PEI’s Asian 

M&A advisor of the year award. 

Goldman was involved with three 

of the largest Asian private equity 

buyouts in 2009. It was the exclusive 

financial advisor to Kohlberg 

Kravis Roberts for its $1.8 billion 

buyout of Oriental Brewery, the largest 

ever Korean LBO. In Japan, the 

bank advised Citigroup Capital Partners Japan on the sale 

of its 93.5 percent stake in BellSystem24 to Bain Capital for 

¥100 billion ($1.1 billion). It also advised its principal group 

and MBK Partners on the acquisition of theme park Universal 

Studios Japan. 

Elsewhere, in Australia, Goldman Sachs JBWere was the 

joint financial advisor and joint lead manager for the sale 

of United Malt Holdings by CHAMP, which fetched A$757 

million ($655 million). 

t h e b e s t p L a C e m e n t a g e n t i n a s i a 

1. Capstone Partners 


3. CP Eaton Partners 

Nine-year-old Capstone Partners in 2009 joined the lengthening 

list of Western placement agents seeking a foothold in the 

Asian market. To lead operations from its Shanghai office, 

the firm hired Sheng Lu, previously a partner at recruitment 

specialists Heidrick & Struggles, where he headed the firm’s 

Asia fund placement initiative. 

Capstone plans to increase the number of Asian real estate 

and private equity funds on its books and also build closer 

relationships with Asian investors. “GPs in Asia, particularly 

in the emerging markets, have been very underserved in the 

past,” Lu told sister magazine PEI Asia. 

The firm also anticipates working more closely with Asian 

LPs. “A lot of GPs in North America and Europe are looking


outside of their region to raise money – Asia has quickly become 

a source of money,” Lu said, noting Japan and Australia, the 

Middle East and China are quickly rising to prominence as 

stops on the fundraising route. 

secondaries fund that hit its €2.5 billion hard cap in December. 

As interest levels continue to rise in this segment of the 

private equity market in Asia, it would seem more good news 

is likely on the horizon for Partners Group. 

t h e b e s t F u n d O F F u n d s i n a s i a 


2. Asia Alternatives 

3. Squadron Capital 

After coming in a close second in the 2008 awards, Partners 

Group replaced Squadron Capital as the best fund of funds 

manager in Asia for 2009. 

The Zug, Switzerland-based firm has steadily expanded its 

presence on the ground in Asia and now has offices in Singapore, 

Beijing, Sydney and Tokyo, giving it one of the largest 

teams of any funds of funds managers in Asia. 

Philipp Gysler leads the Asia team, which makes primary 

fund commitments across the Asia-Pacific region and invests in 

secondary and direct transactions, as well. The firm is currently 

investing out of its second dedicated Asia-Pacific “programme” 

for which it raised $1.1 billion in December 2008, exceeding 

its $1 billion target. 

In 2009, Partners Group also saw the successful IPO of one 

of its portfolio companies, China Forestry Holdings, which is 

also backed by the Carlyle Group as an investor. China Forestry 

raised $200 million through its IPO. 

t h e b e s t d i s t r e s s e d d e b t F i r m i n a s i a 


2. Lone Star Funds 

3. Pacific Alliance Group 

Oaktree Capital Management has steadily beefed up its presence 

in Asia since it was set up in 1995. The firm’s Asian operations 

were established in 1998 with the opening of offices in Singapore 

and Tokyo. In 2005, the firm best known for its distressed debt 

prowess opened another office in Hong Kong and followed it 

up a couple of years later with an office in the Chinese capital. 

Despite a slowdown in fundraising globally, the firm has 

been fervently fundraising. It raised nearly $11 billion a global 

distressed debt fund closed in May 2008, while it continues to 

rake in commitments from leading institutional investors for 

Oaktree Principal Fund V, which is targeting commitments of 

$5 billion. That global fund employs a “loan-to-own” strategy, 

in which investors try and gain control of a troubled company 

by buying its debt at a discount and then taking control in a 

bankruptcy process. Expect Oaktree’s regional network to help 

it stand out from the crowd once it goes about deploying its 

fund in Asia. 

t h e b e s t s e C O n d a r i e s F i r m i n a s i a 


2. AXA Private Equity 

3. Paul Capital 

Partners Group also took honours in 

Asia for best secondaries firm of the 

year. While secondary investments 

are still a relatively new phenomenon 

in Asia, the firm received a large 

stamp of approval from one of the 

region’s limited partners most active 

in alternative investments: the Swiss 

manager was awarded a $100 million 

mandate to invest in secondaries 

on behalf of sovereign wealth fund 

Gysler: almost local Korea Investment Corporation. 

Partners Group also secured a 

notable commitment from Australian 

superannuation fund HOSTPLUS, which represented the 

institutional investor’s first foray into the secondaries market. 

HOSTPLUS committed A$100 million ($84 million; €59 million) 

to Partners Group Secondary 2008, the firm’s third global 


F i r m i n a s i a 



3. Mount Kellett Capital 

In addition to taking home the award for the Asian distressed 

firm of the year, Oaktree Capital Management was also voted 

the Asian special situations firm of the year. 

The global firm established its “Asia Special Situations Strategy” 

in 2007. In the same year, it acquired a pan-Asian real estate 

investment firm Pangaea Capital Management, which had offices 

in Seoul, Shanghai, Tokyo and Singapore, giving Oaktree an even 

wider network across the region. With the acquisition of Pangaea, 

the firm also obtained the services of Pangaea founder Bob Zulkoski, 

who currently heads up the Asian special situations and real 

estate teams at Oaktree and is a managing director. 

In late 2009, Oaktree’s strategy has been endorsed by one 

of the region’s largest limited partners, sovereign wealth fund 

the China Investment Corporation. CIC reportedly planned to 

invest up to $1 billion with Oaktree to invest across several 

strategies.


t h e b e s t m e Z Z a n i n e F i r m i n a s i a 

1. Asia Mezzanine Capital Group 

2. ICG Asia 

3. CLSA Capital Partners 

As new investments in Asia in 2009 slowed down due 

to uncertainty in the market, the demand for mezzanine 

capital was negatively affected, as well. However, a few 

opportunities did emerge as banks and hedge funds, which 

had been highly active in providing shorter-term mezzaninetype 

loans, began pulling back. 

Asia Mezzanine, which typically invests between $15 

million and $50 million per transaction, was among those 

to capitalise on the gap in the market. The firm provided 

$25 million in mezzanine financing for Chinese steel component 

part manufacturer, Anhui Yinglui Group, whose 

other investors include private equity firms CDH Investments 

and China Everbright Investment Management. 

Investing from its Asia Strategic Capital Fund on behalf 

of Japan’s ORIX Corporation and other institutional investors 

like New York Life Insurance, Asia Mezzanine is led 

by former credit-oriented ex- bankers and private equity 

professionals. It is the second straight year the firm has 

won this category. 

the best L i m i t e d p a r t n e r i n a s i a 

1. Government of Singapore Investment 

Corporation (GIC) 

2. National Social Security Fund (China) 

3. Australian Government Future Fund 

The Government of Singapore Investment Corporation 

(GIC) regains the top spot from fellow Singaporean sovereign 

wealth fund Temasek Holdings, after a tumultuous 

fiscal 2008/2009, which saw its portfolio shrink by more 

than one-fifth. 

The state fund, which manages assets estimated at more 

than $300 billion, also saw off competition from China’s 

mammoth RMB563 billion ($82 billion; €59 million) 

National Social Security Fund, which is currently only 

allowed to invest in domestic private equity funds. 

Fortunately, GIC recovered more than half of the losses 

incurred in 2008 by March last year. Already an active 

investor in private equity, the fund also increased its exposure 

to the asset class to 11 percent from 8 percent as part 

of a wider push to up its allocation to alternatives. GIC 

makes direct investments as well and has a portfolio of 

more than 200 companies globally. 

a s i a n p r i v a t e e Q u i t Y d e a L O F t h e Y e a r 

1. Oriental Brewery: Kohlberg Kravis Roberts 

2. Beijing Leader & Harvest Electric Technologies: 

Affinity Equity Partners 

3. BellSystem24: Bain Capital 

Oriental Brewery: KKR 

cracks one open 

It probably won’t shock you to learn 

that Kohlberg Kravis Roberts’ $1.8 

billion purchase of Oriental Brewery 

from Anheuser-Busch InBev – hands 

down the most talked about private 

equity transaction in Asia – was voted 

private equity deal of the year: 

To finance what was the largest 

Asian buyout transaction in 2009, 

the firm received a vendor note worth 

$300 million, paid $800 million in 

equity and the remainder was raised 

from a consortium of 16 international 

and Korean banks. Such debt syndication 

was no mean feat in an environment hostile to such lending. 

KKR subsequently offloaded half the company’s equity to 

Asian private equity firm Affinity Equity Partners. The roping in 

of Affinity, which has experienced significant success in Korea, 

struck market observers as a win-win for all parties: it gave Affinity 

a highly sought after asset and for KKR, it was an effective 

way to de-risk a transaction in a geography where it had no 

prior experience. 

a s i a n v e n t u r e C a p i t a L d e a L O F t h e Y e a r 

1. Borqs: Norwest Venture Partners/ GSR Ventures / 

Keytone Ventures 

2. wiMAX: Intel Capital 

3. SINA: CITIC Capital Holdings / FountainVest 

Partners / Sequoia Capital China 

It’s perhaps not surprising that one of 

the most active investors in Asia’s venture 

capital market – Norwest Venture 

Partners – and one of the hottest growing 

industries in the region – mobile 

phone technology – were the key ingredients 

behind Asia’s venture capital deal 

of the year. Taking the honours was the 

$17.4 million Series B round in Chinese 

mobile software company Borqs. The 

financing was led by Silicon Valleyheadquartered 

with participation from 

Borqs: dialing up 

growth 

Chinese venture capital firms GSR Ventures and Keytone Ventures. 

Borqs, an open source mobile application software provider 

and integrator, develops software for wireless providers, network 

operators and handset manufacturers. The company is poised to ➛

AustrAliAn PrivAte equity Firm oF the yeAr 2009 * 

EDL 

Energy 

Public/Control 

Link/AAS 

Share Registry 

MBO/Trade 

REDgroup 

Book & Specialty 

Retailer 

MBO 

Hoyts Group 

Media & Entertainment 

MBO 

Veda Advantage 

Business Intelligence 

Public to Private 

Collins Foods 

Group 

Restaurant Operator 

MBO 

Independent Liquor 

Alcoholic 

Beverages 

MBO 

Xtralis 

Fire/Security 

MBO 

Tegel Foods 

Poultry 

MBO 

Godfreys 

Cleaning Products 

Specialty Retailer 

MBO 

Startronics 

Electronics 

Manufacturing 

MBO 

AST 

Share Registry 

MBO 

Griffins 

Biscuits/Snacks 

MBO 

Control investments 

ev A$250m – 1,000m, ComPetitive Position, stAble industry, AustrAliA/new ZeAlAnd 

more thAn 10 yeArs oF leAding returns 

*Pei AwArds 

www.pep.com.au


expand its customer base in China, a country with more than 

700 million mobile users, comfortably the most in the world. 

Norwest said Borqs’ “significant traction” with China Mobile, 

the world’s largest phone operator, was one of the key factors 

in the firm’s decision to back the company. 

a s i a n p r i v a t e e Q u i t Y e X i t O F t h e Y e a r 

1. Shenzhen Development Bank: TPG 

2. Kathmandu: Goldman Sachs JBWere, 

Quadrant Private Equity 

3. United Malt Holdings: CHAMP Private Equity 

Though it has yet to complete, the agreement last June by 

Chinese insurer Ping An Insurance to acquire TPG’s stake 

in Shenzhen Development Bank (SDB) is widely tipped to 

become one of the most successful Asian exits ever recorded. 

In fact, there are many that say it will rival the 10x 

returns – but perhaps not the notoriety – recorded by US 

firm Ripplewood Holdings when Japan’s Shinsei Bank floated 

in 2003. 

However, it was not a deal that had easy beginnings. 

The 2004 deal, carried out by TPG’s then Asian affiliate 

Newbridge Capital, was a landmark transaction in Chinese 

private equity, for it was the first ever sale of a controlling 

stake in a Chinese bank to a foreign investor and took two 

years to materialize. 

After much wrangling and a lawsuit – against Taiwanese 

bank Chinatrust Commercial Bank, which TPG accused 

of interfering with the firm’s purchase plans – TPG finally 

acquired a roughly 18 percent stake in SDB for $145 million. 


Latin ameriCa, aFriCa and middLe east 

aWards 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n 

L a t i n a m e r i C a 

1. Advent International 

2. WAMEX Private Equity Management 

3. Aureos Capital 

2009 marks the fifth year at the top for the Latin American team at 

global private equity firm Advent International. From its regional 

headquarters in Mexico City and offices in Sao Paulo and Buenos 

Aires, Advent has built up its Latin American presence since its 

beginnings in 1996 to a team of 30 investment professionals coheaded 

by Ernest Bachrach and Juan Carlos Torres. 

Currently investing out of its fourth regional fund, the $1.3 

billion LAPEF IV which closed in 2007, Advent last year made 

two investments in Brazil: a R$280 million ($140 million; €100 

million) injection into a holding company of education provider 

Kroton, which gave the firm an indirect stake of 28 percent; and a 

R$360 million investment in CETIP, the largest central depository 

for private fixed-income securities and over-the-counter (OTC) 

derivatives in Latin America, which gave it a 30 percent stake. 

Kroton was Advent’s 15th deal in the country. 

a F r i C a n p r i v a t e e Q u i t Y F i r m O F t h e Y e a r 

1. Actis 

2. Citadel Capital 

3. African Capital Alliance 

Emerging markets specialist Actis has taken the African crown 

once more. Although the firm followed a highly active 2008 

with a quieter 2009, it still managed to write its largest equity 

cheque ever – and notch up the continent’s biggest private 

equity deal of the year in the process – with the $244 million 

investment into Egypt’s Commercial International Bank. 

Looking ahead to 2010, the investment prospects look good 

for the firm, which closed a $2.9 billion fund at the end of 

2008 and a $750 million infrastructure fund in 2009 and is 

therefore sitting on one of the largest pools of capital with the 

potential to be deployed in Africa. 

“The arrow is always pointing upwards,” Peter Schmid, 

Actis’ head of Africa, told Privateequityonline.com in September 

2009. “Africa is making steady progress on all fronts, 

whether it’s democracy, infrastructure, human capital or the 

growing private sector.” 

t h e b e s t p r i v a t e e Q u i t Y F i r m i n 

t h e m i d d L e e a s t 

1. Abraaj Capital 

2. Citadel Capital 

3. Investcorp 

Though 2009 saw this MENA giant lie relatively low as far as 

new investments were concerned, it did not stop Abraaj Capital 

from pushing forward aggressively in other ways. 

First off, in June, the firm opened its fourth office outside the UAE, 

appointing Sari Anabtawi to lead a seven-strong team in Riyadh. 

Then, in November, Abraaj raised $375 million through a 

rights issue to existing shareholders and used the capital to acquire 

Riyada Ventures, a Jordanian MENA-focused venture capital 

firm. The acquisition formed the core of the firm’s new push into 

the small and medium enterprise space, into which it intends to 

invest “hundreds of millions of dollars”, according to a statement 

released by Abraaj at the time. 

The only blip for this firm seems to be the slow fundraising 

environment affecting much of the market. Spokespeople 

for Abraaj indicated in the second half of the year that it may 

not reach the $4 billion fundraising target it set for its fourth, 

buyout-focused fund. ■

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Global themes 

The year of the weird p. 70 

The shoe fits p. 74 

2009: Year of the LP p. 77 

Two decades of giving and receiving p. 79 

Keeping calm, carrying on p. 80 

Lessons from the fundraising trail p. 82 

Regulation roundup p. 84 

Law-abiding citizens p. 89 

Four mistakes not to make p. 90 

Feeling the effects: 

The global financial downturn drastically 

dampened numerous segments of the 

private equity landscape. A constrained 

fundraising environment, valuation and 

pricing mismatch on the secondary 

market and the power shift from GPs to 

LPs were among 2009’s many issues 

with global implications that this 

next section explores.


S E C O N D A R I E S 

The year of the weird 

A staggering amount of capital was raised for secondaries 

funds in 2009, but the surge in deal activity many people 

expected didn't follow suit. Amanda Janis explores 

In late 2009, Elly Livingtone, global 

head of Pantheon Ventures' secondary 

activity, was asked during the European 

Private Equity and Venture Capital 

Association's buyouts conference in 

Paris how he would characterise the 

secondary market over the past 12 

months. 

He thought for a moment, and 

replied, “weird”. 

Indeed, 2009 was unusual for the 

sector for a number of reasons. To 

begin with, there was a significant spike 

in global secondary fundraising activity 

– the niche raised a record high of 

$22.3 billion in 2009, making it the 

only private equity sector globally that 

surpassed its 2008 totals, according to 

secondaries broker, placement agent 

and advisory firm Probitas Partners. 

From 2008 to 2009, secondaries 

fundraising totals increased an eyepopping 

201 percent, boosted by fund 

closes from firms including Partners 

Group, LGT Capital Partners, Portfolio 

Advisors, HarbourVest Partners, 

Pomona Capital and Goldman Sachs. 

But despite all that dry powder, not 

as much capital was invested in the 

market as expected. While there is no 

official tally, market experts' figures 

in terms of secondaries deals closed 

in 2009 vary from $6 billion to $10.5 

billion – below the $15 billion many 

market participants say makes up a 

“normal” year, and well off from projections 

that the year's closeable dealflow 

could reach as high as $30 billion. 

“Everyone thought this was going 

to be the year of secondaries,” says 

Hanspeter Bader, managing director of 

Geneva-based asset management firm 

Unigestion's private equity funds. “It 

wasn't.” 

F L a t C O n s u m p t i O n 

While the amount of capital secondaries 

firms put to work in 2009 was less than 

many may have anticipated, the amount 

of product that was purchased was probably 

about equal to 2008 tallies, says Ian 

Charles, principal at secondaries firm 

Landmark Partners. 

“Say $100 million of NAV came 

through at 80 cents [on the dollar] in '08, 

that would get booked as $80 million of 

transaction value. And if the same thing 

came through in '09, say at 40 cents, it 

gets booked at $40 million of transaction 

value,” Charles says. “So [it seems 

C L O s i n g t h e g a p 

like] there’s been a 50 percent reduction 

in volume, but the exact same thing came 

through the system.” 

By Charles' quick estimation, roughly 

$19.5 billion of transaction value was 

recorded in 2008 at an average discount 

of around 30 percent. “That means about 

$27 billion of NAV was consumed by the 

secondary market.” The figure is closer 

to between $35 billion and $38 billion, 

he says, based on the assumption that as 

mostly mature portfolios were being sold, 

for every $3 of NAV purchased, there was 

$1 of an unfunded relationship. 

“The only thing that changed in 2009 

was the pricing and the fact that there 

were more highly unfunded commitments 

consumed,” Charles says, noting the NAV 

to unfunded ratio was probably closer to 

1:1, with the average purchase price over 

the year being around 55 cents on the 

dollar. He estimates there were around 

$18 billion to $19 billion in unfunded 

commitments sold, meaning a total of $37 

A look at secondary bid spreads over time shows that pricing 

rebounded dramatically in the second half of 2009 

% NAV 

% 

120% 

110% 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

% 

% 

% 

% 

% 

% 

% 

% 

% 

B 

B 

2003 2004 2005 2006 2007 H1 

2008 

B 

B 

% 

Bid spreads by year 

Source: Cogent Partners 

20% 

2003 2004 200 2006 200 1 2008 H2 2008 H1 2009 H2 2009 

B 

H2 

2008 

B 

H1 


H2 


B 

Average High 

Average Median 

Average Low 

B 

B 

C 

M 

Y 

CM 

MY 

CY 

CMY 

K


billion in assets would have been absorbed 

by the secondary market. “It's almost a 

flat consumption model,” he says. 

LP interests were the assets most commonly 

being shopped on the secondaries 

market last year, with an emphasis 

toward recent vintage buyout funds. 

“A lot of brand names were for sale,” 

recalls Tim Jones, deputy chief investment 

officer of secondaries firm Coller 

Capital. “If there was a predominance it 

was probably the mega-buyouts because 

they were worst hit in terms of volatility 

and they had the most highly geared 

portfolio companies – good companies, 

just highly geared. Investors also wanted 

to back-peddle on having invested so 

much in the ‘07 and ‘08 vintages and 

wanted to sell some of it down.” 

p r i C e d r O p 

But the differences in buyer and seller 

price expectations ultimately kept a 

lot of anticipated activity from taking 

place. 

“Prices dropped straight off a cliff 

in the back-end of ’08 and beginning of 

’09,” says Jones. “The combination of 

extreme volatility and stale asset valuations 

meant that the secondary market 

was offering prices like 20 or 30 cents 

on the dollar. Who would willingly take 

that sort of write-down?” 

Distressed sellers in need of liquidity 

– including many publicly listed 

European funds of funds that were 

leveraged and/or had an overcommitment 

strategy reliant on steady distributions 

– were those most active in 

the first part of the year, says Todd 

Miller, managing director of secondaries 

broker and advisor Cogent 

Partners. “In some cases it was getting 

rid of large unfunded commitments 

where people were taking little 

to no purchase price just to get out 

of the unfunded [commitments],” he 

says. “But then the financial markets 

rebounded and frankly the capital 

calls haven't occurred at the pace 

that people at one time predicted.” 

As a result, many investors that had 

been pondering secondary asset sales 

decided to shelve them. 

b i t s a n d p i e C e s 

“Large deals just didn't happen – quite 

a few were put in the market but then 

pulled back by sellers because they 

wouldn't get the price they wanted,” 

Bader says. “None of the guys who put 

$500 million or $1 billion [in bundles of 

LP fund interests] on the market actually 

sold that, they may have sold a few funds 

or decided to wait.” 

The ability for buyers to put in an offer 

for just a few funds, rather than being 

compelled to bid for a bundled package, 

was a departure from the past few years. 

“In 2005-2007, usually the reply from 

intermediaries in the market was either 

you take everything or nothing,” Bader 

says. “But in 2009, even in these ‘megadeals’ 

you could negotiate to buy only a 

couple of funds out of a portfolio of 25.” 

That was in part because for many sellers 

it was about streamlining relationships 

and even whittling down just a few was 

progress, Bader says, but also because sellers 

looking to maximise value would have 

chosen to sell only those receiving the best 

bids and then held on to the others until 

prices further rebound. 

s e C O n d a r Y s p O t L i g h t 

Stanford University’s endowment, led 

by chief executive John Powers, was one 

of many large investors in private equity 

that had pondered using the secondaries 

market for portfolio management but 

ultimately held out for higher valuations. 

Stanford put about $1 billionworth 

of partial private equity stakes 

on the market in the fall, only to pull 

them in December after receiving what 

it considered low bids. Powers told 

PrivateEquityOnline.com that Stanford 

was a patient investor that could wait 

for the right price before selling. 

Jones called it a “hugely” frustrating 

year to be a buyer. “By about halfway 

through the year it was clear that 

not much was going to get closed,” he 

recalls. “Some of what people were 

doing was actually just price discovery, 

which was doubly frustrating. On 

the other hand, it was still an investment 

in the future from our point of 

view, because many of the people with 

portfolios in the market last year are in 

principle, for strategic reasons, genuine 

sellers – it’s just that the pricing was 

wrong. So many will be back; and in 

fact some are back already.” ■ 

PEI readers voted Coller Capital's acquisition of a 24 

percent stake in listed fund of funds SVG Capital the 2009 

European private equity deal of the year (see p. 47). Coller's 

deputy CIO, Tim Jones, tells PEI why it counted as the secondary 

firm's most interesting transaction last year 

“We don’t typically invest in public shares. The SVG investment 

was an indirect route to some private equity assets we 

thought were being mispriced by the marketplace. SVG was 

at something like £8 per share in June, but £2 per share by 

December – the share price fell far quicker than the writedowns 

in the underlying Permira funds [in which SVG invests]. 

That created an investment opportunity because the public 

markets, in their haste, overshot on the downside. SVG’s share 

Jones: Permira fan 

price collapsed more than the actual value of the assets and 

we were therefore able to offer a very attractive price. We 

know the Permira assets well and think Permira is a good strong franchise. This 

knowledge allowed us to buy in through the public markets at a price that would 

not have been feasible in the traditional secondary market.”


S E C O N D A R I E S 

Zappos: secondary firms think outside the box 

The shoe fits 

As illiquidity continues to plague individuals and investment 

funds, Amanda Janis explores some innovative secondary 

transactions that may become more commonplace 

The phrase “elegant solution” has become 

a mantra among secondary players, and 

not without reason. Whether it’s a firm, 

a fund or an individual in need of cash, 

secondary firms are rushing to the rescue 

– complex transaction diagrams in hand. 

s i n g L e - t r a C K 

Far from the mainstream of secondary 

activity – the purchase of LP fund interests 

or a portfolio of companies – is the 

“onesie”, or a single-asset, single company 

transaction. While secondary stock 

purchases, particularly in VC-backed 

start-ups, are nothing new, many say 

the practice is gaining ground. Different 

parts of the capital structure are regularly 

up for grabs and companies have 

become more accepting of such direct 

secondary deals. 

Onesies are common tools for firms 

like Millennium Technology Value Partners, 

a New York-based spinout from 

The Blackstone Group, and Azini Capital, 

a UK-headquartered firm backed by 

more “traditional” secondaries players 

Greenpark Capital and Lexington Partners. 

The investment thesis revolves around 

building up a stake in a company via a 

series of transactions with past or present 

employees or management looking for 

liquidity. 

Millennium has quietly amassed 

stakes in many well known companies 

including social networking site Facebook, 

online dating service eHarmony 

and internet shoe retailer Zappos. The 

latter, already well known in the US, skyrocketed 

to fame when, in July, Amazon 

agreed to buy it in a roughly $900 million 

deal, which won PEI’s 2009 award for 

best VC-backed exit in the US. 

The online shoe retailer’s traditional 

venture backers, including Sequoia Capital 

and Draper Richards, got much subsequent 

press, but Zappos had more than 

100 investors, many of whom came in 

via secondary direct deals. 

“Zappos has been around for 10 

years and throughout those 10 years 

there’s been a need for liquidity here 

and there,” explains Alfred Lin, Zappos’ 

chief financial officer and chief operating 

officer. “When those sorts of situations 

arise, we try to help our investors so that 

both parties can be happy – the one who 

wants liquidity and the one who wants 

to invest in the company even though 

we’re not raising any capital.” 

The company as a result counts all 

sorts of parties, from employees to investment 

banks, as its shareholders, having 

only exercised its first rights of refusal 

“once or twice”. 

In 2006, the company did its own 

secondary transaction by raising money 

from Sequoia for a share buyback programme. 

“There were also some secondaries 

that happened throughout the 

last two or three years”, which is how 

Lehman Brothers, Goldman Sachs and 

Morgan Stanley became shareholders, 

Lin says. 

Millennium did seven separate 

transactions for Zappos stock. The firm 

declined to provide financial details on 

the sales or expected returns save to say 

it was “pleased” and believes the transaction’s 

trends and results will become 

increasingly common. 

“Our involvement with Zappos 

demonstrates that even in the very best, 

highest-performing companies, even when 

reasonably likely exit events are on the 

horizon, constituents in the capital structure 

still want, need, or appreciate liquidity 

with certainty earlier than the ultimate

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exit of the company,” says Sam Schwerin, 

Millennium co-founder and managing 

partner. 

Lin adds that secondary transactions 

are going to become “increasingly more 

interesting and more important” for any 

company that isn’t just established with 

a short-term goal. “If you’re trying to 

run a company for the long term, and 

not just trying to build a company to 

float,” he says, “different investors will 

have different timeframes and the longer 

your timeframe for building a company 

is, probably the more necessary secondaries 

are because some investors will have 

shorter timeframes than you.” 

An added benefit, Schwerin says, is 

that direct secondaries can help a company 

maintain its human capital. “If 

you show people there’s liquidity in 

their shares, that triggers an enhanced 

perception of value and can work well 

for employee retention,” he notes. 

r e a d J u s t m e n t s 

Individual investors aren’t the only ones 

looking for liquidity – investment funds 

are increasingly running up against the 

need to give further support to portfolio 

companies, but often the fund itself has 

little cash left to do so. 

“The biggest issue for private equity, 

to my mind, going forward will be a lack 

of reserves in existing funds,” says Tom 

Anthofer, managing partner of Munichbased 

direct secondaries firm Cipio Partners. 

“Now post-Lehman, that’s a huge 

issue for both the older, fully invested 

funds as well as those that are just halfway 

through their investment period. These 

funds no longer face only a J-curve but, 

in effect, are now up against a W-curve. 

By early 2008, many funds had ‘climbed 

up’ into profit, albeit with most assets 

unrealised. The crisis basically reset all 

that, and they will need to start all over 

again, which means companies may have 

another five to six years before they will 

be realised and, on the way there, they will 

be screaming for more money.” 

That goes for venture-backed companies 

that aren’t cash flow positive, as well 

as buyout-backed companies needing debt 

refinancing and equity cures, he adds. 

Sealey: fund restructuring to rise 

Andrew Sealey, managing partner 

of London-based placement agent and 

adviser Campbell Lutyens, told PEI he 

expects the firm’s fund restructuring 

practice to rival that of its secondaries 

advisory arm in the short- to mediumterm. 

“We haven’t seen this level of activity 

since 2002 to 2003,” he said. “In 

retrospect, too many investments were 

made at too-high prices with too much 

leverage. Many portfolio companies 

are now under-performing, leading to a 

requirement for new money and many 

funds having insufficient reserves.” 

C L e v e r s O L u t i O n s 

Apax France recently dealt with this issue 

by having secondaries-like firm 17 Capital 

refinance part of its portfolio. The firm provides 

mezzanine-type and preferred equity 

financing that acts like a secondary transaction 

“in the sense that we provide liquidity,” 

says 17 Capital co-founder Pierre-Antoine 

de Selancy. Most firms like his have been 

focused on the venture space, but “more 

and more will come into the buyout space 

– everyone says this is the next big thing”. 

Another type of restructuring on the rise 

is the raising of an annex or top-up fund 

to give GPs a source for follow-on capital. 

MatlinPatterson, Kohlberg Kravis Roberts, 

Sun Capital, Kleiner Perkins Caufield & 

Byers and Graphite Capital are among the 

firms to have recently tapped the market 

for annex funds. In some cases, like the 

oversubscribed MatlinPatterson offering, 

secondary firms may do some heavy lifting 

in the background. 

“In the past, if a fund needed additional 

capital for their portfolio companies, the 

general partner would go to existing investors 

and say ‘I’d like to set up an annex 

fund,’ and often those annex funds would be 

created and the problem was solved,” says 

Rudy Scarpa, a secondaries-focused partner 

at funds of funds manager Pantheon 

Ventures and head of its New York office. 

Today, Scarpa continues, existing investors 

haven’t the cash to comply with those 

requests and banks are less accommodating, 

leaving secondary firms to offer their 

expertise. 

Pantheon was recently involved in structuring 

what Scarpa calls a “preferred annex 

fund” for a private equity firm he declined 

to name. 

“The solution is basically an annex 

fund, where instead of the annex fund 

just investing in the existing portfolio 

companies, the secondary investors, along 

with the existing LPs, have the option of 

investing in the preferred annex fund,” he 

explains. “Secondary investors together 

with existing limited partners invest in 

the annex fund, the annex fund invests 

in the main fund and that capital goes 

toward underlying portfolio companies.” 

The annex fund receives a preferred 

return in the form of early distributions 

and also receives a minimum return. 

Though investors in the original fund are 

diluted, value in the underlying portfolio 

companies is maintained or enhanced, 

thus optimising returns for original LPs. 

GPs solve their financing troubles, and 

the secondary firm earns “a fair return, 

a market return, and on a risk-adjusted 

basis it’s attractive because we get the 

early distributions”, Scarpa says. 

Pantheon is also working with several 

institutions on applying the same sort of 

structure to aid limited partners that are 

over-weighted to private equity and can’t 

make capital calls and/or new investments. 

Given that 2009 and 2010 vintages are 

expected to out-perform, Scarpa reckons 

LPs will increasingly turn to such arrangements 

so as not to be left out of the market 

or lose traction on their relationships with 

important GPs. 

It is, he adds, an “elegant solution”. ■


2009: Year of the LP 

L P O U T L O O K 

Limited partners took advantage of tough fundraising 

conditions and GPs’ portfolio issues to gain more leverage 

in their relationships. Christopher Witkowsky explores 

some of the major themes prevalent last year in the ongoing 

evolution of LP-GP relationships 

Limited partners will be the first to tell you 

they didn’t exactly have a banner 2009. 

Sinking assets under management (thanks 

mostly to equity market volatility) coupled 

with slowed private equity distributions 

meant many were battling a “denominator 

effect”, or an overweight alternatives 

exposure. 

Compounding the problem were writedowns 

to private equity funds, in some cases 

because of fair value reporting requirements. 

In other (arguably less pleasant) cases, writedowns 

occurred when overleveraged or 

underperforming businesses ran into trouble 

during an economic climate that found 

banks less likely to acquiesce come covenanttesting 

time. In the worst cases, those writedowns 

became write-offs. 

In this environment, often referred to 

as one of the toughest fundraising markets 

in the history of the asset class, LPs took 

a big step back and began to review their 

approach to private equity. Some cancelled 

or reduced outstanding commitments, 

others looked for liquidity on the secondary 

market, while still others bumped up 

target allocations to allow breathing room. 

The knock-on effect for GPs was that it 

became extraordinarily tough to raise fresh 

capital or even receive re-ups with longtime 

investors. 

“We’ve raised the bar to the sky for 

managers,” the head of a large US pension’s 

private equity programme said in January 

2009, noting that the days were long gone 

when LPs had to clamour for access to top 

tier managers. 

While this particular LP was talking 

specifically about performance, in the following 

months, other issues – including 

governance and fees – quickly came to 

dominate conversations about the asset 

class and LP support. This culminated in 

a set of terms-and-conditions best practices 

unveiled in September by the Institutional 

Limited Partners Association (see p. 26). 

Championed by heavyweight LPs 

including the California State Employees’ 

Retirement System and AlpInvest, the “Private 

Equity Principles” urge GPs to institute 

a host of LP-friendly practices such 

as adopting European-style distribution 

waterfalls. 

The power shift which ushered in the 

ILPA principles is not likely to last, however. 

Josh Lerner, a professor at Harvard 

Business School and a private equity 

scholar, says the LP-GP relationship has 

historically been sensitive to market conditions. 

Years of great inflows of capital 

to LPs result in more GP-friendly 

contracts, while in leaner years, limited 

partners gain the upper hand. 

F e e s a s a F L a s h p O i n t 

LPs seized 2009’s market conditions as a 

chance to push back on fees. 

“A $2 billion fund with a 2-and-20 

earns $400 million in fees over the life 

of the fund with no carry," Harold Bradley, 

chief investment officer of the Ewing 

Marion Kauffman Foundation, told delegates 

at the Milken Institute's annual 

conference in April. "A $650 million fund 

has to return capital 3.1 times in order to 

earn the equivalent fees. We are feeding a 

fee machine without anything coming back 

in return." 

Joe Dear, CalPERS’ chief investment 

officer who was speaking on the same 

panel, agreed LPs needed to combat a 

“crummy” fee structure. "Someone made 

the remark that with these large funds, 

partners are buying Rembrandts with the 

management fees. I don't have any objection 

at all to paying a partner a lot of money 

... as long as we are all along on the ride 

with them and share in that gain over the 

long haul. It's what the system's about." 

A similar sentiment was voiced by an 

unidentified member of Oregon’s State 

Investment Council during a fairly intense 

review of Fortress Investment Group’s 

funds. “We want you to make money,” 

the person told Fortress founder Wes Edens, 

“but we prefer you make it on the carry 

when we’re making money, too.” 

Edens pointed out that unlike many 

other private equity firms, Fortress does not 

charge its LPs other fees, and those that it 

earns from portfolio companies are paid 

out as direct distributions to shareholders 

along the way. 

Putting deal fees 100 percent “toward 

the benefit of the fund” are among the 

initiatives in the ILPA Principles. Some 

LPs have previously asked GPs to use a 

large portion of the transaction fee to pay 

down the management fee . For many years, 

GPs had been using 50 to 80 percent of 

the transaction fee for this purpose; LPs in 

2009 were demanding a100 percent offset. 

r i g h t- s i Z i n g F u n d s 

An off-kilter denominator and dried up 

distributions left some LPs unable to 

honour capital calls – this was particularly 

true for listed, leveraged funds of 

funds like SVG Capital, previously one 

of Permira’s largest LPs. Add that liquidity 

issue to LPs grumblings about recently 

raised mega-funds failing to deploy capital 

at their expected pace and there’s a recipe 

for restructuring. 

Permira was the first fund manager to 

allow its LPs to reduce commitments to an 

already-closed fund (and also to voluntarily 

return fees to investors). It was followed by 

TPG, which returned some $20 million in



fees given lower deal volumes and allowed 

commitment reductions across its global, 

Asia and financial services funds. TPG also 

lowered management fees by one-tenth and 

promised LPs it would not call more than 30 

percent of commitments in 2009 unless the 

action was approved by TPG’s LP advisory 

committee. 

Turnaround-focused Sun Capital also 

worked with LPs to reduce the size of its 

fifth fund to $5 billion from the initial $6 

billion raised. 

At least one LP said it was appreciative of 

the chance to cut its Sun Capital V commitment: 

“We think they’re a strong manager 

and GP with smaller fund sizes,” a source at 

the New Mexico Public Employees’ Retirement 

Association told PEI. 

r e p O r t C a r d s 

LPs throughout the year have been dealing 

with a rule from the Financial Accounting 

Standards Board forcing them to report the 

net asset value of their portfolios. Investors 

don’t have to calculate the numbers themselves, 

but they do have to verify that GPs 

are using fair value. 

FAS 157 put more pressure on LPs to 

get their reporting done in a detailed and 

timely manner. That pressure is in turn on 

GPs to get report numbers on a timely basis, 

and with enough information so they can 

verify the accounting. 

While this may seem like an innocuous 

request, it was not without some push 

back. GPs cite confidentiality reasons for 

withholding certain data, possession of 

which constitutes something akin to “trade 

secrets”. Some fund managers also complain 

about the in-house resources needed to fulfill 

unique reporting requests. As one industry 

insider put it, “If you have 120 LPs and 

they all want different detailed info every 

quarter, you can't do it.” 

L p p e r C e p t i O n s 

How the economic downturn has impacted perceptions of private equity within LPs’ 

own organisations 

Respondents (%) 

cases, they were never disclosed to the LP. 

As a result, numerous US LPs – including 

the Los Angeles City Employees’ Retirement 

Fund and the New Mexico State Investment 

Council – have instituted much more 

stringent disclosure policies to ensure any 

payments made as part of work on securing 


100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

North American LPs 

European LPs 

PE is viewed less favourably 

Perceptions have not changed 

PE is viewed more favourably 

Source: Coller Capital Global Private Equity Barometer 

L p s a t i s F a C t i O n 

Asia-Pacific LPs 

commitments from the LP are documented. 

CalPERS even sponsored state legislation 

that would treat placement agents that 

solicit public pension funds as lobbyists, 

which would prohibit them from receiving 

compensation contingent upon the outcome 

of any investment activity. ■ 

Have LPs been happy with the recent performance of their private equity portfolios? 

W h O i s p a Y i n g W h O m ? 

0% 

North American LPs 

European LPs 

Asia-Pacific LPs 

For some LPs, 2009 was a year of revelation 

that some of their fund managers were 

paying unnamed, unknown people to secure 

their commitment (see p. 14 and p. 18). The 

pay-offs came as a surprise because, in some 

Very disappointed 

Slightly disappointed 

Source: Coller Capital Global Private Equity Barometer 

Satisfied 

Very satisfied



Two decades of 

giving and receiving 

Limited partner contributions 

and distributions have 

followed a roughly similar 

track over two decades, with 

both hitting a peak between 

2007 and 2008 and nosediving 

last year 

Lp COmmitments and distributiOns reCeived 1986-2009 

us private eQuitY 

$m 

120,000 

100,000 

80,000 

60,000 

Total contributions $198bn 

Total distributions $220bn 

40,000 

Private equity contributions and distributions 

have both gradually grown from the 

early days of private equity in the mid- 

80s through the 1990s. Both contributions 

and distributions saw small peaks 

in 2000, drops in 2001 and then major 

growth starting around 2003. 

Distributions for a time exceeded 

contributions from around 2003 to 

2005, but by 2006 LPs were fiercely 

directing money to the asset class, sending 

contribution levels to their highest 

peak ever in the young industry. 

The peak was soon followed by a sharp 

drop off in both distributions and contributions, 

with distributions falling to almost 

nil last year. 

Venture capital followed a different 

course than private equity over more than 

two decades. Distributions were historically 

a little higher than contributions, especially 

around 2000, when the amount of capital 

limited partners received back from GPs 

sailed to a peak, more than doubling the 

amount contributed. 

Distribution numbers fell off in 2001 

and struggled to keep up with contributions 

through the rest of the 2000s, and 

completely tailed off last year. ■ 

20,000 

0 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

Contributions 

Source: Cambridge Associates 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

Distributions 

Lp COmmitments and distributiOns in venture CapitaL 1986-2009 

$m 

120,000 

100,000 

80,000 

60,000 

40,000 

20,000 

0 

1986 

Total contributions $198bn 

Total distributions $220bn 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

Contributions 

Source: Cambridge Associates 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

Distributions 

2004 

2004 

2005 

2005 

2006 

2006 

2007 

2007 

2008 

2008 


2009



Keeping calm, carrying on 

Many private equity investors’ portfolios 

suffered last year as realisations slowed 

and fair value pushed private equity holdings 

down. PEI asked a sampling of LPs how 

they plan to approach the asset class 

going forward 

C a r O L Y n C h O i , m a n a g i n g d i r e C t O r, 

s t e r L i n g s t a m O s C a p i t a L p a r t n e r s 

“We continue to believe that smalland 

mid-cap buyout funds in general 

will perform well in 2010 and beyond. 

These funds position their portfolio 

companies to be well-managed, efficiently 

leveraged, and market-leading 

businesses with pricing power – which 

will be particularly important in an 

inevitably inflationary environment. 

Historically, small- and mid-cap funds 

have tended to perform well in good times and bad, including 

during the most recent recession. 

“In addition, we believe we will see international opportunities 

emerge in 2010, particularly in higher growth economies 

in Asia, where an increasing number of strong managers 

understand how to capitalize on the vast inefficiencies in 

the market.” 

b r i a n g a L L a g h e r, m a n a g i n g p a r t n e r, 

t W i n b r i d g e C a p i t a L p a r t n e r s 

“We believe that 2010 will see meaningful 

improvement from the depths 

reached in 2009. It will take some time, 

certainly beyond 2010, for the private 

equity industry to get back to normal 

and stable levels. We think that the best 

firms with enduring strategies are identified 

in difficult periods like what we 

have been experiencing. We also think 

that anyone that goes through a severe 

downturn clearly comes out a much better investor, albeit with 

a few scars. We are very optimistic about the trends we see in 

our markets and think that some compelling investment opportunities 

will be generated in 2010.” 

s u s a n n e F O r s i n g d a L , p a r t n e r, 

a t p p r i v a t e e Q u i t Y p a r t n e r s 

“2010 will be a year when a lot of funds 

will attempt to make up for the impossible 

fund raising climate in 2009. The number 

of existing portfolio GP’s approaching the 

market indicate a busy year ahead. On top 

of this we are hoping for a new wave of 

attractive secondary opportunities that will 

help us increase and strengthen our relation 

to our portfolio funds. 

A specific screening effort by ATP PEP 

for the year will be in the area of small mid-market players, particularly 

in the distressed/turnaround field. Moreover, we are continuing 

to build on our relationships to managers in emerging private 

equity markets. Our radar screen this year is widening to include 

South America. 

Additional companies will be abandoned by general partners 

in 2010, and we are likely to see a dreadfully slow recovery pace. 

However, we are expecting the investment activity to pick up again, 

and to see a slight continuation of the upward valuation trend, which 

took off in the 2nd quarter of 2009. 

To our favor, GPs are growing increasingly more sensitive and 

accommodating to LP expectations on terms and conditions. In 

particular we will be welcoming moves away from deal by deal carry.” 

L e O d e b e v e r, C e O a n d C i O , a L b e r t a i n v e s t m e n t 

m a n a g e m e n t C O r p O r a t i O n 

“[In 2009], in the strict private equity space, 

we had some challenges, because while the 

company was operating as part of a governmental 

department, it started private 

equity investing through external managers, 

with a large number of very small mandates. 

Most of this was happening at the 

top of the market, when credit was cheap 

and capital was abundant. Those are usually 

not good times for private equity. We’re 

tying to digest that right now. Unfortunately, [those investments] 

may be with us for a few years. 

We’re [now] more focused on direct investments. We see 

a lot of good prospects in the market and we’re not particularly 

enamored with going after the hotly contested deals. 

We’re more comfortable working with counterparties who 

have tough situations and need us to understand how their 

business works.” ■

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F U N D R A I S I N G 

Lessons from the 

fundraising trail 

Closing a fund was practically a Herculean task in 2009. 

Jennifer Harris reports 

The year 2009 was littered with missed 

targets and canceled fundraisings. With 

LPs scrambling to put out fires in their 

own portfolios, it was tough to get 

anyone to commit, let alone commit to 

a new manager or product. But a few 

GPs did manage to hit their targets last 

year. PEI spoke with them about their 

experiences on the bumpy fundraising 

trail, and a few key themes emerged: 

1 . b e p r e p a r e d t O b e p a t i e n t 

“The biggest thing that we really noticed 

was the absolute inability for anyone to 

focus on doing anything new,” said Stephanie 

Carter, the marketing and communications 

partner at Baltimore-based ABS 

Capital. “People first got hit by a very 

immediate need at the end of 2008, which 

was coming up with a liquidity plan.” 

ABS closed its sixth fund on $420 million 

in June of 2009. Limited partners in 

the fund primarily comprised long-time 

ABS investors like the Pennsylvania State 

Employees’ Retirement System and Partners 

Healthcare. But ABS was able to defy 

the odds and attract some new LPs as well, 

such as Abbott Capital and WP Global 

Partners. 

ABS wasn’t able to bring in very many 

new investors, however, as a direct result 

of the chaotic environment in late 2008 

and early 2009. 

“It wasn’t until almost 

summertime that people 

had a sense of where 

their portfolios were and 

whether or not they even 

had money to invest” 

“A lot of the people we were seeing 

were just so distracted, and while they may 

have said that they really liked our story, 

they had no idea what they were going to 

do, if they had money to do it and how 

they were going to balance the very rigorous 

portfolio monitoring they were doing 

with even looking at a new commitment,” 

Carter said. 

Fundraising: a long, hard road in 2009 

Menlo Park- and London-based GI 

Partners also saw a similar slowdown, 

according to the firm’s director of investor 

relations, Kristen Mary. 

“Normally people have a sense of allocations 

for the year in February or March, 

but it wasn’t until almost summertime that 

people had a sense of where their portfolios 

were and whether or not they even had 

money to invest,” she said. “The investing 

didn’t even take place until people got 

back from the summer, in September and 

onwards. And then obviously allocations 

were a lot tighter on the whole, there was 

mostly a focus on re-ups, or a focus on 

very niche products.” 

GI Partners closed on $1.3 billion for its 

third hybrid real estate and private equity 

fund in October, after less than a year of 

marketing. During that period, Mary said 

that she found that less was more in terms 

of contacting prospective LPs. 

“Usually I’d be a lot more proactive in 

calling new investors, but I felt like that 

wouldn’t work as well,” she said. “People 

clearly had big things that they were dealing 

with in their existing portfolios, and 

kind of just didn’t have a lot of time. The 

more you pushed, the greater risk there 

was of just forcing a decline.” 

But it wasn’t just that LPs were putting 

out fires in their portfolios, said Jeremy 

le Febvre, a principal at placement agent 

Triago. Part of the slowdown was caused 

by the influx of new products hitting the 

market designed to take advantage of the 

economic dislocation. It was like driving 

down a highway and being distracted by 

cluttered billboards, Le Febvre said.


Triago advised on five fundraisings last 

year on behalf of its clients, raising a total 

of $1.3 billion in fresh capital. 

“LPs were losing their focus, distracted 

by trendy strategies in areas like 

turnaround and distressed debt,” he 

said. “Some LPs did not close on these 

opportunities because they were outside 

of their comfort zone. In general, the big 

difficulty was keeping investor attention 

concentrated on the more mainstream 

strategies where they had real experience 

evaluating opportunities.” 

2 . O p e n u p Y O u r b O O K s 

LPs were no longer just rubber-stamping 

subscription agreements last year. Before 

committing to funds, LPs conducted 

lengthy, forensic due diligence and stress 

testing, and any manager unwilling to 

open up his portfolio to poking and 

prodding got a quick rebuff. 

=“What we found was clearly a much 

more skittish group of investors, a much 

more focused group of investors in terms 

of the breadth and depth and intensity 

of their diligence,” said Kim Davis, a 

managing director at Boston-based 

Charlesbank, which closed its seventh 

fund on its $1.5 billion hard cap in September. 

“There was an enormous focus 

as to the health of your existing portfolio 

and the leverage levels of each company. 

Everyone was very, very focused 

on whether or not you had time bombs 

in your portfolio.” 

The fact that everyone is marking-tomarket 

now further complicated the due 

diligence process, Davis said. 

“One of the things that was different 

this time was, historically people 

had used sort of a lower of cost or 

market valuation methodology. But 

now everybody has to mark-to-market, 

and there are a lot more assumptions 

embedded in a mark-to-market portfolio 

than a lower of cost or market 

portfolio.” 

Mary said she saw a similar focus 

on due diligence from GI Partners’ LPs. 

“There was more focus on how we 

were going to exit our investments and 

when, what our projected returns were, 

and also how much leverage have we put 

“LPs changed their tune 

and refused to continue 

splitting fees 50-50 

with GPs on transactions, 

monitoring 

and break-ups” 

on these deals, exposure to certain banks 

that have gone under, and refinancing 

risk,” she said. 

3 . b e p r e p a r e d t O g i v e g r O u n d 

O n F e e s 

GI Partners and ABS didn’t change any 

of their terms or fees, because they had 

been “very LP-friendly” to begin with, 

said Mary and Carter. Le Febvre added 

that it was mainly the mega funds with 

$2 billion or more in commitments that 

had to renegotiate the management fee. 

But for the majority, some renegotiation 

around transaction fees certainly 

occurred. 

“LPs changed their tune and refused 

to continue splitting fees 50-50 with GPs 

on transactions, monitoring and breakups,” 

Le Febvre said. “Today, for many 

LPs, the declared objective is to take 100 

percent of fees with a minimum acceptable 

standard of 80 percent.” 

Charlesbank had a few “spirited 

negotiations” with its LPs regarding 

a few marginal points in the LPA, but 

didn’t witness a sea change in the final 

document. 

“People are just a little bit more 

insistent on their points, and it’s harder 

to harmonise an agreement that’s going 

to cover 100 different limited partners,” 

Davis said. “It was a little bit more time 

consuming, but ultimately not materially 

different from our original expectations.” 

4 . b e h u m b L e 

The GPs who had the toughest time fundraising 

in 2009 were often those who 

had the easiest time at the height of the 

market, Le Febvre said, because of the 

necessary attitude adjustment. 

“With the crisis, humility became 

the general rule,” he said. “Some GPs 

were accustomed to providing virtually 

no fundraising documentation, telling 

LPs instead that they had two weeks 

to respond positively to a subscription 

letter or they were out. That kind of 

behavior has been eradicated by LP 

refusal to invest. Today, it is definitely 

part of the past.” ■


R E G U L A T I O N 

Regulation roundup 

Regulatory developments last year around the globe will 

affect how how private equity firms do business in 2010 

and beyond. Kevin Ley reports 

In the wake of the financial crisis of 2008, 

politicians on both sides of the Atlantic 

did a lot of finger pointing at the financial 

services industry. While right or wrong 

investment bankers have borne the brunt of 

the blame, alternative asset managers also 

found their industry under fire via various 

legislative measures proposed in 2009. 

“I don’t think anyone has argued logically 

that private equity posed any kind of 

systematic risk to the economy, or that any 

firm was too big to fail and these political 

proposals will not make for a better 

or safer industry,” Terra Firma chairman 

Guy Hands said at an industry conference 

in early 2010. 

Of the various proposals, the following 

four stand out in terms of what’s 

likely to cause the greatest number of 

GP headaches. 

a i F m d i r e C t i v e 

The European Commission’s proposed 

“Directive on Alternative Investment 

Fund Managers” is far from final, but 

the drafts released so far threaten to 

impose substantial disclosure and registration 

requirements. Leverage ratio 

constraints and salary caps have also 

been discussed as possible features of 

the directive, whose one-off compliance 

costs are expected to total around €3.2 

billion, according to the UK’s Financial 

Services Authority. 

When the proposed regulations were 

first announced in May, among the biggest 

concerns identified by industry 

groups were the potential consequences 

for alternatives managers in the US and 

elsewhere who raise and manage assets 

in the EU. Specifically, foreigners trying 

to market in Europe will have to demonstrate 

to the relevant authorities that 

they are subject to the equivalent regulation 

in their home jurisdiction, and 

absent stricter rules in the US such as 

leverage caps, it is unclear whether US 

managers would be able to do so. 

European LPs, by extension, would 

face a serious loss of access to topperforming 

managers outside the EU, 

Capitol Hill: continuing its 

pursuit of carry 

industry participants argue. Meanwhile, 

foreign funds that are allowed 

to market in the EU will be in a much 

better position than their EU-domiciled 

counterparts that will have to provide 

detailed information on their funds’ 

activities, governance, internal risk 

management and audit arrangements. 

European Parliament officials said later 

in the year the proposal would likely be 

substantially amended so that European 

pension funds and investors do not face 

“excommunication” from global capital 

markets. 

While a final AIFM directive was at 

one point expected to be passed by mid- 

2010, the large number of amendments 

from Ministers of European Parliament 

received by Jean-Paul Gauzes – rapporteur 

for the European Parliament’s 

Committee on Economic and Monetary 

Affairs – may push a final vote further 

off. Before a vote can occur, the proposed 

amendments to the separate European 

Council and European Parliament versions 

of the directive must be reconciled. 

Gauzes, who is responsible for guiding 

the Parliament process, had already 

made 135 amendments to the first draft 

by the end of January 2010.


s e C r e g i s t r a t i O n 

In July the US Treasury sent a bill to 

Congress that would require hedge, private 

equity and venture capital funds to 

register with the Securities and Exchange 

Commission if their assets under management 

exceeded $30 million. Such a 

low threshold would effectively ensure 

that nearly all but the smallest private 

equity houses would fall under the regulatory 

umbrella. Keeping the kind of 

detailed records the SEC requires and 

dealing with additional compliance and 

examinations would represent a significant 

burden for smaller firms, as well as 

for larger firms. 

By the end of the year, a separate 

bill passed by the House of Representatives 

raised the AUM threshold to $150 

million. The House bill must also be 

reconciled with a Senate version, which 

now contains an explicit carve-out for 

all private equity and venture fund managers. 

The exemption indicated that US 

lawmakers were increasingly beginning 

to agree that private equity did not represent 

a systemic risk to the economy, 

a point that managers and lobbying 

groups like the Private Equity Council 

had been pushing for months. 

While more firms will still have to 

register should a final bill become law, 

the SEC has sought to address industry 

concerns about opening up funds to 

expensive, intrusive and time-consuming 

audits. One of the biggest complaints 

has centered around the belief that SEC 

investigators in the past were not as 

knowledgeable about the private equity 

model and needed to be educated about 

certain characteristics. The SEC has since 

created a new unit to increase its expertise 

on the alternative investment class. 

C a r r Y t a X h i K e s 

Changing carried interest’s tax designation 

to ordinary income rather than 

capital gains is a tax revenue-raising 

proposal that has frequently popped up 

on both sides of the Atlantic over the 

past few years. 

Once one of these things comes on the 

table, it’s very difficult to get it off the 

table. You can beat it back, but anytime 

they’re looking to raise revenue, it’s going 

to come back,” Mel Schwarz, legislative 

affairs partner in the US National Tax 

Office of global accounting firm Grant 

Thornton, told PEI back in 2007. 

At the time, it was estimated that 

some $25.7 billion could be raised by 

the US government by taxing carry as 

ordinary income. Various bills were proposed 

in the House of Representatives 

in 2007 and 2008 to change carry’s tax 

designation from capital gains, currently 

a 15 percent rate, to ordinary income, 

the top rate for which is 35 percent but 

may climb to 39.6 percent, but they were 

ultimately stymied by the Senate. 

House Ways and Means Committee 

chairman Charles Rangel reintroduced 

the concept via a new bill in December 

2009 and President Obama noted in his 

annual “State of the Union” address that 

fund managers are among those who 

should not expect to see any tax relief. 

However, Congress does not seem as 

resolved to settle the carry issue just yet. 

Senator Debbie Stabenow, a member of 

the powerful Senate Finance Committee, 

said in an interview: “While members 

of the committee have brought it up, it 

won’t be part of any bill we pass.” 

p L a C e m e n t a g e n t b a n 

Placement agents were under siege in 

the US thanks to an ongoing pay-to-play 

A S I A’S T A X I N G I S S U E S 

investigation involving the $109 billion 

New York State Common Retirement 

Fund (see p. 14). 

In the wake of the scandal, the SEC 

proposed a sweeping plan that would 

prevent private equity firms from hiring 

placement agents to solicit US public 

pensions for commitments. The proposal 

has received more than 170 industry 

comments, many of which urged the 

SEC to rethink its stance. 

“Policymakers are unlikely to deter 

unethical practices by outlawing legitimate 

market practice,” wrote EVCA 

secretary general Javier Echarri. 

The agency is reportedly considering 

exempting registered broker-dealers 

from the proposal, while Christopher 

Dodd, chairman of the Senate Banking 

Committee, sent a letter to the SEC 

reiterating industry concerns that a prohibition 

on agents could hurt smaller 

funds that lack the resources to support 

an in-house marketing team. He 

called for better regulation rather than 

an outright ban. 

Even without an SEC ban, agents 

are already dealing with stricter third 

party restrictions imposed by some individual 

pensions. Legislation backed by 

the California Public Employees’ Retirement 

System-is also on the horizon: if 

passed, it would treat placement agents 

who solicit pension funds as lobbyists, 

requiring they be paid flat fees for their 

services. ■ 

Europe and the US aren’t the only areas where private 

equity professionals could be feeling pain in 2010 

Foreign private equity firms may be facing a new capital gains tax when exiting 

deals in South Korea. The measure would affect US investors like Lone Star Funds, 

which is expected to exit its remaining stake in Korea Exchange Bank in 2010. 

Meanwhile, the Australian Tax Office said in December that in some cases 

assets from the sale of private equity investments could be treated as ordinary 

income, which is taxed at a higher rate than capital gains. The decision comes 

amid government efforts to freeze private equity firm TPG’s Australian accounts 

over claims TPG owes $670m in unpaid capital gains taxes related to its $2.4 

billion float of retailer Myer. TPG has refuted the allegations. 

Both cases have led to concerns that foreign investment will be dampened. The 

Blackstone Group’s chief Stephen Schwarzman has said the TPG-ATO dispute 

has already affected Australia’s image among foreign investors.

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Regime change 

In 2009, no trend had more 

impact on the fund administration 

world than pending 

regulations in the US and the 

EU, finds Jennifer Harris 

F U N D A D M I N I S T R A T I O N 

Other than lawyers, fund administrators 

might be the only ones in the private 

equity communities that benefitted from 

the threat of increased regulation in the 

US and in Europe in 2009. 

In the US, discoveries of financial malfeasance 

such as Bernard Madoff’s Ponzi 

scheme caused investors to clamour for 

more transparency and better reporting. 

Industry observers began talking about 

the possibility of US legislators requiring 

all hedge funds and private equity 

funds to use third-party administrators 

as a means of ensuring good behaviour. 

“As partners demand greater clarity 

and closer cooperation, and as 

regulators around the world consider 

new requirements, leading firms will 

increasingly look to knowledgeable 

third-party administrators for assistance 

with reporting and compliance, 

proven control procedures and custody 

and lending services,” said Jack Klinck, 

global head for State Street alternative 

investment solutions. 

Meanwhile, the Securities and 

Exchange Commission created a stricter 

custody regime for registered investment 

advisors, requiring RIAs that have 

“custody” of client assets to undergo 

an annual surprise examination by an 

independent public accountant to verify 

client assets. Suddenly, using a qualified 

outside custodian began to seem more 

appealing. 

In the European Union, regulators 

drafted regulations for the alternative 

asset industry that may yet have a huge 

impact on fund managers worldwide. 

The Alternative Investment Fund Managers 

directive contains many burdensome 

new rules, but the most onerous 

of these is a requirement that foreigners 

trying to market in Europe demonstrate 

to the relevant authorities that they are 

subject to the equivalent regulation in 

their home jurisdiction. Absent stricter 

rules in the US such as leverage caps, it 

is unclear whether US managers would 

be able to do clear this proposed hurdle. 

The AIFM directive is still being 

worked on by members of the European 

Parliament, but its effects are already 

being felt by various offshore jurisdictions, 

where fund administrators do a 

large percentage of their business. For 

example, fund administrator Augentius 

is hearing demand for Luxembourg from 

its LPs, and responded by setting up an 

office there last year. Luxembourg is a 

member of the EU, so funds domiciled 

there won’t have to go through the 

Luxmembourg: benefitting from the AIFM threat 

“passporting” process, and don’t need 

to worry about whether their jurisdiction 

has been approved as “equivalent” 

by the UK. 

“We’ve got clients that want us to 

either open in Luxembourg, or they 

want to transfer their business to us 

from existing Luxembourg providers 

because they’re not getting the standards 

they’re looking for,” said David 

Bailey, managing partner at Augentius. 

He added Augentius has lined up four 

private equity and real estate funds to 

launch in Luxembourg over the next two 

to three months. 

Fund administrators in traditionally 

popular offshore domiciles like the 

Cayman Islands, on the other hand, 

stand to lose business if the directive is 

passed into law. ■


F U N D A D M I N I S T R A T I O N 

Four mistakes not to make 

Take it from the pros – administering a private equity 

fund is hard work. Mistakes happen, and these bloopers 

are made by both internal professionals and third-party 

administrators alike, finds Jennifer Harris 

Mistake No. 1: Born under a bad sign 

The purchasing of a new investment can 

lead to errors around how it is booked 

depending on its complexity and how it 

is structured to meet the needs of various 

types of investors. “We very clearly see 

errors around the recording of a particular 

type of investment either when it was originally 

recorded, or, secondarily, when there 

was a capital restructuring of the portfolio 

company,” said James Hutter, global business 

executive for JP Morgan Private Equity 

Fund Services. “Obviously in this environment 

there are more capital restructurings 

going on and so it is important to not only 

book and report it right the first time, but 

to have ongoing vigilance.” 

He adds that having an automated 

system rather than using out-of-the-box 

spreadsheet software can help guard against 

this. “Excel won’t be able to keep up with 

the complexity of the investment structure; 

it’s too easy for something to be forgotten,” 

Hutter said. “The second area is having the 

right people to book the entry in the first 

place. You need to hire trained accountants 

who have experience in private equity. If 

you don’t get the reporting and recording 

right, what tends to happen is that when 

you sell that investment in, say, six years, 

you only then realise you’ve been booking 

it wrong and then you have to unwind that 

whole structure.” 

Mistake No. 2: Waterfall folly 

Application of the fund waterfall distribution 

formula is another area that presents 

challenges to administrators. “If you have a 

pretty canned waterfall model that follows 

all common convention, then you should 

be all right because [fund administrators] 

have some experience with that,” the controller 

for a private equity firm with $8 

billion under management said. “But the 

Hutter: double check your waterfall 

calculations 

second there is a little twist in the partnership 

agreement or something different, they 

are difficult to adapt to that.” 

Hutter says problems sometimes crop up 

when the waterfall calls for opt-out cases 

– such as an investor having a side letter 

saying that they cannot invest in certain 

countries or industries. 

More basic though is the possibility for 

misinterpretation. “There will be those occasions 

where that fund wasn’t set up correctly," 

he said. "If JP Morgan, for example, 

assumes administration responsibility we 

make sure that both our client and their 

legal counsel signs off, just to make sure that 

the interpretation of the intent is accurate." 

Hutter also says that the use of recycled 

proceeds is sometimes an area where mistakes 

are made: “In this day and age, as we 

see more players moving into different kinds 

of securities, some funds are now buying 

and selling more frequently, so it requires 

even greater understanding of the recycled 

proceeds provisions. If the whole underlying 

accounting of the fund waterfall is not right, 

it’s unlikely that the recycled proceeds are 

going be right.” 

Mistake No. 3: Mangled pie slices 

Fund administrators should be careful that 

an institutional investor’s interest is transferred 

correctly. This becomes particularly 

hard in the case of a default. "[The GP] 

may transfer after the end of year two, 

for example. You may have a case where 

a limited partner defaults on their capital 

call. You then need to follow that through 

the legal document so that’s appropriately 

allocated,” Hutter says. “Private equity is 

an industry with a lot of allocations, and 

ultimately it is making sure that the pie is 

sliced appropriately. We see that that doesn’t 

always happen.” 

Mistake No. 4: Ugly reports syndrome 

Finally, general sloppiness can crop up when 

sending statements out to investors. “I don’t 

think there is the same level of care around 

reporting to investors, and formatting is not 

as nice as it could be,” the controller said. “I 

think you are restricted a bit by the medium 

and mode in which things get delivered. 

Whether certain administrators only allow 

faxing of statements when people just don’t 

use faxes anymore, or when statements are 

off by a penny or two because it is in some 

sort of automated system.” 

The controller says such issues can pop 

up due to high rates of turnover for administrators 

like fund accountants. But while 

he stresses the importance of maintaining 

good relationships with quality administrators, 

he adds that managers should in the 

end be the “owners” of the information, as 

they the ones who will be held responsible 

if it is wrong. 

“Owning that process in-house just 

makes you more comfortable because 

there are too many little idiosyncrasies in 

issues like waterfalls, how things need to 

be written, how you have to apply offsets 

and other things that to get to the same level 

of detail you need to do a full review,” he 

said. “There is so much that can go wrong 

with that process and you need to own it 

so that you are confident in the information 

being right.” ■


North American themes 

First Round: A sideways look at the news p. 90 

Stateside: Time for a rethink p. 92 

Mid-market: Healthy returns p. 94 

Q&A: Jeff Collins, Morgan Stanley Alternative 

Investment Partners p. 96 

Weather permitting: 

The mid-market continued gaining private 

equity market share in North America, 

where financing for large deals remained 

fleeting for most of the year. As this 

section recalls, the asset class’ most 

mature market was also a battleground 

for GP-LP relationships in 2009, with key 

LPs - plagued by denominator problems, 

write-downs and the implications of a 

fundraising kick-back scandal - banding 

together to demand greater concessions 

from fund managers.


F I R S T R O U N D 

P E I ’ S S I D E W A Y S L O O K A T T H E N O R T H A M E R I C A N P R I V A T E E Q U I T Y M A R K E T 

Dueling Petersons 

Peterson: pater familias not saying ‘Bravo’ 

Will someone please help the Peter Peterson 

clan coordinate its PR strategy? The 

very summer that the pater familias and 

co-founder of The Blackstone Group 

comes out with his autobiography, grandson 

Peter Carey Peterson (friends call him 

“PC”) will be appearing in a new reality 

series called “NYC Prep”. The two cultural 

products couldn’t be more different. 

Buffalo, sold ya 

US private equity firm Hilco Consumer 

Capital has teamed up with the family of 

musical legend and icon Bob Marley. Hilco 

stumped up $20 million, according to the 

Wall Street Journal, to buy half of House 

of Marley, a joint venture with Marley’s 

family to handle the singer’s licensing and 

retail ventures. 

Marley’s image, which has been 

slapped on unauthorised merchandise all 

over the world since his death in 1981, 

will be fully licensed and attached to everything 

from footwear to food and video 

games to hotels. It will be “a full consumer 

programme”, the firm said. 

In his new book, The Education of an 

American Dreamer: How a Son of Greek 

Immigrants Learned His Way from a 

Nebraska Diner to Washington, Wall 

Street, and Beyond, the senior Peterson 

details his rise from humble origins in 

Kearney, Nebraska, where at the age of 

eight he began working his father’s diner 

cash register. “NYC Prep”, by contrast, 

“The formalisation of approved and 

official Bob Marley merchandise will be 

supported with strong brand guidelines, 

managed by an internal Bob Marley brand 

team,” says Reyaz Kassamali, Hilco managing 

director and president of the House 

of Marley. “Our goal is to protect and 

enforce Bob Marley’s images and properties.” 

The PEI branding team has formed a 

few ideas of its own. How about Could 

You Be Loved? dating agency, Jammin’ 

doughnuts or Stir It Up instant coffee? 

I Shot the Sherriff branded prison-wear 

went on the ‘maybe’ list. ■ 

follows the adventures of PC, of whom 

the show’s producers say: “Like many 

New York kids, this jaded 18-year-old 

grew up fast, surrounded by rock stars, 

artists, and the city’s literati. For PC, 

money, women and life’s spoils are all 

he’s ever known.” 

The reality show comes two years 

after another Peterson, daughter Holly 

(and aunt of PC), released The Manny, a 

work of “chick-lit” fiction about a male 

nanny on the Upper East Side. Holly 

sought to promote the book with a lowbudget, 

straight-to-YouTube music video 

shot in her father’s palatial apartment 

(unbeknownst to him, he made known). 

The video includes what some might 

consider to be a slightly offensive line 

up of ethnically selected actors portraying 

various domestic helpers. 

In a promotional clip for “NYC 

Prep”, PC comes off as charming, ambitious 

and concerned with the broader 

world – he recently volunteered in a village 

in Sudan. But the comment most 

picked up in the blogosphere was his 

initial response to a question about the 

economy: “The recession is my bitch!” 

To be honest, you’ll find essentially the 

same message in a distressed-assets PPM, 

so give PC points for candor. ■ 

Marley: the new face of Stir It Up instant 

coffee?


We can still rule the world 

He-Man: bringing strength to portfolio 

Mad management 

In these straitened times, it may be debatable 

whether private equity investors are 

any more seen as capitalist masters of 

the universe. But if you can’t be a master 

of the universe, Chicago-based GTCR 

Golder Rauner has demonstrated that 

it is possible to buy one: the firm has 

paid $200 million to UK media company 

Entertainment Rights for the rights to 

various cartoon characters including 

inter-planetary superhero He-Man. 

In a statement, GTCR vice president 

Eric Sondag said: “The management 

and exploitation of intellectual 

property rights for iconic entertainment 

franchises is a unique space in which we 

continue to see a number of intriguing 

investment opportunities.” 

In a surprising omission, the statement 

did not refer to the acquisition of 

mysterious galactic powers as a reason 

for the deal. ■ 

VCs can still 

achieve exits 

Maltese Falcon: $100m sale likely 

Mad Men: before the spin-out 

The hit television show, Mad Men, introduced a thrilling plot twist in the final episode 

of the season – a management spin-out! 

Mad Men, set in a martini-swilling, skirt-chasing early 1960s advertising agency, has 

won a following largely due to the powerful way it details each new cultural upheaval 

working its way through American society at the time. A woman leaves the secretary 

pool to join the male executives; the agency founders are caught off-guard by the rise 

of African-American consumers; television replaces print as the most lucrative medium. 

This season’s final episode introduces what might be thought of as a cultural shift 

– the idea that company managers might be so disloyal as to quit the parent to strike 

it on their own. The two lead partners at Sterling Cooper discover that their British 

parent company is for sale. Rather than become small fish in a much larger pond, 

they offer partnerships to two key executives, steal key clients, and pull off a midnight 

move to a suite at the Pierre Hotel, where Sterling Cooper Draper Pryce is born. 

Will Mad Men take its characters all the way to the 1980s and the birth of the 

LBO? Unlikely – that would end the stylish mid-Century aesthetic of the show. ■ 

The good news is that a year after it was 

put up for sale, Tom Perkins finally found 

a buyer for his super-yacht the Maltese 

Falcon. The co-founder of Kleiner, 

Perkins, Caufield & Byers reportedly 

accepted a price of around $100 million 

for his state-of-the-art 289ft vessel 

– having forked out almost $150 million 

to build the boat four years ago. However, 

it is believed that Perkins may break 

even, having recently let the yacht for 

around $500,000 per week. The identity 

of the buyer was not revealed. 

Some reports suggest 75-year-old 

Perkins, far from laying his ocean-going 

ambitions to rest, is now devoting his time 

to an even more breathtaking project – a 

two-man submarine he has been designing 

along with engineer Graham Hawkes. 

The winged vessel is said to resemble 

Stingray, the combat submarine from 

the 1960s children’s television show of 

the same name. ■


S T A T E S I D E 

Time for a rethink 

Excerpts from PEI’s ‘Stateside’ columns show LPs and GPs re-evaluating some of private 

equity’s most fundamental tenets. By David Snow 

FebruarY 

Trust issues emerge 

“In private equity, GPs must first convince LPs that, as 

fiduciaries, they can be trusted to put capital to work in 

private companies over the long term, even though the specific 

opportunities are not yet known. Many LPs are now 

asking themselves two questions of certain GPs: ‘Was there 

a perverse incentive to put too much capital to work too 

quickly?’ and ‘Did my GP really have the wherewithal to 

assess the risks of the investment in question?’ GPs that last 

year put out money in debt purchases and PIPE deals will 

and should be forced to explain how this wasn't style drift. 

And they will and should be forced 

to explain how, ‘operating advisors’ 

notwithstanding, they wound up in 

companies and industries that went 

so horribly awry, and which they 

now seem powerless to fix.” 

marCh 

Now is the time for bad news 

“What better time to disclose bad 

news than the present? We are in 

the midst of a recession so bad 

that Wall Street veterans in their 

60s claim to have seen nothing like 

it in their lives. People understand 

that bad news is supposed to happen in bad recessions. In 

this environment, they are willing to forgive most failures 

if the story is delivered with apparent candour and alacrity. 

But they will not forgive a cover-up. In private equity, this 

expectation of the ugly truth applies most directly to reporting. 

Today GPs have what amounts to a get-out-of-jail-free 

card in their hands – they get to write down the value of 

their portfolio investments to sickening levels and not be 

blamed for incompetence by their limited partners. GPs that 

maintain Pollyanna views on their unrealised performance, 

meanwhile, will appear to be bluffing or worse.” 

apriL 

Sponsors grapple with portfolio insolvencies 

“Right now, GPs with portfolio companies on the brink 

of insolvency are feverishly trying to determine where the 

“When a person who might 

commit $200m to your 

fund asks you for a $1000 

campaign contribution, 

it's hard to know what the 

right course of action is” 

tipping point is that causes the senior lender to demand the 

keys of ownership. It is not the case that every bank that 

has the right to ‘get medieval’ will ‘get medieval’. They may 

be willing to alter terms of the loan so that the GP group 

remains in charge, albeit with a smaller equity percentage. 

Banks will certainly look for ‘equity cures’ from the original 

sponsors when negotiating restructurings. They may be 

eager to have GPs step forward as providers of debtor-inpossession 

financing after a bankruptcy, thereby positioning 

the GPs to be the owners again.” 

maY 

The New York pension kick-back 

scandal uncovers shady practices 

“Ever since news of the New York 

State Common charges broke, I 

have had private conversations with 

placement agents, GPs and pension 

officials who have told stories 

involving dubiously credentialed 

people jumping out right around the 

time a GP visits a public pension. 

These incidents range from laughable 

– a person calling a placement 

agent to insist that the State of XYZ 

never does any business without his 

blessing – to disturbing – a selfappointed 

consultant tells a GP ‘see how much power we 

have’ after a public pension commitment is withheld.” 

June 

Management fees are called into question 

“[A] new rule of fund formation […] has been suggested to 

me by more than one reform-minded market participant: the 

GP commitment must always be more than can be earned 

back by the GP through management fees. At the core of this 

term is a common understanding that a GP, whose fulltime 

job is to manage the private equity fund in question, should 

have a material amount of his or her own capital on the 

line. The fund should not represent merely a comfortable 

diversification of assets for the GP, but a concentrated bet 

on the next 10 years of investment opportunities, with the 

success of said fund hinging on the skills of said GP.”


JuLY/august 

New York Attorney General Andrew Cuomo puts political 

campaign contributions in the spotlight 

“[M]any GPs can barely make it to the elevator following a 

pitch meeting before being presented the opportunity to contribute 

to the political campaign of someone connected to, 

or directly overseeing, the manager-selection process. When 

a person who might commit $200 million to your fund asks 

you for a $1000 campaign contribution, it's hard to know 

what the right course of action is. Few politicians connected 

to pensions would be stupid enough to state plainly that only 

donors get commitments. But the solicitations have made 

many GPs wonder, what happens 

if I don't pay? Am I off the list?” 

“Sad to say, but all the 

operating talent in the world 

wasn't going to save a 

deal that was overpriced, 

overleveraged and wobbling 

near the precipice of a 

severe recession” 

september 

Cash management issues creep up 

on LPs 

“Sometimes LPs rely on assumptions 

of cash generation across 

the entire portfolio and plan on 

drawing from that pool when the 

capital calls come in. Many LPs 

make assumptions about cash 

distributions from existing private 

equity funds. Pretty much 

no one makes the assumption that 

someday asset prices will collapse 

around the world, dividends will halt, fixed income will 

break and all private equity exit activity will screech to 

a halt. Models for cash management vary across the LP 

market, ranging from Yale's highly scientific approach to 

sizing and pacing commitments, to the ‘willy-nilly model’, 

employed by an unknown but evidently large percentage 

of the LP population.” 

OCtOber 

Market timing outweighs operational graft in generating 

returns 

“Sad to say, but all the operating talent in the world wasn't 

going to save a deal that was overpriced, overleveraged 

and wobbling near the precipice of a severe recession. You 

could air drop Jack Welch, Louis Gerstner and Lee Iacocca 

into Chrysler and still come up with a zero return. Some 

buyout-backed companies have indeed responded well to 

productivity and cost-cutting initiatives through the recession 

- but only some. These companies benefit from having 

enough cushion to respond to such initiatives, and from 

having the right operating team with the right incentives. 

Not every private equity firm got this right.” 

nOvember 

Deal fees come under fire 

“The arguments against GPs keeping [deal] fees for themselves 

are many. How, for example, 

can a GP say with a straight face that 

he is incentivised to maximise the 

value of a portfolio company when 

siphoning digits out of its EBITDA, 

the number upon which its sale price 

will be based? How can he deny that 

the sting of an underperforming portfolio 

company is salved by deal fees, 

but only on the GP side of the partnership? 

Isn't it obvious that the manager 

of a bunch of dud investments 

becomes perversely incentivised to 

begin extracting maximum deal fees, 

since there will be no carry at the end 

of the fund?” 

deCember/JanuarY 

Past performance is not your friend 

“Contrary to the notion that one should always re-up with 

a ‘top-quartile’ private equity fund manager, LPs and their 

advisers need to first take a view on the direction of the 

world, the economy, specific markets, and then find the best 

private equity teams they can to execute the right strategy 

within this macro environment. In other words, if you think 

that retail businesses make for attractive buying opportunities 

right now, find a competent team of retail specialists 

and back their fund. Don't worry if their last fund wasn't in 

the ‘top quartile’. How could it have been? Almost anyone 

who invested in retail over the past five years has a track 

record that looks even worse than the average private equity 

fashion emergency.” ■


U S M I D - M A R K E T 

Healthy returns 

Mid-market firms in the US found success in 2009 through 

sector specialisation, with healthcare emerging as an 

increasingly attractive niche. Kevin Ley reports 

All private equity firms faced difficulties 

last year, given tough fundraising 

conditions and portfolio management 

challenges amid volatile economic conditions. 

But mid-market firms had an 

arguably less harrowing experience than 

some of their large-cap counterparts. 

Historically less reliant on leverage 

in deals, mid-market firms were not 

as likely to be involved in one of the 

major challenges GPs faced in 2009: 

negotiations with lenders to pare down 

the debt of over-geared portfolio companies. 

While mid-market players still 

would have been rolling up their sleeves 

to make sure portfolio companies could 

withstand market conditions, they 

weren’t typically exposed to the debtfor-equity 

swaps and bankruptcies that 

saw some private equity sponsors handing 

over the keys to companies. 

Their low-leverage approach also 

would have been less affected by the 

stalled credit markets in terms of sealing 

fresh deals, one of the reasons LPs were 

increasingly attracted to the market segment 

as 2009 wore on. Coller Capital’s 

winter “barometer” studying LP appetite 

found roughly 70 percent of LPs felt the 

mid-market – which it defined as transactions 

below $1 billion in size – offer 

some of the best opportunities going 

forward. 

The volume of US private equity 

transactions dropped 50 percent from 

2008 to 2009, with 979 deals completed, 

according to data service Pitchbook. 

Nearly 90 percent of that dealflow – 

equating to an investment total of $43 

billion – was made up of middle market 

deals under the $250 million mark. 

b i L L O F h e a L t h 

Mid-market firms with the most momentum, 

according to market participants, 

are those that have narrowed their sector 

focus to certain growth industries like 

healthcare. The rationale is that even 

amid a recession, the need for healthrelated 

services and pharmaceuticals 

would keep companies afloat even as 

consumers cut back in other areas. For 

instance, investment banking firm Cain 

US healthcare debate: private 

equity firms await the result 

Brothers predicted in August that healthcare 

would be the first sector where the 

pace of M&A transactions would pick 

up significantly during a recovery. 

A report from accounting giant Ernst 

& Young showed that global pharmaceutical 

deal value has increased to about 

$135 billion for 2009, the highest annual 

deal value in the industry since 2000. 

The accounting firm said it expects to 

see deal activity in certain subsectors of 

the healthcare sector, like life sciences, 

to “continue to be strong … driven by 

long-term strategic trends and private 

equity’s growing interest. As many blockbuster 

drugs lose patent protection, large 

pharma and biotech companies need to 

replenish their drug development pipelines 

and to leverage their regulatory 

approval and commercialisation capabilities.” 

The largest agreed LBO in North 

America last year was the $5.2 billion 

take-private of pharmaceutical information 

provider IMS Health by TPG and 

the Canadian Pension Plan Investment 

Board. However there was a flurry of 

mid-market healthcare deals, too. 

Paul Capital’s healthcare-focused arm 

was among the GPs that put capital to 

work in the sector. Toward the end of the 

year, the firm provided more than $100


million in financing to biopharmaceutical 

company UCB in exchange for payments 

from revenue lines of certain “non-core” 

products. 

Chicago-headquartered GTCR 

Golder Rauner – whose $900 million exit 

of Ovation Pharmaceuticals earlier in the 

year placed third in the PEI Awards’s 

North American private equity exit of 

the year category – set up a $200 million 

pharmaceuticals platform with Abbot 

Laboratories veteran Ed Fiorentino. 

Other notable mid-market deals 

included HIG Capital’s $278 million 

take-private of Allion Healthcare, which 

provides pharmaceuticals to HIV/AIDS 

and chronically ill patients in the US, 

while The Riverside Company made 

several healthcare-related acquisitions 

in the US, including FairPay Solutions, a 

medical claims review company; medical 

products maker Coeur; and PharmMD 

Solutions, a provider of software that 

identifies medication overuse. 

In the first half of the year, the healthcare 

sector accounted for 66 percent of 

North American private equity exits, up 

from 6 percent during the same period 

in 2008, according to Mergermarket. 

GTCR’s Ovation exit and Blackstone’s 

Stiefel, a dermatology company sold 

to GlaxoSmithKline for $3.6 billion, 

dominated headlines, but mid-market 

exits abounded, too. TA Associates sold 

Percent of PE Investment 

100% 

90% 

80% 

70% 

60% 

medical cost management company One 

Call Medical to Odyssey Investment 

Partners for a undisclosed sum. Meanwhile, 

medical payment-cycle manager 

Emdeon began trading strongly on the 

New York Stock Exchange in August, a 

few years after General Atlantic invested 

roughly $485 million into the company, 

the largest-ever amount the firm invested 

in a single portfolio company. 

C O m p L i C a t i O n s 

Despite such optimism over the healthcare 

sector’s potential for dealmakers, no 

sector is without its particular challenges 

and the raging debate in the US about 

the future of the healthcare system has 

some private equity players in the sector 

uncertain about the future. 

Since President Barack Obama took 

office, revamping the US healthcare 

system in a manner that would increase 

government oversight has been one of 

the biggest priorities for the White House 

and the Democrat majority in Congress. 

The proposals that were formulated by 

the end of the year would require uninsured 

Americans to purchase coverage 

from private insurance companies, bringing 

many more people into the system 

and forcing it to expand, which would 

likely increase investment opportunities. 

For instance, while The Riverside 

n O r t h a m e r i C a n p r i v a t e e Q u i t Y i n v e s t m e n t s b Y d e a L s i Z e 

The mid-market continued to increase its market share in 2009 

50% 

40% 

30% 

20% 

10% 

0% 

Source: Pitchbook 

2002 2003 2004 2005 2006 2007 2008 2009 

Under $50m $50m - $250m $250m - $500m 

$500m - $1bn $1bn - $ 2.5bn $2.5bn+ 

Company believes home care and hospice 

are attractive investments over the 

long term, the firm is watching this area 

carefully for reimbursement and reform 

legislation, as reduced government reimbursements 

could make these areas far 

less advantageous. 

“We’re trying to understand the 

winners or losers that will become 

apparent when the reform legislation 

becomes codified,” says Joseph Ibrahim, 

a principal with Riverside on the 

healthcare team. “Because there will be 

an estimated 11 million more individuals 

that will have traditional access to 

healthcare, the investment thesis would 

be larger healthcare providers with more 

scale and infrastructure will survive, and 

they would represent attractive investment 

opportunities.” 

However, it may take longer to for 

such winners and losers to become 

apparent, as the finish line for healthcare 

reform has continually been pushed back. 

While Obama originally hoped to have 

a bill on his desk last August, infighting 

among Democrats and falling poll numbers 

among voters in favor or an overhaul 

have served to drag the process out. 

“Certainly you can’t talk about 

healthcare in 2009 without talking 

about the ongoing debates in Washington 

DC,” says Jennifer Mulloy, a director 

with TA Associates. “Depending on how 

that sorts through, there will be potential 

change, but there are always risks and 

opportunities that go with that.” 

The economic downturn and the 

uncertainty surrounding the future of 

healthcare in the US have caused some 

big pharmaceutical companies to expand 

their offerings into new areas, specifically 

into the later stages of drugs. Bigger companies 

have been trying to cash in on the 

opportunities that arise when the patent 

of a drug runs out, opening the door for 

production of generic versions. 

“Pharmaceutical companies are looking 

to have an influence at every stage of 

the product cycle, not just the [research 

and development] and the early marketing,” 

says Ken MacLeod, partner with 

Paul Capital Healthcare. “There’s enormous 

change going on, and all that comes 

with opportunity.” ■


‘Talent can differentiate 

at this level’ 

O N T H E R E C O R D 

Jeff Collins is a portfolio manager for the 

$6.5bn private equity fund of funds group 

at Morgan Stanley Alternative Investment 

Partners. Philadelphia-based 

AIP has invested in midmarket 

buyout funds as a 

core component of its global 

diversified programmes since 

the group’s inception in 2000 

With LPs demanding better terms and 

conditions in 2009, will GPs retake some 

of the power they lost? 

I think the pendulum is likely moving back 

in the direction of GPs, though I wouldn’t 

say that it has snapped over. In a tough 

fundraising environment, LPs that do 

have available capital have certainly tried 

to push terms that they hadn’t otherwise 

been able to push in prior years. We’ve seen 

a lot of focus on headline management fees, 

and we think that is mostly a large cap 

issue. We find that most of our managers 

spend their management fee: money that 

truly is used to ‘keep the lights on’ in a 

$400 million fund that is heavily resourced. 

Collins: ok with mid-market fees 

J e F F C O L L i n s 

p O r t F O L i O m a n a g e r 

m O r g a n s t a n L e Y a L t e r n a t i v e 

i n v e s t m e n t p a r t n e r s 

Do you expect an increase of funds in the market this year? 

We expect to see a very large number of funds coming to 

market in the next 12 months. A portion of that are firms 

that have lived in the middle market, and this year is their 

natural fundraising cycle. This also includes some downsized 

funds – some of the “mini-large-cap” funds coming back 

down in a tougher fundraising environment. And then there 

is also the time lag, with funds that intended to raise money 

a year ago but couldn’t. So collectively a large number are 

coming to market now. I will say we expect to see fewer final 

closings in 2010 than other LPs do. 

Will the recent LP interest in the mid-market last? 

There has always been a baseline interest in the middle market. 

There are repeat LPs who feel comfortable in this space in the 

market, and don’t have to deploy $100 million at a clip. That kind 

of pressure is what led to the massive growth of larger funds, and 

some of that capital should come back in the form of increased 

interest in the middle market. 

The middle market has always been AIP’s only focus on the 

buyout side. Our largest U.S. buyout fund 

is $1.5 billion, so this is a place where we’ve 

lived for a long time and feel very comfortable, 

and I think it is gaining more attention 

right now. Some of the reasons for our 

consistent focus are perhaps more apparent 

in today’s market. We look at it in three 

different areas – the first is the opportunity 

set, as there are an enormous number 

of companies in different industries in the 

United States to choose from. 

The second is the number of funds and 

the competitive landscape. There are a lot 

of mid-market managers but it’s a less efficient 

space in terms of how transactions 

are executed, so talent can differentiate at 

this level. It is not commoditised – you can 

find an over-resourced and deeply experienced 

team that has an unfair advantage 

in the area that it targets. 

And then feeding off that one, the 

third reason focuses on the value drivers 

that are available to a hands-on private 

equity manager at the lower end of the 

market. It’s about entry price, operational 

improvement, strategic direction, and exit 

prospects. There are things you can do to a smaller company 

to add value in a faster, more tangible way than there are at 

the higher end of the market. 

What risks do you see in the middle market space? 

The middle market is one of the spaces where we find the 

greatest dispersion of returns among managers. So the performance 

difference from lower quartile to upper quartile is 

a very wide band, and a much wider band than in many other 

strategies. The mean is low, and the median is also low. That 

implies that GPs have an opportunity to differentiate among 

less competitive peers. But based on the math, there will be 

more GPs that don’t differentiate and have fairly uncompelling 

returns. Manager selection in this space is therefore absolutely 

critical. ■


European themes 

First Round: A sideways look at the news p. 99 

In Europe: Facing adversity p. 101 

The muscular middle p. 103 

Q&A: Wim Borgdorff, Alpinvest Partners p. 106 

Battening down the hatches: 

Much like their peers across the Atlantic, 

the European private equity industry 

invested huge amounts of time and 

money in portfolio management and 

investor relations amid the year’s difficult 

economic conditions. As this section 

recalls, the industry also braced for more 

stringent regulations as EU policy makers 

in Brussels sought to overhaul regulation 

of the alternative investment fund 

management industry

Event calendar 2010 

Premier events from the leading global alternative assets information group 

25-26 February 

16-17 March 

30-31 March 

20-21 April 

3 June 

10 June 

9-10 June 

15-16 June 

22-23 June 

23-24 June 

6-7 July 

September 

September 

5-6 October 

5-6 October 

19-20 October 

26-27 October 

27-28 October 

November 

18-19 November 

November 

December 

December 

The Emerging Markets Investor Forum 

The Private Equity International Middle East Forum 

Infrastructure Investor: Europe 

The Private Equity International Forum: Asia 

Infrastructure Investor: Southeast 

The PEI Responsible Investment Forum 

The PEI Investor Relations & Communications Forum 

The PEI Africa Forum 

The Private Fund Compliance Forum 

The PERE Forum: Europe 

Infrastructure Investor: India 

The PEI Turkey Forum 

The PEI Brazil Forum 

The Private Equity International India Forum 

The PEI Active Portfolio Management Forum 

The Private Equity International CFOs & COOs Forum 

The PERE Forum: New York 

The Real Estate CFOs Forum 

The Emerging Markets Private Equity Forum 

Infrastructure Investor: Americas 

Infrastructure Investor: Asia 

The PERE Forum: Continental Europe 

The Global PPP Summit 

New York 

Dubai 

Berlin 

Hong Kong 

Florida 

London 

New York 

London 

New York 

London 

Delhi 

Istanbul 

Sao Paulo 

Mumbai 

New York 

London 

New York 

New York 

London 

Chicago 

Singapore 

Frankfurt 

London 

To book your place or find out more call: +44 (0)20 7566 5445 / +1 212 633 2905 

www.peimedia.com/events 

This is a provisional calendar and events, dates and locations are subject to change at the discretion of the organisers


F I R S T R O U N D 

P E I ’ S S I D E W A Y S L O O K A T T H E E U R O P E A N P R I V A T E E Q U I T Y M A R K E T 

Proof the lawyers always win 

Convert your opportunities when they 

come along – a good piece of advice 

in today’s private equity market, and 

a skill that can also transfer well to 

the soccer pitch. At least, that’s what 

a team representing law firm Cleary 

Gottlieb Steen & Hamilton managed to 

do when they won a recent tournament 

organised by Private Equity Foundation 

(PEF), the London-based venture 

philanthropy fund. 

The team, known as CGSH United, 

saw off FC Bridgepoint – flying the flag 

for mid-market investor Bridgepoint 

– in a closely fought final at the David 

Beckham Academy in London. In all, 

20 teams drawn from the private equity 

world – as well as one from PEF portfolio 

company Vital Regeneration – competed 

in the tournament, which raised £32,000 

(€37,000; $51,000) to help disadvantaged 

Eyes on the prize: Kurosh Nikbin (CGSH United, white shirt) versus FC Bridgepoint 

children and young people. 

In the Plate competition (where 

teams eliminated in the first round 

compete for a secondary title), BVCA 

FC (of the British Private Equity and 

Venture Capital Association) beat a 

team from private equity firm Tower- 

Brook Capital Partners 2-1. ■ 

Where it all began 

Venice: home of the LP 

Tourists who flock to Venice will have 

many reasons for doing so. They may 

be exploring the famous canals by gondola, 

staring in awe at the magnificent 

St Mark’s Basilica, or perhaps marvelling 

at the view from atop the Rialto 

Bridge. It is likely that few will travel 

there to pay homage to the roots of 

the private equity limited partnership. 

And yet, according to research from 

Austrian private equity professional 

Hans Lovrek, Venice is due this unlikely 

accolade. Lovrek, who advises Austrian 

investors on their allocations to the 

asset class, is currently researching a 

thesis that compares modern private 

equity partnerships to their medieval 

predecessors. In doing so, he has discovered 

that today’s LP bears an uncanny 

resemblance to the commenda contracts 

by which Venetians funded sea voyages 

in the 12th and 13th centuries in order 

to enlarge their sphere of influence in 

the eastern Mediterranean. 

He found that risks to the commenda 

came in the form of “an insecure 

political environment, fluctuating 

market prices and exchange rates”. 

Sound familiar? He also notes that 

“one successful voyage could make 

several peoples’ fortune”, thus confirming 

that the “home-run” phenomenon 

has deep historical roots. 

The concepts of co-investment and 

diversification are also, it appears, 

far from modern. A merchant banker 

would apparently corral a number of 

families to co-finance ships, thereby 

creating the ability to “spread his own 

funds over several projects”. 

Furthermore, the asset class was 

far-reaching: so popular was it that 

“the participation of more humble 

people like orphans, widows, nuns, 

priest or craftsmen was not uncommon”. 

This effectively created something 

of a fundraising boom. And 

perhaps that’s where the comparisons 

with today end. ■


Join the village people 

Albourne: a virtual idyll 

The 600 residents of idyllic village 

Albourne in Sussex, England enjoy a 

slice of quintessentially bucolic village 

life, surrounded by the outstanding 

natural beauty of the South Downs 

and steeped in history, with buildings 

dating back to the 17th century. Since 

2000, however, the sleepy village has 

been the unlikely host to a throng of 

thrusting alternative investment types. 

The reason for this? A global alternative 

investment adviser, named 

Albourne Partners (after the original 

village), built a virtual web-based 

Albourne for the global hedge fund 

community to convene and network. 

One should perhaps expect this kind 

of innovation from the organisers of 

rock festival-cum-networking event, 

Hedgestock. 

About two years ago, Albourne also 

established an online private equity 

equivalent, where members of the 

buyout world could meet to share a 

drink in the local pub, The Lock Inn, 

visit the village church to discuss charity 

and social issues, or – as may be 

An acquisition too far 

How Warburg Pincus might have celebrated the acquisition of Russia 

Stifled laughter at the PEI/EMPEA 

Emerging Markets Private Equity Forum 

in London as Chip Kaye, co-president of 

Warburg Pincus, punctuated a typically 

assured keynote speech with an untypical 

lapse. Reflecting on the firm’s activities 

in Central and Eastern Europe, he 

referred to the acquisition of a “country” 

before swiftly correcting himself with the 

word “company”. The hubris needed to 

acquire an entire nation would have been 

an overly aggressive move in the 2005- 

2007 period, never mind in these humble 

times. ■ 

proving increasingly popular – visit the 

local job centre. The population of the 

online villages has long since surpassed 

that of their real-world Sussex namesake; 

nearly 70,000 private equity and 

hedge fund members have now taken 

up residency at village.albourne.com. 

PEI was recently lucky enough to 

share a glass of champagne with the 

online village mayor – in real life – 

and found out that the villages are 

to receive a facelift in 2009 to bring 

them up to date with the Twitter and 

Facebook generation. With the regulatory 

forces of the European Parliament 

threatening to invade and occupy the 

green and pleasant land of alternative 

investments, perhaps the mayoral 

office should be investing in the village 

defences too. ■ 

Should Guy 

be following 

the herd? 

Terra Firma has decided to round up 

some more cattle by paying A$48 million 

($40 million) to add Wrotham Park, 

a cattle ranch in North Queensland, Australia, 

to the A$425 million Consolidated 

Pastoral (CP) acquisition it completed 

in May. CP is Australia’s second-largest 

beef producer. 

On the face of it, this seems like a good 

move (or should that be ‘moooove’?). 

After all, beef exports from Australia are 

tipped to reach record levels in 2009. 

There again, as we flicked through the 

placement memorandum for Kohlberg 

Kravis Roberts’s first-ever fund (1978 

vintage), we couldn’t help noticing the 

fund’s promise not to invest in “companies 

which are involved in horse breeding, 

cattle breeding or general commodity 

growing”. 

Did Henry Kravis know something 

that Guy Hands has overlooked? ■


I N E U R O P E 

Facing adversity 

Excerpts from PEI’s ‘In Europe’ columns reveal an industry battling against an 

economic storm and the threat of regulation. By Philip Borel and Toby Mitchenall 

F e b r u a rY 

The prospect of LP defaults looms large 

“The beauty of the private equity funding model is that investors 

make an upfront commitment to stay the course. This normally 

means ten years or more, for better or worse. A limited 

partner may opt to sell its interest in a fund, but cannot simply 

redeem. It's the industry's definitive contractual agreement, 

and therefore sacrosanct. By the same token, the prospect of 

LPs defaulting is one of the industry's greatest fears. This is 

especially true in the current crisis, because private equity's 

relative strength rests almost entirely 

on its continued access to capital. 

That is why the recent news of UK 

funds of funds manager SVG Capital's 

inability to service its funding 

obligations to buyout firm Permira 

had such great impact.” 

m a r C h 

Over-commitment strategies go from 

being a virtue to a vice 

“With the unprecedented slowdown 

in distributions last year, the vulnerability 

of over-commitment strategies 

has been exposed and what was previously accepted as a fundamental 

element of private equity fund of funds management 

has become a dirty word. ‘It has gone from being a virtue to 

a vice,’ says one PEIT manager. But before critics inside and 

outside the industry round on this latest ‘vice’, it is worth considering 

why it has for a long time been considered essential. 

Managers with a given pool of uninvested cash are obliged 

to use it as efficiently as possible. Sitting on a pile of cash is 

not efficient: the cash drag will kill returns.” 

a p r i L 

In the battle for survival, it’s not simply a case of ‘mid-market 

good, mega fund bad’ 

“As earnings diminish, low gearing becomes a valuable 

attribute. In this respect mid-market deals generally have the 

“As earnings diminish, 

low gearing becomes a 

valuable attribute. In this 

respect mid-market deals 

generally have the 

advantage. 

advantage. And when it comes to refinancing, the lower absolute 

numbers involved with smaller deals should become an 

important factor – refinancing €100 million of debt is now a 

far more realistic prospect than €1 billion. […] On the flipside, 

there is safety in size. The stability and earnings diversity 

afforded by being a large business with multiple business 

lines means the assets in many large buyout portfolios have 

a survival advantage. Large businesses may also have more 

options in terms of non-core assets to sell. Furthermore, if your 

business owes the bank €10 million and can't pay, you have 

a problem. If your business owes the 

bank €1 billion, the bank also has a 

problem and a greater vested interest 

to preserve value in the business.” 

m aY 

Pre-pack administrations stir up controversy 

“The potential conflicts of interest 

involved in the pre-pack process 

are stark. For one thing, there is the 

issue of valuing the assets for sale. 

The appointed administrator must 

be confident that no other buyer will 

offer better value for the business. If the administrator is acting 

correctly, the market will have been thoroughly tested before 

the sale goes through. But this may not always be the case. 

‘Sometimes management are repellent to approaches about 

their business when they are planning a pre-pack. We have 

certainly experienced that this year,’ says Jon Moulton, managing 

partner of UK private equity firm Alchemy Partners.” 

J u n e 

Draft regulation rattles European private equity 

“[The] lack of systemic risk posed by private equity was a core 

element of the industry's submission to the EC. It argued that 

any risk related to the use of excessive leverage would most 

effectively be regulated on the supply side: i.e., the banks. 

And the activity of the private equity fund manager, far from


infecting the financial system with risk, will prove a valuable 

tool in stimulating economic recovery across the Eurozone. 

The Commission seems to have agreed that private equity 

poses little in the way of systemic risk: but decided to intervene 

anyway.” 

J u LY / a u g u st 

EVCA shapes up for the regulatory battle 

“When the industry was thrust into the limelight by the threat 

of a regulatory backlash last year, the [European Private Equity 

and Venture Capital Association] was not equipped to deal with 

the situation. The association had originally been set up by 

the European Commission to promote 

investment in venture capital 

and had been operating as a service 

provider to those in the industry who 

were interested. It was not equipped 

to drive a public affairs agenda and 

had never meaningfully engaged with 

the individual national associations. 

This latter point made it difficult to 

present country-specific viewpoints to 

Ministers of European Parliament who 

are primarily interested in the country 

they represent, and need to be engaged, 

therefore, on a country-specific basis.” 

s e p t e m b e r 

The UK government launches a £1bn state-backed venture 

initiative 

“The reason that LPs have not been clamouring to get into 

European venture funds is because performance has simply not 

been there. According to a report released in May this year 

by the British Private Equity & Venture Capital Association, 

over the period 1991 to 2007, VC returns were on average 

6.9 percent per annum in Europe compared to 18.9 percent 

in the US. An unwelcome question as it may be, it is worth 

asking whether a state-backed injection of any amount would 

make a long-term difference to the European venture scene. 

It would not, for example, address the issue of the small and 

fragmented EU stock markets that make it tough for venture 

capital-backed companies to raise significant sums of capital 

to fund expansion.” 

O C tO b e r 

Top dogs of the industry retire 

“In among the news of a bombed-out new deal market and pain 

in portfolios, recent industry headlines have been dotted with 

high-profile departures from European GP groups. A number 

“The Commission seems 

to have agreed that private 

equity poses little in the way 

of systemic risk: but decided 

to intervene anyway” 

of established industry faces have shuffled, or been ushered, 

off into retirement. […] So what's behind all this? The unique 

model of private equity remuneration is undoubtedly part of 

the answer. It is often held up as the shining example of longterm 

performance-related compensation. It can, by the same 

token, look quite unforgiving in the trough of a downturn. As 

portfolio companies get written down and the fund's hurdle 

rate of return becomes more elusive, private equity professionals 

may lose motivation. And with carry from many of today's 

funds looking remote, now may seem like an expedient time 

for a veteran to bow out and retire to the country chateau.” 

n O v e m b e r 

On a speech given by the Didier Millerot 

of the European Commission 

“Some of the messages in Millerot's 

candid, and at times humble, speech 

go some way to explain just why 

private equity in Europe has come 

face-to-face with a regulatory monster. 

‘As you all know,’ he said, ‘we did 

not have much time to prepare our 

proposal - we did not have much time 

to consult over it.’ Millerot struck an 

almost apologetic note when recounting 

the difficult task which had been 

thrust upon his organisation from the 

‘highest political level’, namely EC 

President José Manuel Barroso, who mandated the Commission 

to ‘very quickly present a proposal’ to regulate alternative 

fund managers in Europe. Despite the Commission's ‘good 

intentions’ – a phrase twice used in the speech – it is evident 

that the proposal was drafted in haste.” 

d e C e m b e r / J a n u a rY 

Wholesale restructurings are being forsaken for balance sheet 

‘tinkering’ 

“Normally, when a company enters into financial stress or distress, 

the lenders seek a solution that allows the business to 

recover through reducing its balance sheet liabilities. This might 

involve an injection of new liquidity and perhaps the conversion 

of some debt into equity. The sponsor's reluctance to give away 

equity normally means tension in the process. But lenders have 

not been clamouring to go down this avenue. CLO funds have 

not been keen to convert debt to equity – they are often not set 

up structurally to do this – and the banks have been unwilling 

to write down their loans. Sponsors meanwhile, under the now 

more watchful gaze of limited partners, are reluctant to throw 

good money after bad. Both sides of the table have therefore 

been incentivised to maintain the status quo.” ■


E U R O P E A N M I D - M A R K E T 

The muscular middle 

The European mid-market may well have proved its mettle over the course of a tough 

12 months, writes Toby Mitchenall 

Very few private equity firms would 

claim to better off as a result of the financial 

crisis. Some, however, would certainly 

claim to be less severely affected 

than others. 

The preliminary results of research 

soon to be published by European placement 

agent Acanthus Advisers suggest 

that many of these “better off” firms 

reside in Europe’s mid-market. According 

to the research, of all the capital 

raised for European private equity 

investment between 2004 and the end 

of 2009 – around €270 billion – roughly 

half has been drawn down and put to 

work. 

Large funds – those comprising more 

than €1 billion – have drawn down €84 

billion during the period. Taking into 

account the current valuations of these 

funds’ portfolio companies and the cash 

distributions already made, these large 

funds are showing paper losses of circa 

€16 billion, says Acanthus. 

At the small end of the market, however, 

things are not so sticky. Funds of 

less than €1 billion in size have called 

a total of €47 billion over the six-year 

period. With underlying investments 

valued at €36 billion and €14 billion 

having been returned to investors, these 

are showing a gain of around €3 billion. 

“This contradicts the common perception 

that large funds give you solid, 

less volatile returns,” says Acanthus 

Advisers’ managing partner, Armando 

D’Amico. 

W i n t e r b r e a K 

While these numbers bode well for the credibility 

of the European mid-market, they 

come after a tough year for the segment. At 

Watt: banks more keen on bolt-ons 

“Bolt-ons are 

manageable transactions 

in that many of them 

are quite small” 

the beginning of the year, many of Europe’s 

mid-market private equity professionals 

were emerging from what was an unusually 

long – and not particularly relaxing 

– winter break. Francesco Sironi, managing 

partner of Italian mid-market firm BS 

Private Equity, told PEI at the time that the 

market had been at “a complete stop” since 

the end of November 2008. 

One of the many problems facing firms 

in the segment was the difficulty in valuing 

companies when forecasting was near to 

impossible. “The key problem [at the start 

of the year] was profits,” said Bas Glas, a 

partner at Netherlands-based private equity 

firm Gilde Equity Management. “What are 

the profits you have to base your bid on?” 

Glas describes most sale processes around 

the beginning of the year as “just stopping”. 

Even amid this standstill of activity, firms 

in the mid-market were adapting to conditions 

and identifying opportunities arising 

from the economic turmoil. Rather than 

seek out fresh investment opportunities, 

many GPs turned their attention to growing 

their existing portfolio companies via 

acquisition. Buy-and-build strategies were 

certainly not a new phenomenon caused by 

the crisis, as any mid-market investor will 

tell you, but the stiffening credit markets 

meant they were one of the few deal types 

for which banks would extend finance. 

b O L t- O n b O n a n Z a 

“One of the areas that there’s been a bit 

more focus around is portfolio company 

acquisitions,” Chris Watt, a director at UKbased 

mid-market firm ECI Partners, told 

PEI in February. “Bolt-ons are, in many 

respects, manageable transactions in that 

many of them are quite small. Banks are 

more prepared I think to lend to existing


b e L g i u m F i r m g rO W s n O r d i C t i e s 

Belgian private equity firm Gimv in August revealed a significant partnership 

with listed Nordic alternatives firm CapMan. The Antwerp-headquartered firm 

acquired €17 million-worth of commitments to three CapMan funds and made 

an additional commitment of €13 million to CapMan’s next Nordic buyout 

fund, CapMan Buyout IX. 

As well as gaining exposure to CapMan’s funds, Gimv acquired a 4.38 

percent stake – worth around €4.4 million at the time – in CapMan itself. 

The Belgian firm had been building the stake through acquiring publicly 

traded CapMan shares for a number of months, a spokesman for the firm 

said. Gimv now intends to build its stake to 10 percent, assuming the shares 

remain attractively priced and sufficiently liquid, and is also in the process 

of taking a seat on CapMan’s board. 

By injecting €17 million into the feeder vehicle, Gimv effectively bought 

three “early secondary” stakes. Between the three fund interests in CapMan 

Technology 2007, CapMan Russia and CapMan Public Market, there is €13.6 

million in uncalled commitments and investments worth €3.4 million at June 

2009 valuations. 

As industry practitioners predict increased consolidation among private 

equity firms, the tie-up could well be a precursor to greater cooperation between 

the two firms, such as joint venture funds or a full merger. A spokesman for 

Gimv declined to comment on any future plans. ■ 

customers provided things are going well, 

and even if they’re not, you’ve got a leverage 

structure in there already that you can 

utilise to make the acquisition.” 

Harold Kaiser, managing partner at 

Stockholm-based mid-market firm Litorina 

Kapital, underlines the fact that in an 

uncertain environment, bolt-ons are one 

of the most fruitful ways of putting capital 

to work. “Target companies are often 

attracted to build-ups in times like these 

because they like the security of being part 

of a bigger group which can offer synergies,” 

he said towards the end of the year. “From 

an investor’s point of view, these deals are 

straightforward because you know exactly 

what you’re going to do and you can get 

them financed. And now is a good time to 

do them because they are cheaper.” 

By the year’s mid-point, GPs were reporting 

more productive discussions with the 

banks, signalling an imminent return to 

deal-making. Alain Keppens, head of buyouts 

and growth at Benelux private equity 

firm Gimv, said that by July many senior 

lenders were limbering up after what had 

essentially been a period of total inactivity: 

“This contradicts 

the common perception 

that large funds give 

you solid, less volatile 

returns” 

“During the last quarter of 2008 and first 

quarter of 2009, you couldn’t even start a 

discussion with most of the banks. They 

said they were open, but in fact they were 

not.” Six months into the year, even though 

leverage was still low and prices high, there 

was a “willingness to listen to new opportunities”, 

he said. 

While leverage remained an issue for 

private equity firms both large and small, 

mid-market firms, in particular those specialising 

in more complicated transactions, 

were flexible enough to pursue unleveraged 

“all-equity” deals. Turnaround-focused 

firms such as Change Capital Partners and 

Endless in the UK and BluO International 

Restructuring in Germany continued to 

deploy capital in unleveraged transactions 

(they are no strangers to all-cash acquisitions), 

while other, traditional mid-market 

firms, such as Gresham Private Equity and 

Dunedin, also put unleveraged capital to 

work. By the end of the year, all-equity deals 

were also appearing at the larger end of 

the buyout segment, such as Permira’s £225 

million (€250 million; $359 million) takeprivate 

of financial services company Just 

Retirement in September. 

W h e r e’s d i s t r e s s ? 

An expected slew of distressed assets, or 

healthy assets from distressed sellers, did 

not materialise as many GPs had expected. 

This contributed to the deal flow “logjam” 

during much of 2009. As the year progressed, 

however, vendors resisting the 

prospect of selling healthy assets began 

to reassess their options. Marc Staal, 

managing partner of mid-market private 

equity firm AAC Capital Partners, said that 

by July he was “seeing the first signs of 

stressed sellers of some interesting subsidiaries”. 

Up until that point, said Staal, “if 

you could avoid selling you would not be 

in the market”. 

With economic uncertainty pervading 

throughout the year, many firms turned 

their attention to defensive sectors, such as 

healthcare. In a trend mirrored among midmarket 

firms across the Atlantic in North 

America, the long-running love affair 

between private equity and counter-cyclical 

healthcare assets became more intense over 

the course of 2009.

Gimv is a listed investment company with nearly 30 years of experience in the 

European private equity and venture capital market. Today, Gimv continues 

to invest in enterprises with an attractive track record, impressive growth 

perspectives and a strong market position. 

Gimv’s dedicated investment professionals currently manage around EUR 1.7 

billion in assets (including third party funds). As a close and active shareholder, 

Gimv helps companies to grow by placing its multisectoral experience and 

international network at their service. 

Gimv believes in creating value through solid partnerships. And that is, without 

a doubt, why so many companies feel good in our company. 

www.gimv.com 

One firm to fully embrace the sector 

during 2009 was London-headquartered 

Palamon Capital Partners, which made 

three healthcare-related investments across 

Europe during 2009: Grupo SAR, one of 

Spain’s largest providers of care to the elderly; 

Polikum, a German operator of Health 

Clinics; and most recently Associated Dental 

Practices (ADP), a UK-based chain of dental 

practices. Other mid-market firms to invest 

in healthcare during 2009 include GI Partners, 

The Riverside Company, Bridgepoint 

and August Equity. 

From September, buyers and sellers 

began meeting over valuations and bank’s 

credit committees became more comfortable 

with the outlook, resulting in a flurry 

of deals at the end of the year. Roughly 

three dozen European mid-market transactions 

were agreed over the course of 

December, according to statistics from 

Dealogic coupled with informal tallies and 

anecdotal evidence. Some insiders hailed it 

as a “return to normality”. ■ 

b r e g a l g o e s b i g 

20091130_advertentie_privateequity.indd 1 7/12/09 15:20 

C&A: beginnings of a 

private equity dynasty 

Until 2009 the Brenninkmeijer family, the family behind 

the clothing retailer C&A, had been investing in private 

equity as an LP in third party funds via its investment platform 

Bregal Investments. It made sizeable commitments 

to just three managers and its relationship with these GPs 

was unusual. For example, it has traditionally represented 

around 90 percent of the investor base at London-based 

mid-market firm Englefield Capital - committing €650 million of the €700 million 

raised by Englefield’s first fund in 2003 and €900 million to its €1 billion successor. 

It emerged in November that Dominic Shorthouse, who founded Englefield 

along with Edmund Lazarus and Adam Barron, would be parting company with 

Bregal and raising a new fund. Shorthouse took the Englefield Capital brand name 

with him to his new venture, while Lazarus and Barron would continue under 

the new moniker of Bregal Capital (complete with a new €1 billion commitment 

from the Brenninkmeijers). 

“The family decided that they wanted to have control. They like the asset class, 

they like what we built and it’s only natural evolution that they decided they want 

to own all of it,” Shorthouse told PrivateEquityOnline, adding that his departure 

had come a “little earlier than expected”. Bregal has agreed to back the former 

Warburg Pincus executive’s next fund, but not on the same scale as its Englefield 

commitments. ■


‘In it for the long run’ 

O N T H E R E C O R D 

W i m b O rg d O r F F 

m a n a g i n g p a r t n e r 

a L p i n v e s t p a r t n e r s 

Wim Borgdorff leads primary and secondary fund investments at AlpInvest Partners, one of 

Europe’s largest limited partners. Since its formation in 1999, AlpInvest has managed the private 

equity investments for two of the world’s biggest pension funds - ABP and PFZW. In the last five 

years the firm has invested more than €25bn in the asset class. In September PEI quizzed 

Borgdorff on the finer points of steering an LP super-tanker 

In the current market, how is 

AlpInvest adjusting its allocation to 

various segments of the private equity 

universe? 

Many people expect a lot of drama, 

but our thinking on allocation is relatively 

dull. We tend to focus on what 

private equity will look like in five 

or ten years’ time and therefore will 

adjust allocations only gradually. Our 

allocation is that we want to have our 

fair share of the global opportunity 

and our fair share of the different 

pockets of growth. 

Borgdorff: need to be forceful to protect 

interests 

And what about the mix of primary, 

secondary and co-investment activity? 

Is that set to change? 

From day one our mix has been relatively 

consistent. It has been very much 60-20-20, and we 

believe that balanced model has worked well for us. Having 

the privilege of these three investment modes working closely 

together is the core explanation of our success. We see little 

reason to change. 

So you are not tempted to shift towards more direct investment 

activity? 

You have to be realistic about the equilibrium between what 

you can invest via funds and the magnitude of the co-investment 

opportunity that you can generate from that. You can’t 

expect to put 20 percent of your dollars into funds and 80 

percent into co-investment. That’s not how the world really 

works. 

How is AlpInvest faring through the first major correction 

since its formation? 

You’re seeing a complete slowdown across the board, a huge 

correction in values, question marks in terms of the overhang 

of capital and related fee burden. But we have seen all of these 

before. They should not be approached with short-termism, 

because private equity is not an exposure you can build up 

or get rid of overnight. You are in it for the long run. What 

will happen next? If 2001/2002 is providing any guidance 

for what to expect, these were the best 

points in time to start a private equity 

portfolio. 

So you haven’t put the brakes on 

commitments? 

We are keen to remain committed to 

the market in a very literal manner to 

ensure commitments are ready to go 

when the market starts moving. For 

this reason we are looking carefully 

at specific opportunities relating to 

largely unfunded existing funds – ’07 

and ’08 funds – where parties are keen 

to offload their exposure. 

And have you done many deals on 

this front? 

It’s an opaque case-by-case environment 

and we have not really done any significant transactions. 

We have been very selective over the last six months, but our 

comfort to proceed with these is gradually getting better. 

What has been working well during the crisis? 

Being a long-established player we have the infrastructure 

and resources in place to manage through the cycle, because 

the amount of portfolio management activity has gone up 

dramatically with all sorts of discussions taking place. There 

are key-man issues arising, problems with partnerships, deals 

going down, cross-over investing. There is a myriad of issues 

surfacing which need attention and consistent forceful management 

on the side of the investor is needed to protect their 

interests. The good news is that we have all we need to deal 

with that. 

What do you say to GPs looking to raise annex funds? 

Any portfolio in need of fresh capital should respect the fact 

that capital today comes at a higher cost than three years ago. 

We definitely do not support structures in which managers 

simply want to add a little more commitment to the pool and 

move on. We push hard for new terms for the annex capital 

– terms which are distinguished from the initial investment 

and recognise the return requirements of today. ■


Emerging markets themes 

Asia: Learning the lessons p. 108 

Asia Monitor: Unlevel playing field p. 111 

CEE: Growing pains p. 112 

Brazil: Private is the new public p. 114 

Mexico: Green light for the pensions p. 117 

MENA: Private equity desert p. 120 

Sub-Saharan Africa: Gap year p. 124 

Outbreaks of rain, sleet and snow: 

In this section PEI looks back at the 

impact of the global financial downturn 

on private equity industries in emerging 

markets. We detail important lessons 

learned and follow the asset class as it 

continued to make further inroads to 

regions including Asia, Africa, the 

Middle East and Latin America


A S I A 

Learning the lessons 

It was a tough year for Asian private equity. For many of the region’s GPs it was their first 

tough year full-stop. Jenny Blinch, Yvette Choo and Siddharth Poddar explore five key 

themes to emerge from 2009 

Back to school: GPs forced to learn new skillset 

1. b a C K t O b a s i C s 

As 2009 ushered in a new economic reality – and ushered out 

high debt multiples – the talk in the private equity industry 

was of a return to the basics of private equity. 

“The past will not come back,” said Maarten Ruijs, managing 

partner and chief investment officer at CVC Asia 

Pacific, speaking at the PEI Asia Forum in Hong Kong in 

April. “Trying to find the kind of deals we were used to in 

the past is not going to happen.” 

Indeed it isn’t: just ask the bankers. Whereas in the giddy 

years of 2006 and 2007 leverage on deals crept as high as 

6x earnings – or even 8x in some cases – 2009 saw debt 

multiples sink right back down the scale. 

While this varies according to the market – Japan, for 

example, is one country where the mostly domestic banking 

market has stayed open for business – it has forced a 

change in the way business is done in many of the region’s 

buyout markets. To cite one example, at the annual conference 

of the Australian Private Equity & Venture Capital 

Association this year, debt availability was summarized as 

follows: maximum commitments of A$50 million (€32 million; 

$44 million) available from any single institution; no 

underwriting happening; maximum of 3.5x earning available 

on senior debt; no subordinated debt available; mezzanine 

lenders seeking an IRR of 20 percent plus; and a maximum 

achievable debt package of A$250 million on any one deal. 

Certainly something to give buyout players pause for 

thought. But it’s not just the buyout markets that have 

been forced to return to basics: the downturn also served to 

wipe off some of the ‘froth’ seen in the growth markets of 

emerging Asia and the Middle East, where many investors 

were simply riding the rising markets. 

However, while at the end of 2009 Asia’s buyout markets 

remain in a state of adjustment, the same cannot be said for 

its growth markets. As economic growth picked up pace 

in Emerging Asia in the second half of the year, there were 

some who were moved to complain the downturn had not 

been long – or severe – enough to really force a shift to 

value-add investment. 

“Private equity is fundamentally about value creation,” 

said one fund of funds manager in October. “We were hoping 

this crisis would force GPs to focus on helping companies 

and improving their operations.” But, he noted, it hadn’t 

so far. 

2. a L t e r n a t i v e v i e W s O F J a p a n 

As the economic downturn bedded in, the retrenchment to 

home turf that had been seen in the investment banking 

world began to be mirrored in the private equity world, 

with Japan – Asia’s “tough nut to crack” – recording the 

most departures. 

March and April saw Tokyo office closures from USbased 

Sun Capital Partners; UK-listed mezzanine house 

Intermediate Capital Group; Hong Kong-headquartered 

Unitas Capital; and US-headquartered Merrill Lynch Global 

Private Equity. 

That is not to say, however, that Japan has been a private 

equity graveyard for foreign firms. In fact, towards the end 

of the year, the country recorded a number of standout 

transactions from some of the largest global firms. 

The Carlyle Group was involved in two deals in the 

space of one month: the purchase of auto software company 

Broadleaf from imaging equipment giant Olympus 

Corporation for $212 million at the end of October; and 

a $229 million offer to purchase Tokyo-listed restaurant


chain operator Chimney Co only two 

weeks later. 

In November, Bain Capital’s successful 

$1.1 billion bid for telemarketing 

company BellSystem24, in which 

Permira, KKR, CVC Asia Pacific and 

The Blackstone Group had also at one 

time expressed interest, also showed 

that foreign GP interest in Japan was 

alive and well. 

3. d O m e s t i C L p s , p L e a s e s t e p 

F O r W a r d 

As funding from Western LPs crippled 

by the denominator effect dried up, 

the extent of Asia’s dependence on a 

Western LP base became uncomfortably 

clear and industry calls for a more 

significant regional LP base became 

louder. But with regulatory constraints around many of the 

region’s pots of money still limiting or severely restricting 

investment in private equity in most jurisdictions, the transition 

to a greater dependence on a regional LP base still looks 

a long time coming. 

Nevertheless, there have been some positive signs in 

2009 that some of the region’s potential LPs are opening 

up to the asset class. China’s National Social Security Fund 

for example, the country’s only real LP, can commit 10 

percent of its assets to private equity: and with its assets 

under management predicted to swell to RMB1 trillion 

(€100 billion; $146 billion) in 2010, this is a significant 

portion of capital. 

Likewise, the Korea Investment Corporation announced 

earlier in the year that it would resume overseas investment 

and commit $1 billion of a $3 billion cash injection from the 

government into alternative assets including private equity. 

In July, the institution awarded a private equity secondaries 

mandate to Swiss alternatives manager Partners Group. 

In India, a couple of recent fundraisings have highlighted 

the growing importance of domestic capital. Most significantly, 

in October, ICICI Venture raised $250 million for 

the first close of its India Advantage Fund Series III entirely 

from domestic investors. 

4. F u n d r a i s i n g g e t s t O u g h 

Tokyo: private equity interest alive and well 

2008; CVC Asia Pacific’s third buyout fund, 

which closed on $4.1 billion in April 2008; 

and HSBC Private Equity Asia’s $1.5 billion 

close on its sixth fund in December 2008), 

it didn’t take long before the impact of the 

downturn was being felt among those with 

funds in the market. 

Unitas Capital was the first firm to fall 

significantly short of its target, closing its 

third fund on $1.2 billion in December 

2008 – less than half of its initial$2.5 billion 

target. Other firms to have felt the 

pinch include Australia’s Catalyst Investment 

Managers, which raised A$438 million 

($289 million; €223 million) in March 

for Catalyst Buyout Fund 2, falling short 

of its A$800 million target; South Korea’s 

MBK Partners, which closed its second fund 

on $1.5 billion, short of its reported initial 

target range of between $2.5 billion and 

$3 billion; and Japan’s Unison Capital, which closed its third 

fund on ¥140 billion ($1.47 billion; €1 billion), ¥60 billion 

short of its original target. 

For first-time funds the picture has been even bleaker, causing 

some to go as far as putting their marketing on hold. IDFC 

Capital, a Singapore-based pan-Asian fund of funds manager 

set up in November 2008, held a first close on its first fund in 

November 2008 with a $50 million anchor investment from 

its parent, India’s IDFC. The firm had originally targeted a first 

close on $200 million, a substantial way to its $500 million 

target, by March 2009, but decided to postpone fundraising 

in view of the market conditions, said chief executive officer 

said Veronica John. 

e m e r g i n g i m p O rta n C e 

The emerging economies, including emerging Asia, constitute an 

increasing proportion of global private equity fundraising 

and investment 

% of total (US$bn) 

30% 

20% 

10% 

EM fundraising as % global total 

EM investment as % global total 

7% 

5% 

11% 

10% 

8% 

9% 

11% 

18% 

15% 

14% 

20% 

24% 

The dependence of Asian GPs on cash-strapped Western LPs 

was painfully evident on the fundraising trail. 

Though many of Asia’s most prominent GPs, both local and 

foreign, closed funds just before the crisis began (think TPG’s 

$4.2 billion Asian buyout fund, which closed in September 

0% 2004 2005 2006 2007 2008 1H 


EM’s share of global fundraising has risen from 

4% in 2001 to 20% as of June 2009. 

Source: Emerging Markets Private Equity Association


Some debut funds, however, bucked this 

trend. Notable successes in 2009 include 

Beijing-based Keytone Ventures, which met 

its $200 million target for the final close 

of its first fund in July; Mumbai-based 

buyout specialist India Value Fund Advisors, 

which hit its hard cap of $725 million 

for its fourth fund; and Hong Kong-based 

Olympus Capital, which raised $250 million 

for its first cleantech fund, Asia Environmental Partners. 

A further silver lining was offered by the fact that – in the 

context of a global slump in fundraising – Emerging Asia seems 

to rising in popularity. H1 2009 fundraising statistics from 

the Emerging Markets Private Equity Association show that 

emerging markets’ share of global private equity fundraising 

increased from 15 percent in 2008 to 20 percent as of June 

2009. Within this, Emerging Asia received 36 percent of all new 

commitments to emerging markets in the first half of this year. 

5. r m b F u n d F e v e r 

2009 saw RMB fund fever – already widespread amongst 

China’s homegrown GPs – spread to foreign GPs. 

While the arrival of the downturn on China’s shores 

stemmed some of the ebullience seen in the RMB fund sector 

since the Chinese government passed its industry-forming 

Partnership Law in 2007, it did not completely cut off the 

flow of new fund launches. 

In the first quarter of 2009, two foreign currency funds were 

raised for investment in China, totaling $500 million in committed 

capital, according to data provider Zero2IPO. During 

the same period no RMB-denominated funds were raised. By 

the third quarter, however, this trend had been reversed with 

six RMB-denominated funds attracting a total of $2.5 billion 

“We were hoping the 

crisis would force GPs 

to focus on helping 

companies and improving 

their operations" 

Pudong: friendlier to foreign funds 

in commitments. No foreign currency 

funds closed in the third quarter. 

With the many advantages offered 

to RMB investors in China’s domestically-biased 

private equity industry, 

it is no surprise that foreign GPs have 

been keen to get in on the local currency 

industry too. Their chance came 

in June, when the Shanghai government 

launched its Trial Measure for the Establishment of 

Foreign-invested Equity Investment Management Enterprises: 

a one-year policy allowing foreign private equity 

and venture capital firms to register onshore entities in the 

Shanghai Pudong New Area. 

Though it is still not clear how much of a license to 

operate this pilot policy grants foreign GPs, in August alone 

five foreign firms signed up, announcing their intention to 

establish foreign funds totalling at least RMB 23 billion 

($3.4 billion; €2.3 billion). Those firms were The Blackstone 

Group, First Eastern Investment Group, CLSA Asia-Pacific 

Markets, The Carlyle Group, Prax Capital and Abax Global 

Capital. KKR is also reportedly considering signing up. 

In November, a client note from law firm Debevoise & 

Plimpton pointed to a further easing of the rules around 

RMB funds for foreigners, stating that the Chinese authorities 

had “reached an agreement with SAFE that general partners 

organised in Pudong will receive an automatic waiver to 

convert foreign currency into RMB for investment in their 

own RMB funds”. The waiver applies to up to 1 percent of 

total capital commitments to a fund, Debevoise said. The 

GP commitment to a fund – viewed as a vital aspect of GP/ 

LP alignment – is generally in the range of 1 percent to 2 

percent of the total capital raised. 

Cases of RMB fund fever look set to increase in 2010. ■


A S I A M O N I T O R 

Unlevel playing field 

Excerpts from PEI’s ‘Asia Monitor’ columns show the region presenting opportunities 

and obstacles in equal measure. By Andy Thompson 

FebruarY 

Global GPs covet Chinese growth 

“Sources say discussions of partnership 

law give rise to ideological conflict 

within the corridors of power in 

Beijing. Those in favour say foreign 

investors should be granted freedom 

to go about their business without 

constant regulatory intervention, while 

those against believe that close supervision 

is a good thing per se. A third 

group believes that foreign partnerships 

should not be waved through until local 

funds have first had the opportunity to 

evolve to the point where China has 

a domestic private equity market sufficiently 

robust to compete effectively 

with foreign funds.” 

marCh 

Australian GPs face adversity 

“As the Australian economy deteriorates 

(as surely it will – only the speed and 

duration is up for debate), limited partners 

will be speculating on how their 

capital will be effectively managed 

through a downturn by professionals 

who have only ever known an upturn.” 

apriL 

South Korea merits another look 

South Korean entrepreneurs are believed 

to be shedding their suspicions of private 

equity motives and are instead seeing the 

allure of cash injections, additive human 

resource and strategic guidance. The success 

of Sun Jong-gu, the former Daewoo 

executive backed by Affinity at Himart, 

may provide inspiration to others. 

maY 

GPs court Australian capital 

“According to anecdotal reports, limited 

partners in Australia are astonished by 

the range and volume of international 

private equity funds currently trying to 

attract investment. The quality of some 

of those doing the parading is also an 

eye-opener. Among them, for example, 

are several of Silicon Valley's venture 

elite. Locally, they are described as 

“glamour funds” (who says Aussie 

humour lacks subtlety?).” 

June 

Chinese laws muddy the water 

“Local legal experts say one particularly 

contentious ruling is that any deal struck 

overseas only becomes effective once the 

relevant approval has been obtained in 

China – and not upon execution of the 

deal. This, say the same legal experts, creates 

a real headache in trying to ensure 

that key contractual provisions retain 

their enforceability pending receipt of 

approval. So, when selling to a Chinese 

buyer, can a vendor know that the buyer 

is good for the money? At the very least 

there is room for doubt – and this uncertainty 

could be potentially crippling.” 

JuLY/august 

Perceived protectionism frustrates those 

who would buy in China 

“While yuan funds were ostensibly 

launched to give a boost to the entire 

Chinese private equity and venture 

capital industry, there is a widespread 

belief that they were also seen by the 

Chinese government as a way to adjust 

the balance of a market dominated by 

funds raising money outside the Chinese 

mainland.” 

september 

GPs mull Chinese ‘loophole’ 

“Determined to establish itself as the 

pre-eminent funds centre in mainland 

China, Tianjin […] cultivated what has 

come to be labelled the ‘Tianjin structure’. 

By way of complex fund structuring 

involving the establishment of no 

less than three subsidiaries, a foreign 

fund manager can succeed through this 

highly circuitous route in setting up a 

local partnership.” 

OCtOber 

Japan loses face on the world stage 

“Private equity in Japan is witnessing 

a familiar cycle; not for the first time, 

international GPs have scaled down 

or pulled out of Tokyo in response 

to worsening market conditions. 

Although the rationale still holds that 

hard-pressed companies will ultimately 

need to consider selling non-core divisions, 

many GPs have lost patience 

with Japan.” 

nOvember 

Australian LPs reassess the asset class 

“Fewer [Australian LPs] are thinking in 

terms of “local” and “global” allocations 

– these have dissolved into one. And 

what was a dedicated private equity allocation 

is now, in many cases, a generic 

allocation to illiquid investments.” 

deCember/JanuarY 

The Middle Eastern growth opportunity 

“Post-crisis, the landscape for investment 

in the Middle East is completely 

transformed. As elsewhere, the buyout 

model that involved the use of significant 

amounts of leverage lies dormant. 

The pre-IPO market, meanwhile, was 

reliant on investor fervour that has long 

since dimmed. […] Into this temporary 

vacuum of strategic credibility, growth 

capital players are tentatively staking 

their claims to investor capital.” ■


C E N T R A L A N D E A S T E R N E U R O P E 

Growing pains 

The financial crisis has slowed, but not stopped Central and 

Eastern European private equity activity, find Tim Chapman 

and Amanda Janis 

Many Central and Eastern Europe countries 

saw the healthy growth rates they’d 

been racking up for the past decade hit a 

wall in 2008, as the financial crisis reverberated 

around the globe. While many 

countries in the region were plunged into 

recession in 2009, a slow recovery is already 

underway and private equity professionals 

on the ground say the situation they face 

in most of the region is far from gloomy. 

“While the effects of the downturn in 

the economy have hit certain industries 

hard and particular countries in the CEE 

region have overextended themselves to 

their detriment, the region’s problems are 

not quite as serious as portrayed. The key 

reason being that the larger economies in 

Central and Eastern Europe were never 

engaged in the credit boom and bust cycle,” 

Richard Seewald, a CEE-focused partner at 

Switzerland-based funds of funds manager 

Alpha, told PEI in December. 

For CEE-focused GPS, that made life 

easier last year than it was for some of 

their peers, says Daniel Lynch, managing 

partner of 3TS Capital Partners, a lower 

mid-market firm sponsored by 3i and Sitra. 

Firms like 3TS, focused primarily on CEE 

growth investments, did roll up their sleeves 

with portfolio companies, he says, “dealing 

with issues like cost cutting, realigning 

incentives, budgeting”. But, Lynch adds, 

“We didn’t have to deal with banks and 

covenant breaches”. 

p O L e p O s i t i O n 

Most investors identify a core of countries, 

led by Poland, which accounts for the bulk 

of private equity activity and which will 

continue to provide the strongest opportunities. 

Despite currency fluctuations and 

falling exports, growth prospects in these 

countries are relatively strong. 

Seewald: Poland, Czech Republic shine in 

CEE 

Poland’s government is predicting it 

will see around 3 percent GDP growth 

in 2010, above the 2.5 percent the World 

Bank is forecasting for most mature 

economies. The country’s $20 billion 

credit line taken out in April 2009 with 

the International Monetary Fund (IMF) 

has also been perceived as a wise precautionary 

move rather than an emergency 

measure. 

“Poland is at the top of the league,” 

Nigel Williams told PEI in mid-2009. 

Williams is managing partner at Royalton 

Partners, which focuses its investments 

on the European Union accession 

states from its offices in Poland, 

the Czech Republic and Romania. “It’s 

a large country with a large enough 

internal economy that it’s less affected 

by what’s happening globally than some 

of the smaller, more open economies.” 

Poland is 31st in terms of the hottest 

places around the world for private 

equity investment, according to an index 

created by Ernst & Young and the IESE 

Business School at the Universidad de 

Navarra in Spain. The index ranks a 

total of 66 countries spanning six continents 

on a criteria list of six principles, 

including system of taxation, economic 

activity, depth of capital markets, investor 

protection and corporate governance, 

human and social environment and 

entrepreneurial culture and opportunities. 

“Poland’s increasing attractiveness 

can be traced to its accession to 

the [European Union], as well as the 

expansion of capital markets through 

the establishment and development of 

the Warsaw Stock Exchange,” Alexander 

Groh, a visiting professor with IESE, said 

in a statement. 

Among the many firms to agree deals 

in Poland last year were CEE-focused Arx 

Equity Partners, which backed luxury pet 

product retailer Kakadu; and Nordic midmarket 

firm EQT, which initiated its first 

Polish deal – a €209 million take-private 

of manufacturer HTL Strefa – since opening 

its Warsaw office in 2008. 

The Czech Republic and Slovakia 

could also be added to the list of strong 

performers ripe for private equity investment, 

says Seewald. “You have the competitive 

advantage of a well-educated 

and highly skilled workforce supporting 

strong productivity growth and substantial 

foreign investment and flexible 

exchange-rate systems where currencies 

have already fallen to fairly competitive 

levels.” 

C a p i t a L C O n s t r a i n t s 

Despite the optimism on the transaction 

side, fundraising has remained tough resulting 

in only a handful of players actively 

chasing limited partner capital. At the end 

of 2009, Arx was nearing a €125 million 

final close on its third fund, while CEEfocused 

mezzanine provider Syntaxis Capital 

hit the halfway mark on its second fund, 

targeting €200 million. 

“While Central Europe has certainly felt 

the impact of the financial crisis, over the

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investment period of the fund (and beyond) 

convergence with Western Europe will 

remain the key driver of regional growth 

and again act as a magnet for inward investment,” 

Syntaxis managing partner Ben 

Edwards said in a statement in December. 

“Less permanent equity and credit financing 

has left the region in the last year and so is 

no bad thing for our fund: good companies 

continue to need capital for expansion and 

acquisitions, and the buyout market will 

again be a key feature in our private equity 

landscape when senior debt underwritings 

resume.” 

Ryszard Wojtkowski, formerly a senior 

advisor at The Carlyle Group, also started 

raising a €200 million Polish mid-market 

fund with other former Carlyle colleagues, 

while CRG Capital, the CEE-focused affiliate 

of US mid-market and turnaround 

group CRG Partners, began marketing a 

€200 million distressed debt fund in tandem 

with the IFC and the European Bank for 

Reconstruction and Development. 

3TS planned to start fundraising in early 

2010 for its third fund, targeting €160 million. 

The firm is talking to LPs that already 

understand the region, which Lynch says 

is a plus. As is taking a solid track record 

on the road – 3TS notably scored a 9x exit 

last year with the $100 million NASDAQ 

IPO of remote internet access company 

LogMeIn – yet it remains unclear how large 

LP appetites will be for fresh investments, 

Lynch notes. 

“Many LPs in 2009 said they were not 

investing and [to] come back in Spring 

2010,” he recalls. “We don’t yet know what 

is the sentiment and the disposition of the 

LPs: Are they making new commitments 

or are they still in cautious mode? Has 

enough time passed or are they still working 

through their own portfolio issues?” 

Hopefully enough time has passed, and 

LPs will be ready to take on new business, 

he adds. The region’s GPs certainly are. ■ 

b r e w i n g b i g d e a l s 

Anheuser-Busch InBev’s need to divest assets and pay down debt gave 

rise to the largest CEE private equity deal of 2009 

London-based CVC Capital Partners set records 

with its $3 billion purchase of the Central European 

operations of brewing giant Anheuser- 

Busch InBev. The deal included the company’s 

businesses in Bosnia-Herzegovina, Bulgaria, 

Croatia, Czech Republic, Hungary, Montenegro, 

Serbia and Slovakia. CVC also agreed to 

make and distribute beer brands like Stella 

Beer: boosting dealflow 

Artois, Beck’s, Hoegaarden, Spaten and Leffe. 

Anheuser-Busch InBev’s active asset disposal last year also resulted in marquee 

deals for Kohlberg Kravis Roberts and Affinity Equity Partners, now owners of 

South Korea’s Oriental Brewery, as well as the Blackstone Group, which purchased 

a portfolio of US theme parks including Sea World.


B R A Z I L 

Bovespa: no match now for private equity 

Private is the new public 

With Brazil’s public market not so hot, private equity 

is finally poised for major action, writes David Snow 

If it was an exciting year to be Brazilian, 

what with Rio de Janeiro selected as the 

site of the 2016 Summer Olympics, it 

was equally exciting to be part of the 

Brazilian business community. As the 

recession wreaked havoc in North America 

and Europe, economists highlighted 

the relative health of Brazil’s markets. 

The same excitement was evident in 

Brazil’s tight-knit private equity market, 

which after years of false starts has 

been waiting, waiting for evidence of 

real momentum. That momentum may 

have definitively arrived in 2009. 

Trips to Brazil in 2009 left visitors 

buzzing, and this wasn’t simply due to 

the potent cafezinhos that one is served 

at each business meeting. 

GPs and LPs alike were struck by a 

sense of tremendous confidence that was 

not nearly as evident during previous 

market cycles. Leading up to the credit 

crisis, Brazilian private equity professionals 

seemed relieved that private 

equity had found a permanent place in 

the economy, even if it had to compete 

mightily with the then-booming public 

market for deals. Now that relief has 

morphed into excitement, albeit cautious 

excitement, that private equity is 

more relevant than ever. 

i n t e r e s t i n g r a t e s 

Much of the new opportunity in Brazilian 

private equity stems from beneficial 

changes well beyond the control of GPs 

in the form of interest rates. Brazilian 

financial executives are passionate 

about macroeconomics, and any visitor 

will note that each meeting begins 

with the recitation of a set of facts that, 

taken together, paint a compelling picture 

of a country at the cusp of major 

growth. Central to this macroeconomic 

plotline are interest rates, which have 

fallen to game-changing levels in Brazil 

and set in motion opportunities for private 

equity and other alternative assets 

that haven’t existed over the short history 

of the asset class here. As recently 

as 2003, interest rates were above 25 

percent. They now hover near 8.75 percent 

– still fairly high by US standards, 

but for Brazil this represents a bargain 

basement level. 

NSG Capital’s Luiz Eduardo Franco 

de Abreau says of the trend: “We are 

now seeing a sustainable decrease in 

interest rates, and that will permit longterm 

investments. Many local LPs that 

previously invested in government 

bonds need to go to the stock market 

or private equity investments.” 

Among the major consequences of 

a lower interest rate are the wandering 

eyes of the major Brazilian pension 

funds. For years, domestic pensions 

met obligations almost solely through 

investments in government bonds. Why 

take any equity risk when one could 

earn fat double-digit returns in fixed 

income? Now with yields having fallen 

back to earth, these pensions need to 

put money in public equity, and this is 

expected to fuel a surge in demand for 

local stocks, of which Brazil currently 

has comparatively few, given the size 

of its economy. This spells exit opportunities 

for the right financial sponsorbacked 

companies. 

Brazilian pensions are also eyeing 

local private equity, and GPs in the 

country are scrambling to show that 

private equity delivers returns by helping 

medium-sized companies prepare 

for public listings and sales to international 

corporations.


B A C K T O B R A S I L 

Warburg Pincus opens in Sao Paulo again 

Belda: in Brazil for Warburg 

Brazil is back on the map for Warburg Pincus, which is putting the finishing 

touches on a new office in Sao Paolo. 

Leading the firm’s invigorated Latin American investment effort from Sao 

Paulo will be Alain Belda, who joined the firm last year as a managing director. 

Belda was chief executive officer of Alcoa, the aluminum producer, from 

2001 to 2008. 

This is the second go-round for Warburg Pincus in Brazil. The firm first 

established a presence in the country in 1998 under the leadership of Gary 

Nusbaum. During that time the firm backed Brazilian e-commerce company 

Submarino (which went public in 2005) and invested some $35 million in eBX 

Express Brasil, a logistics conglomerate and part of the prominent Brazilian 

investor Eike Batista’s EBX platform. Nusbaum left Warburg Pincus in 2002 

to join Aetos Capital, and later Palladium Equity Partners. 

Belda will “lead investment activities in Latin America and provide strategic 

counsel across the firm’s portfolio”, according to a press release. At press time 

an office location had not yet been secured by the firm. 

Even more broadly speaking, low interest 

rates mean that Brazilian consumers 

have more credit, and this will fuel buying 

power. For example, middle-class Brazilians 

can now secure mortgages whereas once 

many had to horde their money over years 

to afford their own homes. And the ranks 

of the middle-class and lower middle-class 

have grown dramatically thanks in part to 

a successful government programme aimed 

at lifting families out of poverty. One estimate 

has it that a population the size of 

Canada has emerged from poverty in Brazil 

over the past decade. These new consumers 

will in turn begin spending their new-found 

money and fueling further growth. 

r e a d Y t O i n v e s t 

Local private equity firms, for their part, 

are eager to help local companies benefit 

from this economic grown by improving, 

expanding and, down the road, preparing 

for a public listing. During a roundtable 

discussion on the Brazilian private 

equity market conducted by Private Equity 

International in Sao Paulo last November, 

local market participants noted that 

during the IPO boom two years ago, it 

was harder to convince an entrepreneur 

that he needed the money and governance 

training of a private equity firm when the 

Borges: from AIG to Carlyle 

public markets, notably Sao Paulo’s stock 

exchange, the Bovespa, were so hungry 

for listings. 

Now, with the capital markets much 

quieter, company owners know they need 

to grow bigger, and have better corporate 

governance in place, before being able 

to reach a point where they can either 

go public or make a significant move in 

the international M&A market. In addition, 

there are many listed companies that 

clearly went public too early. This is where 

private equity can step in, the roundtablers 

said. 

The local private equity firms know 

they will increasingly face competition 

from big international firms, although they 

insist the underserved Brazilian market is 

big enough for more players. They also say 

that private equity talent here is scarce – so 

good luck headhunting. Big names to have 

recently increased their Brazilian activities 

include General Atlantic and Warburg 

Pincus (see boxed item). Kohlberg Kravis 

Roberts is closely surveying the market, 

while Singapore giant Temasek Holdings is 

scouting for opportunities there, according 

to market sources. 

The Carlyle Group, having secured the 

services of former AIG Brazilian buyouts 

head Fernando Borges, completed its first 

private equity deal in the country at the end 

of last year with the $250 million investment 

in CVC Brasil Operadora e Angencia 

de Viagens, a major travel services provider. 

It is now time to turn excitement and 

momentum into returns. It is clear that 

Brazil has the infrastructure to facilitate 

this success, with a well developed capital 

market as well as global conglomerates 

looking for growth. The stars for private 

equity in Brazil may not be perfectly 

aligned yet, but they are close enough to 

warrant an olympian effort from GPs. ■


M E X I C O 

Mexico City: home to a new regulatory framework 

Green light for the pensions 

Mexico may be set for substantial growth thanks to local institutions finally gaining entry 

to the asset class. Amanda Janis reports 

Mexico's sleepy private equity market 

may be about to shake off its siesta due 

to recent regulatory changes. 

The country has historically had fairly 

low private equity penetration levels, 

notably lagging behind that oft-lauded 

Latin American emerging market, Brazil. 

Private equity and venture capital investment 

in 2009, as a percentage of gross 

domestic product, is just 0.045 percent 

in Mexico, compared with 0.146 percent 

in Brazil, according to recent statistics 

from the Latin American Venture Capital 

Association. As points of reference, the 

figure is about 0.85 percent in the UK 

and 0.30 percent in Spain. 

There are numerous reasons why 

Mexico has traditionally been left out of 

BRIC frenzy, including SMEs' difficulty 

in accessing equity markets, outdated 

bankruptcy laws and institutional investors' 

inability to invest in private equity. 

The lack of private equity activity 

in the country, by extension, has meant 

local companies and entrepreneurs are 

Lastres: ready to target local LPs 

not familiar with the asset class and how 

it operates, says Miguel Olea, head of the 

Mexico City office for emerging marketsfocused 

Aureos Capital. “There is a need 

to educate managers in the advantages of 

private equity as a lever to foster growth 

and expansion,” he says. 

The situation looks set to improve, 

however, thanks to one significant 

change. 

C O m e O n i n 

In July, Mexico's banking and securities 

regulator made it possible for the 

managers of Mexico's private retirement 

funds (Administradoras de fondos para 

el retiro, or Afores) to invest in publicly 

listed private equity and infrastructure 

vehicles. 

Structured as a certificado de capital 

de desarollo (CCD), the vehicles enable 

Mexico's institutional investors to invest 

directly in alternative assets for the first 

time.

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“We have been working for almost 

two years on opening up the framework 

so these pension funds can invest 

in alternative assets,” says Jose Contreras, 

managing partner of Mexico 

City-based WAMEX Private Equity 

Management. “The way we were able 

to do it was to create a public trust,” 

from which the manager can draw 

down capital. “The regulatory bodies 

wanted to have corporate governance 

and full disclosure and the only way 

[they felt appropriate] to do that was 

through the stock exchange.” 

WAMEX, which estimates the 

Afores control nearly $100 billion in 

assets, raised and listed the first such 

private equity-focused vehicle in October 

this year. It collected $55 million 

from five institutional investors for a 

Mexican Stock Exchange-listed vehicle 

that will invest alongside a traditional 

private equity fund, the two together 

aiming to raise a total of $120 million 

for lower mid-market deals. 

Contreras expects many local and 

regional private equity fund managers 

to follow suit, regardless of investment 

strategy. 

Aureos, for example, is busy investing 

a $185 million regional fund closed 

in June, roughly half of which is allocated 

for Mexican SME investments. 

Olea estimates the Mexico City team 

will have invested $40 million by the 

end of 2009, leaving it another $45 

million to invest next year. 

“We will probably have to begin 

raising a new fund by the second semester 

of 2011,” he says. “And we would 

certainly raise money from Mexican 

pension funds. Some Mexican pension 

funds have made clear to us that they 

might be interested in investing” in a 

vehicle running parallel to the current 

fund “as early as next year”. 

Darby Overseas Investments, 

another global emerging markets player 

investing in Mexico from a regional 

fund, also thinks CCDs will present 

an interesting opportunity. “We have 

been looking at the possibility of raising 

a local, country-specific fund and 

that opportunity has opened up lately 

through the Afores wanting to expand 

Avila: anticipating Afores' investment 

their activities,” says Julio Lastres, 

senior managing director and director 

of Darby's Latin American operations. 

If the Afores' foray into private 

equity goes well, it will help “generate 

employment for Mexico and will 

generate an industry that doesn't exist 

today”, says Joaquin Avila, managing 

partner of EMX Capital, a Mexico 

City-based fund that recently spun out 

from The Carlyle Group. 

Avila anticipates the Afores will 

invest from $6 billion to $8 billion 

in CCDs, most of which he expects 

to focus on infrastructure projects 

crucial for the country's development 

(the first CCD raised and listed, for 

example, was by Goldman Sachs and 

ICA, who were behind the FARAC toll 

road concession). Macquarie and other 

infrastructure groups have also been 

mentioned in local press as interested 

in raising CCDs.“Perhaps something 

like $500 million or $1 billion at the 

most will be invested in true private 

equity/leveraged finance, and I think 

that makes a tremendous amount of 

sense because it's an industry that still 

needs to be developed,” Avila says. “It 

will not happen overnight, and if it 

happens overnight, it will be wrong.” 

He points to the progress of the private 

equity industry in the US, which 

took off exponentially once the asset 

class gained ground with pensions. 

“It took a while to develop and that's 

exactly what will happen in Mexico. 

We need to develop gatekeepers, different 

asset managers, to train Afores in 

how to invest or not invest in a team… 

nobody can expect that it's going to be 

an instant success.” 

The advantage the market's GPs 

and LPs have, however, is the ability 

to visit more established private equity 

markets and learn from their successes 

and failures, Avila notes. 

L e n d i n g L e g i t i m a C Y 

As Afores move more confidently 

into private equity, advisers and other 

affiliates will spring up, strengthening 

the infrastructure needed to support a 

fully formed and active private equity 

industry on the ground. 

Their support is necessary for a host 

of fund managers to take part in the 

anticipated surge in deal activity, as 

“traditional” sources of capital – for 

Mexico, mainly development finance 

institutions - are not expected to start 

writing more or bigger tickets anytime 

soon. 

But it's not just capital that that 

these local institutional investors 

deliver to Mexico's private equity 

market. They also bestow a legitimacy 

that should attract even more 

domestic LPs. 

Couple this with the longer-term 

impact of positive outcomes for pensioners, 

as well as a broader spectrum 

of investee companies (not just prominent 

corporations, but SMEs, too) and 

the asset class should become better 

understood and embraced by local 

regulators, politicians and the public 

at large – all of which is necessary to 

incorporate private equity successfully 

into a market's economic DNA. ■


M I D D L E E A S T A N D N O R T H A F R I C A 

Private equity desert 

The region of Middle East and North Africa experienced 

a drought in private equity activity during 2009, writes 

Christopher Witkowsky 

The financial shocks felt by the Middle 

East and North Africa in 2009 caused 

the region’s blooming private equity 

industry to grind to a near halt after 

several promising years of growth. 

“2009 was a year of absolute shock, 

and therefore private equity dropped 

off a cliff,” says Zulfi Hydari, cofounder 

and group managing director 

at HBG Holdings, an investment firm 

that focuses on Saudi Arabia and the 

Gulf region. “In the first half of the 

year, literally nothing happened. Everyone 

was in survival mode.” 

It is a sentiment echoed by Chris 

Ward, chief executive officer of financial 

advisory services for Deloitte 

Middle East. “There was zero activity 

last year – we went straight from 2008 

to 2010,” he told sister publication PEI 

Asia in a recent interview. 

Consolidation has been commonplace 

in the region, says Hydari, and 

will continue until about 70 percent 

of firms in the industry will disappear. 

“There’s a huge shakeout going on in 

the industry. The size of the industry 

[in MENA region] didn’t make sense in 

terms of the number of deals,” Hydari 

says. “It was inevitable that something 

was going to change.” 

One standout example of consolidation 

in the sector would be November’s 

acquisition of Riyada Ventures, 

a Jordanian venture capital firm, by 

regional heavyweight Abraaj Capital. 

The acquisition was funded by a $375 

million rights issue to existing Abraaj 

investors and is part of the firm’s push 

into the small- and medium- enterprise 

space. 

Dash: families increasingly going direct 

“There was zero 

activity last year – 

we went straight 

from 2008 to 2010” 

One permanent scar on the region 

from the downturn, though, is that 

some regional limited partners may 

have been scared away for good from 

the asset class, sources tell PEI. LPs 

in MENA tend to be members of the 

wealthy elite – family offices and high 

net worth individuals. Since the downturn, 

many are questioning whether 

they want exposure to a young and 

illiquid asset class. 

By the end of the third quarter of 2009, 

nine MENA-focused funds had garnered 

around $1.3 billion in commitments. This 

compared to 19 funds which had raised 

$6.9 billion during the same period of 

2008, according to the Emerging Markets 

Private Equity Association. 

L p d i Y 

While some LPs have become disillusioned 

with the asset class, others 

are rethinking their approach. Many 

MENA-based investors are wealthy 

families that have owned and operated 

businesses for long periods of time. With 

operating experience, many are considering 

moves to invest directly, or co-invest 

with funds that can boast long track 

records of success. 

“In a way they see the new private 

equity firms coming onto their turf, the 

turf they’ve owned all this time, and 

they’re thinking, why not just do it 

themselves,” Hydari says. “In the short 

term, you’ll find it’ll probably work, but 

you’ll find it’s only those families who 

are significant enough and able to put the 

resources behind their ambitions who 

will really be able to generate value from 

private equity in the region.” 

Shailesh Dash, founder and chief 

executive officer at Al Masah Capital, 

concurs that many of the region’s 

family offices and other non-institutional


private equity investors are limiting their 

private equity investments to direct 

acquisitions at the moment. 

“Many family offices feel this is a 

great time for them to do acquisitions, 

so if they can they will buy directly,” he 

recently told sister magazine PEI Asia. 

“In a boom time they find it difficult 

to find those deals, but today deals are 

present everywhere and at prices that still 

remain attractive to them.” 

Dash says that even if these families 

might not have the skill set to manage 

the assets they are buying long-term, they 

prefer to go the direct route because of 

the buying delay implied in investing into 

a fund and because to them direct ownership 

is preferable. 

C r i t i C a L m a s s 

Notwithstanding the shocks of the last year, 

the rapid development of the MENA private 

equity market pre-crisis has ensured that 

certain firm’s will emerge intact and ready 

to take advantage of one of the most attractive 

investment environments in a lifetime. 

In PEI’s annual ranking of the world’s 

largest private equity firms, the PEI 300, 

Middle Eastern firms have begun to exert 

their authority. Last year the region boasted 

eight of the world’s largest firms. Those 

lucky enough to be sitting on a pile of dry 

powder are now sizing up an epic investment 

opportunity. 

“This is the greatest environment to do 

deals for a combination of three reasons. 

One, you have some distressed assets. Two, 

you have distressed sellers and three, you 

have governments who have [struggling] 

balance sheets and have to, as opposed 

to by choice, they have to get the private 

sector to do some of the basic infrastructure 

development that historically government 

within this region used to do on their own,” 

Ahmed Heikal, chairman of Citadel Capital, 

a private equity firm based in Cairo, told 

PEI in an interview in November. 

“It’s the greatest environment to do deals 

but it’s a tougher time to raise money to do 

those deals,” Heikal says. “It’s the ultimate 

paradox that during the best times [to invest] 

people are shy and risk averse.” ■ 

t i m e F O r p a t i e n C e 

After the crisis, comes the growth, writes Andy Thomson 

Post-crisis, the landscape for investment in 

the Middle East is completely transformed. 

As elsewhere, the buyout model that involved 

the use of significant amounts of leverage lies 

dormant. The pre-IPO market, meanwhile, 

was reliant on investor fervour that has long 

since dimmed. One example: ports giant DP 

World listed its shares at $1.30 a piece on 

Nasdaq Dubai in November 2007. The (non-) 

Zawya: global concept 

viability of the strategy today is hinted at by 

applied regionally 

a closing DP World share price of $0.48 on 

10th November 2009. 

Into this temporary vacuum of strategic credibility, growth capital players are 

tentatively staking their claims to investor capital. One such is Saffar Capital, a 

Dubai-based financial services specialist. By its actions, Saffar will provide a test 

case of whether this type of strategy can win over the investment community 

in the changed environment of today. The firm, which since inception in 2001 

has invested from its own balance sheet, is currently in the market for its debut 

third-party fund. It is hoping to raise $150 million by the middle of 2010. 

Saffar applies two main strategic rationales in a new deal context. One is 

to adopt concepts that have worked successfully on the global stage and apply 

them to the Middle East. One example is Zawya, the Dubai-headquartered 

business information provider, which Saffar has sought to model on Bloomberg 

while making adaptations to take account of local business and cultural 

idiosyncrasies. The second is to take a local, UAE-based business and expand 

it regionally. Saffar chief executive Mishaal Al-Usaimi told PEI that these local 

businesses often find it hard to grow out of their home markets into the likes 

of Saudi Arabia and Kuwait. Saffar helps them to do this, often by creating 

joint ventures with local partners. 

Al-Usaimi believes that sentiment towards his firm has taken a turn for the 

better since the crisis. In particular, he believes that sophisticated family offices 

in Europe and Asia will not be put off by the long time horizon involved in 

building companies from the ground up. “We say to some of the family offices 

‘do you realise our strategy takes between five and seven years?’ and they say 

‘we’re surprised it’s that short’.” 

At the same time, he acknowledges that explaining to some investors how 

patient they need to be is a “difficult ball game”. Of the seven investments 

Saffar has made to date, none have yet fully exited (though six of these were 

completed no earlier than 2005). He says: “A lot of investors, particularly in 

our region, want to exit as soon as possible. We want to see the model mature 

in its own time. The silver lining from the crisis is that investors are now willing 

to give us a fair hearing on this.” 

Al-Usaimi argues that, with the likes of pre-IPOs and PIPE deals prevalent 

in the recent past, investors in Middle Eastern private equity funds have often 

been paying 2 & 20 for no good reason. Funds that provide intensive support 

to businesses over the long term can at least claim to provide value for money 

on fees. Whether or not they can live up to return expectations will be key, 

however - and waiting for the evidence on that front may demand too much 

patience for many investors’ liking. ■


M I D D L E E A S T A N D N O R T H A F R I C A 

The best of times, 

the worst of times 

It may have still been reeling from the effects of the financial 

crisis, but when PEI spoke to two leading private equity 

practitioners based in North Africa in May, it found some 

optimism among the doom and gloom 

PEI: what trends make you most optimistic? 

Ziad Oueslati, co-founder and managing director, 

Tuninvest, Tunis 

“2009 is a critical year for private equity activity in North 

and Sub-Saharan Africa. We expect some major consolidation 

to take place and for “hands-on” teams geared toward 

true value creation to prevail over “hit and run” teams 

geared toward quick returns. On the pricing side we should 

be back to more rational valuations based on fundamentals 

rather than hype as markets and commodity prices 

come down and competition from private equity players 

flush with cash dwindles. The scarcity of debt financing 

for companies will generate more opportunities for private 

equity players to provide quasi-equity financing.” 

PEI: what trends make you least optimistic? 

Hisham El Khazindar, co-founder and managing director, 

Citadel Capital, Cairo 

“The luxury of private equity investing is that we take a 

long-term view, and the long-term outlook for the Middle 

East and North Africa region is very positive. In the short 

term, we will focus primarily on protecting and nurturing 

existing investments, but will also keep our eyes open for 

buyout targets at attractive valuations and for distressed 

assets that fit our strategy of building and consolidating 

regional platforms in selected industries.” 

ZO: “The coming years will be testing for private equity funds that are in the exit 

phase as they will be facing not only lower valuations but also shrinking and less 

liquid stock markets and lower appetite from strategic buyers. There is uncertainty 

over the length of the downward cycle and the ability to rebound for those sectors 

which were hit harder by the crisis. The availability of debt financing will also be 

an issue for investee companies. Finally, we could also expect more protectionism 

from African governments.” 

HEK: “The challenges facing global markets and the tightening of credit markets 

everywhere will obviously mean we must be extremely cautious in the short and 

medium terms. There’s no secret there.” 

And here are some other 

predictions from regional 

players during 2009 that 

caught our eye: 

“Some people would see it as a contrarian 

move. But there are plenty of 

opportunities to move in somewhere if 

you feel it’s not going away in the long 

term. Dubai is not going away. This is a 

logical time for us to be expanding.” 

Reyaz Kassamali, managing director 

at retail-focused North America-based 

GP Hilco Consumer Capital, explains 

the launching of his firm’s first international 

base in Dubai 

“Private equity in the region is going 

to enter into a phase where I believe 

historical returns will be dwarfed.” 

Arif Naqvi, founder of Dubai-based 

Abraaj Capital, expresses bullish views 

at the PEI Middle East Forum 

“The sector in this part of the world 

must consolidate: too many funds have 

been created without differentiation and 

without a good enough reason.” 

Charbel Abou Jaoude, chief executive 

officer of Investments at Agility, a 

pan-regional logistics group based in 

Kuwait. He was also speaking at the 

PEI Middle East Forum 

“As the industry matures and consolidates, 

some of the funds announced, 

mainly by new fund managers, will 

never reach successful closure. Industry 

experts doubt that some of the mega 

fund announcements in 2007 and 2008 

will ever come to fruition.” 

From a statement by the Gulf Venture 

Capital Association accompanying 

the release of a report on fundraising in 

the Middle East


S U B - S A H A R A N A F R I C A 

Gap year 

Despite promising opportunities, private equity in Sub-Saharan Africa took a break 

in 2009. Toby Mitchenall reports 

While the globe reeled from the unfolding financial crisis at the 

beginning of 2009, there was a sense that Sub-Saharan Africa, 

buoyed by some compelling fundamental growth dynamics, would 

not only side-step the worst of the crisis, but actually provide investors 

with an oasis of growth. As the months ticked by, however, they 

brought with them a realisation that while it may have escaped the 

full initial force of the crisis, the region would feel the aftershocks. 

Banks in the region were not holding toxic assets, but they 

did face reduced liquidity. The domestic demand-based growth 

story remained intact, but slowing demands in export markets 

caused pain. And these effects were exacerbated by a drop-off in 

commodity prices, which under-pin many of Sub-Saharan Africa’s 

economies. 

In March 2009, PEI caught up with Rod Evison. As 

managing director at UK government-owned fund of funds 

CDC Group and its head of Africa and Latin America, he 

was well placed to give a long-term view of the investment 

opportunity. “There has been a substantial fall in public 

valuations in both East and West Africa, particularly in 

the resources sector, real estate and banking in Nigeria,” 

he said. “As far as sectors are concerned, I think one has to 

look not at the next two months, but at the next two years.” 

d e a L d e C L i n e 

Despite the abundance of opportunity that this fall in valuations 

promised, deal activity slowed significantly in 2009 for many of 

the same reasons as it did elsewhere in the world; uncertainty 

over future trading conditions made valuation difficult, and those 

who did not have to sell, did not want to. Only 10 significant 

deals throughout Africa were completed in 2009, according to 

Dealogic data, which was almost two-thirds lower than the 27 

completed the year before. The value of transactions showed an 

even more dramatic decline, dropping from $2.5 billion in 2008 

to just $516 million. 

While transaction levels in the region slowed to a crawl, fundraising 

for the first half of the year remained buoyant. In the 

first six months of 2009, Sub-Saharan Africa-focused funds closed 

on $1 billion, according to the Emerging Markets Private Equity 

Association. This put 2009 on track to match the three previous 

years, which all saw around $2 billion raised per year. Data is 

not yet available for the second half of the year, and anecdotal 

evidence produced mixed reports on the availability of capital as 

the year went on. 

d F i d O u g h 

Start-up fund manager Adlevo Capital was seeking to raise a 

$100 million first time fund to invest from its bases in Lagos 

and Johannesburg. It had lined up commitments from a selection 

of development finance institutions (DFIs) and private 

investors, when the crisis intensified and forced a shift in 

strategy. “Given what happened with the world economy, a 

couple of the private investors had to drop out,” Yemi Lalude, 

managing partner, told PEI. “So we really had to restart the 

fundraising again this year, and the strategy we took was to 

go after people who have both the money and the mandate 

for a first-time Africa fund,” he adds. DFIs would come high 

on this hit-list. 

African Capital Alliance, another Lagos-based private equity 

firm, had begun raising its third fund when the financial crisis 

hit. As well as revising its final fund target down from $500 

million to $350 million, the firm refocused its efforts on its historic 

investor base: DFIs and some local Nigerian institutions. 

A series of more recent fund closes – from the likes of Helios 

Investments, Aureos Capital and Kingdom Zephyr Africa Management 

– indicate that appetite for private equity in the region 

remains strong heading into 2010. ■ 

d rY s e a s O n 

Following the plenty of the preceding 4 years, 2009 was 

decidedly barren in terms of African deal flow 

Deal Value ($m) 

7,000 

5,250 

3,500 

1,750 

Sourece: Dealogic 

0 0 

2005 2006 2007 2008 2009 

Deal Value 

No. of Deals 

30 

15 

No. of Deals


A F R I C A N P E R S P E C T I V E S 

In September 2009, industry experts gave PEI their take on the opportunities and threats 

facing African private equity industry for the inaugural PEI Africa Handbook 

g r a h a m t h O m a s , m a n a g i n g d i r e C t O r, 

s t a n d a r d b a n K p r i v a t e e Q u i t Y 

“The structural opportunity is 

consumption, driven by demographics 

and real economic 

growth - with an overlay of 

resource wealth and infrastructure 

investment, and dramatically 

improved governance and 

political structures. So we’re 

targeting businesses that benefit 

from that - for example 

FMCG, retail, telecoms, media 

and services. Just as the China 

and India story has shifted from a perception of growth 

driven by low-wage economies making cheap stuff for the 

West to a reality of economies driven by domestic consumption, 

we believe the same is true of Africa. 

“The challenges are there and execution of a private 

equity strategy is foremost - and there is a critical shortage 

of experienced and wise GPs in Africa. Private equity 

investors will rapidly lose faith in the opportunity if it 

is not delivered on in terms of concrete, hard currency 

returns - this is not about charity it’s about comparing 

risk-adjusted returns in hard currency across different 

markets. The biggest threat to the industry is therefore 

not the macro environment (as it possibly is in Western 

private equity) - it’s about execution that delivers returns 

that continue to attract capital.” 

K O F i b u C K n O r, m a n a g i n g d i r e C t O r, 

K i n g d O m Z e p h Y r a F r i C a m a n a g e m e n t s 

“Significant opportunities will come 

from investments that tap into the 

fast-growing demand for basic infrastructure 

in Africa such as housing, 

electricity and telecommunications 

and from changing demand patterns 

related to consumer goods, information 

technology , food, entertainment, 

financial services, education, etc. Companies 

able to anticipate and respond 

to these changes with multi-country or 

pan-African strategies will present the best investment opportunities 

for growth and value creation through scale and synergies. 

In addition, Africa’s strong comparative advantage in 

natural resources will provide unique investment opportunities 

at the right points in commodity price cycles. 

The biggest threats will continue to come from companies 

being unprepared for venture capital and private 

equity because of weak corporate governance structures 

and financial and operating systems, coupled with lack 

of management depth to support aggressive growth and 

expansion strategies to capture available opportunities. The 

industry will also face an uphill battle with fundraising 

due to the global financial crisis and investors’ cautious 

approach to investing in Africa. Furthermore, fund managers 

will continue to face challenges in structuring exits for 

their investments due to relatively young capital markets.” 

p e t e r s C h m i d , h e a d O F a F r i C a , a C t i s 

“You have more people than 

ever before being lifted out 

of poverty daily to join an 

emerging middle class. This 

combined with people and 

capital flows from the African 

Diaspora back to the Continent, 

creates great investment 

opportunities. If you have a 

position on the ground in any 

of these markets – in particular 

the bigger ones like Nigeria, 

Egypt or South Africa – you find enormous demand for 

goods and services. Right now many of these products are 

either unavailable or are being provided at a very high 

cost by informal traders at inflated prices. Long standing 

South African businesses that have moved into other African 

markets, such as MTN or ShopRite, have found themselves 

within a couple of years since expansion, making more 

money outside of South Africa than inside it. 

“Limited competition and supply make for substantially 

higher margins. The growth rate in some of these 

countries has been close to double digits. In the likes of 

Nigeria, where oil growth has in fact been quite stagnant, 

the growth has been in sectors like financial services, 

consumer services, telecoms, agriculture. These are the 

sort of sectors which have really exploded in the last few 

years, and this is where we have been investing: not in the 

resources sector.” ■


F U N D R A I S I N G 

Niche discrepancies 

Global fundraising statistics for turnaround 

and secondary managers couldn’t be more 

diverse 

Since the onset of the credit and financial crises, there’s been 

much buzz surrounding limited partners’ moves away from 

“plain vanilla” buyout funds toward more specialised strategies. 

Distressed investment, turnaround and secondary funds 

are considered among the niche strategies best placed to capitalise 

on economic distress and market volatility, and thus 

the conventional wisdom has been that these managers are 

winning more and more commitments from LPs. 

That wasn’t exactly the case in 2009, however. While fundraising 

for secondary managers hit a new high of $22.3 billion, 

an increase of more than 200 percent over 2008 totals, fundraising 

for distressed investing and turnaround funds fell 85 

percent. LPs backed distressed investment funds with recordsetting 

commitments in 2007 and 2008, which is likely a key 

part of the reasons why just $7.9 billion was raised last year. 

$bn 

C a p i t a L ra i s e d gLObaLLY bY seCOndar Y 

F u n d speCi a L i s t s 

Source: Probitas Partners 

g L O b a L dis t re s s e d invesmten t and 

t u r n a rO u n d F u n d ra i s i n g 

$m 

25 

20 

15 

10 

5 

0.8 0.4 

2.6 2.2 2.1 

4.5 4.1 

D A T A R O O M 

0 

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 

55 

50 

45 

40 

35 

30 

25 

20 

15 

10 

5 

0 

0.1 

Distressed 

Turnaround 

2003 2004 2005 

4.0 

3.5 

6.4 

5.6 

6.1 

15.1 

1.6 

1.0 15.3 

2.1 

9.6 

29.4 

5.6 

45.8 

8.7 

6.9 5.8 

7.4 

2006 2007 2008 2009 

22.3 

P E R F O R M A N C E 

That was then, this is now 

Long-term private equity performance looked a lot worse in 2009 than it did in 2007 

Throughout the mid-2000s, investors flocked to private equity 

believing that, as an asset class, it was able to deliver outsized 

returns. This analysis was based on the average long-term 

performance of private equity funds which, almost no matter 

how you added them up, came out looking pretty good on 

both an absolute basis and relative to other asset classes. Today 

the long-term average performance has been brought back to 

Then: PE performance as of Q3 2007 (end-to-end IRR) 

Source: State Street Private Equity Index 

Source: Probitas Partners 

earth, raising the question of to what extent this performance 

decline is a temporary phenomenon, and to what extent LPs 

will need to adjust their expectations of the asset class. 

The chart below, provided by State Street Private Equity 

Index, shows the average performance of private equity over 

several time spans as it stood in 2007, and then the same 

performance measurements in the less rosy 2009. 

1 Yr 3 Yr 5 Yr 10 Yr Since inception 

All private equity 30.93 26.41 22.15 15.99 15.03 

Buyouts 35.22 30.90 27.21 18.08 15.70 

Venture capital 20.56 14.81 9.26 9.34 12.42 

Now: PE performance as of Q3 2009 (end-to-end IRR) 

1 Yr 3 Yr 5 Yr 10 Yr Since inception 

All private equity (7.60) 1.80 7.90 7.60 10.03 

Buyouts (10.61) 1.23 9.02 8.60 10.27 

Venture capital (4.77) 3.98 5.97 2.65 9.05


D A T A R O O M 

D E A L F L O W 

A slight return 

The volume and value of deals globally – including new investments, 

bolt-ons and exits – continued its annual decline following 

its peak in 2007. Meanwhile, data from the US market 

g L O b a L pr i v a t e eQuitY de a L vOLume 

shows that by the end of 2009 increasingly large transactions 

were being agreed, with the median deal value creeping back 

up towards pre-crisis levels. 

m e d i a n us pr i v a t e eQuitY de a L v a L u e s 

1,000,0000 

5,000 

80 

$74 


750,000 

500,000 

3,750 

2,500 

No. of deals 

Median ($m) 

60 

40 

$49 

$58 

$52 

$52 

$45 $45 

250,000 

1,250 

20 

$20 $20 

0 0 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 


0 

2004 

2005 

2006 

2007 

2008 

1Q 2Q 3Q 4Q 


Source: Dealogic 


No. of deals 

Source: Pitchbook 

L I S T E D P R I V A T E E Q U I T Y 

Public Recovery 

Listed private equity stocks took a hammering at the tail end of 

2008, falling faster and harder than the wider public markets. 

However those who bought into the sector during the lows of 

March 2009 - when the vast majority of listed private equity 

firms were trading at deep discounts - would have subsequently 

benefited from a rapid recovery. 

L P A L L O C A T I O N S 

Feeling bloated 

By the end of 2010, nearly one-third of North American limited 

partners expect to have total private equity commitments in 

excess of their target allocations, according to a survey conducted 

in the last quarter of 2009 by Coller Capital. GPs on 

the fundraising trail are likely to prioritise investors in the Asia 

Pacific region, who in the most part remain at or below their 

target allocations. 

LPs’ anticipated level of PE commitments at the end of 2010 

100% 

180 

160 

80% 

140 

120 

100 

80 

60 

40 

20 

0 

Dec 

2008 

Jan 


LPX50 TR 

Mar Apr May June July 

2009 2009 2009 2009 2009 

Aug 


MSCI World 

Sep Oct Nov Dec Jan 

2009 2009 2009 2009 2010 


60% 

40% 

20% 

0% 

North-Amercian 

LPs 

European 

LPs 

Our commitments will be in excess of our target allocation 

Asia Pacific 

LPs 

Our commitments will be approximately equal to our target allocation 

Our commitments will be lower than our target allocation 

Source: LPX 

Source: Coller Capital


P E R S P E C T I V E S 

Where’s the market? 

The days of the set-piece, fast-moving, 

locked-box, certain-funded, cov-lite, 

warranty-limited, diligence-restrained 

auctions are becoming a distant memory, 

writes Clifford Chance’s David Walker 

In 2009 to the time of writing [mid- 

December 2009] the value of UK buyouts 

has been approximately £4.7 billion 

compared with £46.5 billion for 2007. So, 

unless there are an extraordinary number 

of high value deals set to announce in the 

next few weeks, this year will be remembered 

as a very subdued one for private 

equity deals. However, there have been 

increasing signs of life in the market in 

recent months and although it is difficult 

to identify trends when there is so 

little shopping going on, it is possible to 

see some common themes emerging on 

the execution and financing of PE deals, 

which are likely to continue into 2010. 

The backdrop to much of the activity is 

a feeling of fear and uncertainty: fear for 

sellers trying to sell assets at a low point 

in the market, with a lack of certainty as 

to process and buyers' sources of funding; 

and fear for buyers engaging in expensive 

Walker: MACS are back 

auctions in a falling market, again with a 

lack of certainty as to process and sources 

of funding. And it is these concerns that are driving many of the 

changes we are seeing in deals. Although there are some seemingly 

2006 style auction processes in the market and certainly 

growing competition to secure scarcely available quality assets, 

the days of the set-piece, fast-moving, locked-box, certain-funded, 

cov-lite, warranty-limited, diligence-restrained auctions are generally 

becoming a distant memory. This fear and uncertainty has 

impacted heavily on processes, which are now slower and less 

formulaic, and as a symptom of these concerns we are also seeing 

an increase in buyers getting into exclusive positions with sellers 

earlier in negotiations than they might have expected to in the past. 

This dynamic has also impacted on certainty of funding. Sellers 

are understandably concerned about the sources of buyers' 

funding and so the commitment a private equity-backed buyer 

can make in relation to its equity and debt funding on signing a 

deal are ever more important. That said, there is an interesting 

tension between transparency and, ideally, certainty of funding 

on the one hand, and on the other hand, the time and money 

buyers and their banks are prepared to invest at an uncertain time 

in a sale process. This tension may lead to a reinvigorated debate 

around the use of equity underwrites, buyer deposits and reverse 

break fees, as more commonly seen in the States. 

With the lack of availability of bank debt has come a return of 

vendor financing, to bridge funding gaps. 

The terms of this can be quite complex 

if the vendor requires rights and protections 

similar to those a senior lender might 

typically expect on a leveraged loan. We 

are also seeing vendors use earn-outs or 

retained equity to allay some of their fears 

about selling out too cheaply as well as 

to ease the buyer's financing burden at 

closing. 

Buyers are less likely now to be prepared 

to sign sale and purchase agreements 

with mandatory anti-trust conditions 

without getting more protection for 

what might happen in the gap period. 

This means that MAC clauses are back 

on the negotiating table, giving buyers 

the right to terminate a sale and purchase 

agreement if there is a material adverse 

change in the business between signing 

and closing. And from a diligence perspective, 

buyers are now less likely to take a 

view on matters such as change of control 

clauses in material contracts. Fear of 

buyers and their banks of over-paying in an uncertain market 

has further resulted in pressure on sellers to give fuller warranty 

and indemnity protection and also a growing desire to return to 

the protection of completion accounts to verify and adjust the 

price paid on closing if the financial position of the company is 

not what the buyer had bargained for. 

So as we head into 2010 the uncertain economic environment 

and the financial trauma of the recent past, combined with what 

seems to be increased competition for quality assets, is likely to 

translate into more complex, highly negotiated, bespoke deals 

where the argument "that is market" will carry even less weight 

in negotiations than it did in the past. 

David Walker leads the private equity transaction team at international 

law firm Clifford Chance.


Making media count 

Want to drive deal flow? Talk to a reporter, 

writes Bill Haynes 

For private equity firms, it’s all about relationships. 

The firms are quite adept at cementing 

ties with limited partners, investment bankers 

and other parties central to deal-making. But a 

private equity firm can further raise awareness 

of their organisation, its focus and differentiated 

approach, and help drive new business, by 

forging relationships with another constituency 

– journalists. 

Private equity firms that maintain strong 

relationships with reporters, understand their 

needs for timely news and thoughtful perspectives, 

and share their viewpoints on industry 

trends and issues, are more likely to receive 

accurate and fair media coverage, helping 

improve their company’s and the industry’s 

image in the eyes of regulators, legislators, 

portfolio companies, investors and the general 

public. 

In fact, a recent survey by BackBay Communications and 

Marketwire revealed that reporters are eager for news about 

private equity firms and their portfolio companies, as well 

as firms’ perspectives on industry issues. However, the 109 

Keeping the keys 

When will UK banks start 

to recycle their accidental 

portfolios? Silverfleet’s 

Neil MacDougal explores 

It is no secret that many of the UK’s largest banks 

have decided that in 2009 they are quite happy 

to own former private equity investments. These 

are the companies that have defaulted on their 

banking covenants, when the PE sponsor was 

either not able to or not prepared to invest further 

money without some reduction or conversion to 

equity of the existing loans. The consequence of 

the banks taking this stance is that much of the 

recycling of the ownership of businesses to new 

and motivated, rather than accidental, shareholders 

has not really begun. 

It appears that in a number of cases, banks 

are reluctant to write down existing loans so they 

Haynes: GPs must mix with 

media 

MacDougall: history not on 

banks’ sides 

financial journalists who participated in the survey said private 

equity firms are not the most forthright communicators. No 

journalists rated these firms excellent in terms of communication, 

and only 30 percent said their capabilities 

are good, while 48 percent rated them fair and 

23 percent chose poor. 

According to the journalists, common mistakes 

for private equity firms include not sharing 

enough information on acquisitions and 

exits, inconsistent communications, not offering 

enough thought leadership on industry trends, 

and only discussing portfolio companies at time 

of investment or exit. 

Private equity firms that want to build their 

brand recognition among limited partners, 

investment bankers and company executives 

and drive more deal flow should work to build 

relationships with the media and share their 

news and perspectives on industry issues and 

trends. They also have the opportunity through 

their deeds and words to address concerns 

among investors, regulators, legislators and 

others and be seen as leaders who can help rebuild the economy. 

Bill Haynes is president of financial services-focused BackBay 

Communications. 

can minimise the amount of impairment across 

their organisations that they have to report. The 

motivation for doing this is understandable, 

taking into account other factors affecting the 

banks at the moment. However, this can only 

be a transitory phase and does not offer a real 

solution to the problem of businesses that find 

themselves over-geared for the current level of 

economic activity. 

Of course this opinion is not universally 

shared. A number of banks have been recruiting 

individuals with private equity experience to 

help look after their newly acquired portfolios. 

Other banks have passed over their stakes in such 

companies to existing in-house teams with some 

relevant private equity experience. The challenge 

to the sponsor community is clear: “We can do 

what you guys do!” 

Unfortunately, historical experience is not 

on the side of the banks. In the early 1990s, in


similar circumstances, a number of businesses fell into bank 

ownership, were held there for a while and subsequently sold. 

The businesses that emerged had by and large been starved of all 

but the minimum of investment as reducing the lenders’ exposure 

took precedence over all other priorities. Not surprisingly 

the companies looked neglected and their management teams 

tired and disillusioned. 

We are told, however, that this time it will all be different. 

Management teams either are or will be re-incentivised, further 

investment will be available etc. But then again as Mark 

Twain put it so succinctly "History doesn't repeat itself, but 

it does rhyme." 

Real life returns 

At the time of writing [mid-November 2009], in the UK there is 

no sign of any sustained recovery in the levels of underlying business 

activity. The probability is high that this situation will continue 

for some time as the inevitable tax rises and cuts in government 

expenditure feed through the economy over the coming months and 

indeed years. It is therefore likely that there will be neither a swift 

recovery in the fortunes of many of these bank owned companies 

nor that their market value will increase much either. Hopefully, 

however, over that time the banks’ balance sheets will be under 

less pressure and they can then start the real recycling process. 

Neil MacDougall is the managing partner of Silverfleet Capital. 

Private equity resources channelled into the third sector have helped improve the lives 

of 18,975 young people, says Shaks Ghosh 

At a time when some commentators continue 

to question whether private equity 

The results which can be achieved 

by the right pro bono help are outstanding. 

can prosper given the realities of our new 

For example, although 

financial world, I would like to highlight 

a sector, often overlooked, in which the 

whole community has come together to 

create real value over the last three years. 

That sector is the third sector, and 

the value created is social value. 

In its first impact review, industry 

initiative the Private Equity Foundation 

(PEF) demonstrates just how effective 

the private equity toolkit and its people 

can be in helping charities. 

Out of 11 organisations in PEF’s 

portfolio, six are exceeding their set 

target (which uses lives reached as a 

rough proxy for investment return), 

two are on track and three are underperforming. 

Ghosh: creating social value 

ambitious and with strong leadership, 

School-Home Support (SHS) 

hadn’t grown organically for a number 

of years until PEF’s grant and input 

of expertise helped it put the building 

blocks in place. Volunteer teams 

worked on everything from strategy, 

sales & marketing training, improvement 

of financial and reporting systems, 

to an office move. In just over 

a year, SHS has achieved a 40 per cent 

growth in service capacity, increasing 

the number of children it helps from 

22,000 to over 30,000 a year. 

The impact review also shows that 

PEF has enabled five times funding leverage 

In less than three years, this equates to 18,975 

extra young lives helped through PEF’s work. 

But how does PEF go about it? Its approach largely mirrors 

the private equity approach but substitutes charities for 

businesses. It grants funding instead of investing in equity and 

aims to create social value and improve charity sustainability, 

rather than make a financial return upon exit. 

PEF’s approach is to find interventions which are highly 

effective in helping young people not in education, employment 

or training (NEET), or children at risk of becoming NEET in 

later life, and to offer them the powerful combination of money 

and expertise they need to multiply their impact. The level of 

pro bono business, financial, legal and strategic experience 

which PEF is able to call on is unprecedented. And the 9,500 

on key investments by enabling charities to tap other 

income sources ranging from schools to government agencies, 

as well as other private funders. 

Portfolio charity Tomorrow’s People has leveraged over 

£3.8 million of funding from other sources for its young 

people’s programme following PEF’s engagement. Chief 

Executive Debbie Scott, says of PEF’s involvement:“I have 

no doubt that this has put us in the best possible position to 

raise further funds to scale up.” 

So, I invite any naysayers out there to visit PEF’s charities, 

to speak to our pro bono supporters, to see for yourselves 

the added value, measured in terms of lives changed for the 

better, which private equity is delivering. I would be honoured 

to show you a different industry perspective. ■ 

hours given to date, are on top of the £15 million (€17 million; 

$25 million) the private equity community has also donated. Shaks Ghosh is chief executive of the Private Equity Foundation.


P E I ’S H I G H L Y S U B J E C T I V E T O P T E N : C E L E B R I T Y 

Meet my famous friends 

Private equity can be pure Hollywood. Never mind added value – which firms offer the most 

added glamour? 

1. Elevation Partners (Bono) 

Musician, social activist and general partner - Bono 

has worn all three hats since 2006 when he cofounded 

private equity firm Elevation Partners, 

which focuses primarily on building new businesses 

around intellectual property in the media and entertainment 

industries. Not an idle participant, many 

prospective LPs have found themselves face to face 

with private equity's star attraction. 

2.VMG Equity Partners (Cameron Diaz) 

When David Baram co-founded consumer products-focused 

VMG Equity Partners, he brought 

with him a heavy-hitting roster of celebrity connections 

from his days as president and chief operating 

officer of talent agency The Firm where he remains 

an officer and director. VMG makes use of celebrity 

pulling power to place its portfolio companies' 

products with famous faces from Cameron Diaz to Snoop Dogg. 

3. Canyon Johnson-Urban Funds (Earvin “Magic” Johnson) 

In 1998, retired basketball great Magic Johnson moved into private 

equity real estate by teaming up with Canyon Capital Realty 

Advisors. More than 10 years later, the firm has roughly $2 billion 

in committed capital for revitalising under-served urban markets 

around the country. 

4. Performance Acquisition Corporation 

(Ashton Kutcher) 

Hollywood talent agency William Morris 

launched a blank cheque company – and tapped 

private equity veteran Edward Mathias and Hollywood 

star Ashton Kutcher to help manage it. 

The agency filed last year to raise $500million in a 

public offering on the American Stock Exchange. 

The special purpose acquisition company will pursue businesses in 

the publishing, entertainment and media industries. 

5. RLJ Companies (Michael Jordan) 

When the former founder of Black Entertainment 

Television Robert Johnson isn't working on private 

equity real estate deals he might be found kicking 

back with superstars. Aside from the many celebs 

he has crossed paths with at BET, he is the co-owner 

of NBA basketball team the Charlotte Bobcats 

along with rapper Nelly and basketball legend Michael Jordan. 

6. The Blackstone Group (FuMingxia) 

When Antony Leung, now Blackstone's chairman of Greater 

China, wed Fu Mingxia back in 2002, it threw China into a 

frenzy. Olympic diving champion and national darling Mingxia 

took home her first gold medal in 1992 at the tender age of 

13 and went on to win a succession of gold medals in World 

Championships. She has stayed in the media spotlight ever 

since. 

7. Audur (Björk) 

Popstar Björk has waded into the private 

equity market to aid her native Iceland 

which was decimated by the global economic 

downturn. Female-oriented private equity 

firm Audur has named a new fund after the 

singer, seeded with ISK100 million (€591,000; 

$823,000), to invest in new ventures and small 

businesses with the ultimate goal of stimulating Iceland's 

stricken economy. 

8. Admiral Capital Group (David Robinson) 

After graduating from the US Naval Academy with a degree 

in mathematics, earning two championships in the National 

Basketball Association and running a charitable foundation 

since his mid-20s, David Robinson has since moved into private 

equity. The basketball champ in 2007 teamed with Goldman 

Sachs investment banker Daniel Bassichis to raise $250 million 

for investment in businesses that benefit the inner city. 

9. Rustic Canyon Partners (MC Hammer) 

After losing nearly his entire fortune in a 

high-profile bankruptcy in 1996, rap star MC 

Hammer has re-emerged as a venture capitalbacked 

entrepreneur. In 2007, he launched 

Dancejam.com, a social and professional networking 

site for hip-hop dancers backed, in part, 

by Los Angeles-based Rustic Canyon Ventures. 

10. Pi Capital (Sir David Frost) 

London-headquartered Pi Capital, a network of ultra high net 

worth individuals that invests in both private equity funds and 

direct deals, counts more than 300 luminaries from the business 

world among its members. Also on its books is understood to 

be Sir David Frost, long-time star of the small screen and thorn 

in the side of former President Richard Nixon, as immortalised 

in the film Frost Nixon. ■

Abraaj Capital named 

Best Private Equity Firm in the Middle East 


Best Private Equity Firm 

in the Middle East 

Abraaj Capital 

AWARDS 

Private Equity International - ‘Best Private Equity Firm in the Middle East’ 

2005, 2006, 2007, 2008 & 2009 

Emirates Environmental Group - ‘Arabia Corporate Social Responsibility Awards’ 2009 

Private Equity News Awards for Excellence - ‘Middle East and North Africa Private 

Equity Firm of the Year’ 2009 

Private Equity International - Ranked the Biggest Private Equity Group outside North 

America and Europe 2009 

Private Equity World MENA - ‘Private Equity House of the Year’ 2007 & 2008 

Banker Middle East - ‘Best Private Equity House’ 2006 and ‘Outstanding 

Contribution to the Financial Services Industry’ 2007 

Arabian Business - Ranked Among 50 Most Admired GCC Companies 2007 

Dubai International Financial Centre, Gate Village 8, 3rd Floor, PO Box 504905, Dubai, 

United Arab Emirates, T: +971 4 506 4400, F: +971 4 506 4600, info@abraaj.com, www.abraaj.com 

Abraaj Capital Ltd. is regulated by the Dubai Financial Services Authority

Anything is possible... 

There are many barriers to liquidity in private equity: complexity, 

transaction size, deadlines, disparate assets, confidentiality, alignment, 

tax, shareholder sensitivities – the list goes on. 

But with creativity, experience and determination ... anything is possible. 

European Secondaries 

Firm of the Year 

for the 6th 

consecutive year 

www.collercapital.com 

Liquidity for private equity investors worldwide 

London New York 

33 Cavendish Square 410 Park Avenue 

London 

New York 

Contact: jeremycoller@collercapital.com

The Annual Review 2009 - PEI Media

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