INSIDEimages.dowjones.com/wp-content/uploads/.../2016/06/...portfolio to alternative assets such as...

PE Firms Speed Up Portfolio Company Exits p.20Kentucky Raises PE Bar Amid Funding Woes p.23Spirits Capital Toasts Millennials’ Taste Buds p.24

Heavy Debt Weighs on Weight Watchers p.38

INSIDE

PRIVATE EQUITY ANALYST

Small Universities Embrace PE p.14Pension Funds Remain Top LPs p.17

Dow Jones

June 2015

Sources of Capital

Yale ModelLook Beyond

Smallest Endowments

is pleased to announce the closing of

ASIA ALTERNATIVES CAPITAL PARTNERS IV, LP

$1,000,000,000A private equity fund-of-funds formed to

invest in a diversified portfolio of Asian managers

The undersigned acted as the global placement agent and arranged for the private placement of certain limited partnership interests.

April 2015

AACP IV EX-JAPAN INVESTORS, LP

Private Equity AnalystJune 2015

Volume XXV, Issue 6contentsCommentuEditor’s Note

Japan’s GPIF and the Curse of the Large Limited Partner 3

NewsuBriefs

Cobepa Starts U.S. Operations, SEC Examining Blackstone Fees, Carlyle Plots Return to Silicon Valley 4This Month in PEA’s Pages... 5Best of Our Blogs 9

uComings & GoingsMike Duke, Ted Ullyot, Ronald Cami, Saguna Malhotra 12

AnalysisuTop Story

Beyond Yale: Small Endowments Embrace PE With Their Own Models 14

uFeaturesPensions Are Still LP Top Dogs, but Wealthy Investors Gain Ground 17Spring Cleaning: PE Firms Exit Portfolio Companies at Faster Pace 20Amid Tepid Returns, LPs Approach Emerging Markets Cautiously 21

uIndustry DataDespite Exits, PE Returns Disappoint 22

Limited PartnersuKentucky Retirement Systems Raises the Bar for PE as It Faces Funding Woes 23

Fund NewsuGeneral Partners: Buyout

Spirits Capital Cheers On Millennials’ Taste for the New 24

uGeneral Partners: VCMenlo Ventures Stays Fresh With $400M for Fund XII 25

uThe RoundupBanc Funds Closes on Around $416M for Bank Deals 26I Squared’s Debut Infrastructure Fund Collects $3B 27Atlas Venture Hits $280M Cap for Biotech-Only Fund 30IVP Reaches $1.4B Final Close on Fund XV 31Redpoint Ventures Gathers $400M for Fund VI 32Elysian Capital Hits £180M First Closing on Debut Pool 34EQT Sets €6.75B Hard Cap for Latest Fundraising Effort 35Lightspeed Raising Up to $115M for India-Focused Fund 37

Deals & ExitsuLBO Focus

Debt Weighs On Weight Watchers as Dieters’ Habits Change 38

uVC FocusVenture Capital Continues to Flow Into Chinese Startups 40

PeopleuRising Stars

Deal Makers Dominate Europe’s Under-40 Rising Stars 42

uQ&AA Private Word With David Wilton 44

2 Private Equity Analyst June 2015 editorial

Follow us on Twitter at @DJPrivateEquity and @DJVentureWire. Visit us online at http://pevc.dowjones.com

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Reporter, Private Equity Hillary Canada [email protected]

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Private Equity Analyst

Private Equity Analyst 3 June 2015comment

Over the past five years or so,

Japan has hardly been a robust source of capital for private equity firms on the fundraising trail, particularly when compared to some of its Asian neighbors, most notably China.

But that may be about to change, thanks to recent reforms pushed by Japanese Prime Minister Shinzo Abe that have led to allocation shifts by the Japan’s national pension system, the Government Pension Investment Fund, also the world’s largest pension pool.

Over time, the GPIF expects to invest up to 5% of its 137 trillion yen ($1.1 trillion and, yes, you

read that correctly, trillion) portfolio to alternative assets such as real estate, private equity and infrastructure, mainly within

its equity and fixed income portfolios. GPIF easily has the potential to become the largest new limited partner the industry has seen in a long time. Even a modest 5% allocation would translate into an alternatives portfolio of some $50 billion.

As anyone who has lived in Japan knows well, change often comes slowly. Expansion into alternative assets is likely to be gradual, particularly given the reforms underway at GPIF have themselves been subject to political debate.

But even if the pension system starts with only a modest 1% allocation, investing such a large amount of capital would pose challenges both for GPIF and the industry itself. As most fiduciaries know well, given the time it takes for private equity firms to find deals, GPIF will have to commit more to the asset class than the allocated amount in order to get the money invested.

Even if it builds a large investment staff, it will likely need to lean heavily on large global buyout

firms, at least initially, to invest capital as efficiently as possible. In an environment where pricing for investments has already approaching, if not exceeding, boom-era levels, an influx of even more capital could put downward pressure on the very returns GPIF needs to help support the nation’s rapidly aging population.

That said, even a dip in median private equity returns may still outperform traditional stocks and bonds over the long run, particularly amid somewhat lackluster global growth rates of late.

That backdrop has helped ensure that pension funds remained the mainstay of private equity over the past year, as evidenced in our latest Sources of Capital survey (Pensions Are Still LP Top Dogs, but Wealthy Investors Gain Ground). However, family offices and wealthy investors, as well as investors from areas of Asia outside of Japan, also expanded their share of the commitment pie.

Also in this month’s Sources of Capital issue, Dawn Lim reports that some of the nation’s smallest endowments are looking beyond the Yale model as they carve their own paths into private equity (Beyond Yale, Small Endowments Embrace PE With Their Own Models), and Hillary Canada covers the renewed caution among LPs toward emerging markets private equity (Amid Tepid Returns, LPs Approach Emerging Markets Cautiously).

Stay tuned for our midyear fundraising issue next month as well as coverage from this year’s Private Equity Analyst conference.

As always, we welcome your feedback on how we can improve our coverage.

Sincerely, Laura Kreutzer Assistant Managing Editor Dow Jones Private Equity Analyst [email protected] @LauraKreutzer

Japan’s GPIF and the Curse of the Large Limited Partner

Laura KreutzerAssistant Managing Editor, Private Equity Analyst

4 Private Equity Analyst June 2015 newsBriefsSEC: PE Improving Disclosure Private equity firms have improved their disclosure of fees and expenses but have more work to do to make sure investors are getting all of the information they need, a Securities and Exchange Commission official said. Marc Wyatt, the acting director of the SEC’s Office of Compliance, Inspections and Examinations, said at the Private Fund Compliance Forum 2015 in New York that private equity firms and their investors are “more focused” on fees and expenses, and that has prompted the industry to review and often change practices regulators have highlighted as questionable. “This is a positive change,” Mr. Wyatt said. He added that there is “room for improvement” in how firms allocate expenses and manage co-investments, in which fund investors such as pension funds and sovereign wealth funds directly participate in certain deals. Mr. Wyatt’s comments come as private equity firms come under increasing scrutiny for their fee and expense practices.

Cobepa Starts U.S. Operations Cobepa SA is the latest investment firm to cross the pond to tackle the U.S. private equity market. “The U.S. is by far the biggest and most liquid private equity market,” said Cobepa Managing Director Jean-Marie Laurent Josi. “From

a medium- to long-term perspective, we plan to manage on behalf of our investors substantial assets in the U.S. and have been progressively building up a presence there.” The Brussels firm, set up in 1957 and bought out by a group of European family investors from BNP Paribas SA in 2004, has until now never made a U.S.-based investment. It focuses on European investments, though the firm said it has significant economic interests in the U.S., Asia and South America because of its portfolio companies’ businesses. Mr. Laurent Josi said the firm hired Peter Connolly, a former principal and co-head of health care at Summit Partners, in February as a managing director to lead U.S. efforts. The firm has also relocated Investment Director Gilles Davignon to New York as part of efforts to tap the U.S. market.

SEC Examining Blackstone Fees Blackstone Group said the Securities and Exchange Commission recently requested information about some of its fee practices, including its pre-2014 collection of large one-time fees when selling or taking public companies it controlled. Blackstone last year voluntarily curbed its collection

of such fees, often called monitoring-termination fees, which are charged by many private equity firms but have become controversial. The decision to curb the fees by Blackstone represented a significant U-turn in an industrywide practice, and promised to save the firm’s investors tens of millions of dollars. In its most recent quarterly filing, Blackstone said, “Recently, the SEC has informally requested additional information about our historical monitoring fee termination practices.” Blackstone said the SEC also has sought new information about a different practice, involving “the application of disparate vendor discounts to Blackstone and to our funds.” The filing didn’t explain those further, but said the practice was changed in 2011 and previously was reviewed by the SEC in 2012. The company said it is in “discussions with the SEC regarding a potential resolution of these matters.”

Apollo Appeases Debt InvestorsApollo Global Management is embarking on an unusual campaign to improve its image with debt investors after a series of spats between the private equity firm and creditors in some of its troubled deals. Apollo is preparing to meet with big debt investors, including mutual-fund managers, in several cities over the next few months to ease concerns the firm protects its investments in troubled companies at the expense of creditors, according to people familiar with the matter. In the meetings, which are slated to begin in May, Apollo will try to persuade investors the debt issued to fund its corporate buyouts is a good investment, the people said. The ongoing restructuring of casino owner Caesars Entertainment Corp., which Apollo bought in 2008 with fellow private equity firm TPG Capital, angered creditors who felt burned by the firm’s moves. Apollo plans to say that, over time, bonds and loans backing its leveraged buyouts have delivered market-beating returns, the people said.

European Investors Submit to Looser Loan TermsThe level of debt issued by private equity-backed companies that offers little protection to creditors has reached a new high, as firms take advantage of investors’ hunt for yield in a low-interest-rate environment.

Nearly half of European leveraged loans issued in the first quarter of this year, worth a combined €5 billion, were covenant-lite, according to data provider S&P Capital IQ LCD. This represents 43% of total institutional leveraged loan volume on the continent, marking the highest quarterly proportion on record.

Deals without covenants used to be rare in Europe but have become increasingly popular as the market evolves to compete with the high-yield bond and U.S. leveraged loan markets.

“European institutional lenders were facing an existential crisis, given competition from high-yield and Yankee [U.S.] issuance in 2012 and 2013,” said Graham Tufts, head of leveraged and acquisition finance for Europe, the Middle East and Africa at HSBC Holdings PLC, “and have gradually grown more accepting as they realize they could lose opportunities to other capital markets.”

“This is a positive change.”

– Marc Wyatt, acting director of the SEC’s Office of Compliance, Inspections and Examinations, on moves by the private equity industry to review and change practices on the disclosure of fees and expenses the regulator found questionable.

Private Equity Analyst 5 June 2015news

Pao Disputes $1M Bill Ellen Pao is pushing back against Kleiner Perkins Caufield & Byers’s request that she pay nearly $1 million in expenses for the venture capital firm’s witnesses during her sex-discrimination trial, saying the costs were “grossly excessive and unreasonable.” Kleiner Perkins asked Ms. Pao to pay the costs April 22, nearly four weeks after it won a jury verdict on her claims the firm had discriminated against her in not

promoting her, and retaliated by later firing her. The verdict followed a five-week trial in San Francisco Superior Court that drew national attention. The firm offered to waive the $972,814.50 in costs if Ms. Pao agrees not to appeal. In a statement Friday, Ms. Pao called that “an offer that had no value.” Ms. Pao has until June 8 to appeal. A hearing on Kleiner Perkins’s request for the costs is scheduled for June 18. In a filing, Ms. Pao’s attorney noted her legal fees had climbed to more than $632,500 in November – before the trial.

Alibaba Exec Aims to InvestA top Alibaba Group Holding Ltd. executive is forming a multibillion-dollar family office to invest the wealth created by the Chinese e-commerce giant’s $25 billion New York initial public offering, according to people familiar with the situation. Joseph Tsai, Alibaba’s

executive vice chairman, and other early Alibaba executives are setting up the office in Hong Kong with an eye to opening this summer, according to one of the people. Mr. Tsai controls a roughly $6.5 billion stake in Alibaba, based on the company’s prospectus. With the company’s shares now publicly traded and lockups expiring, he and the other executives are looking to diversify their wealth. The family office will be co-managed by Oliver Weisberg, a managing director in Citadel LLC’s Hong Kong office, and Alexander West, the founding partner of Blue Pool Capital Ltd., a Hong Kong-based hedge fund backed by Mr. Tsai, the person said.

Carlyle Plots Silicon Valley ReturnSome six years after Carlyle Group closed its Menlo Park, Calif., office, the private equity firm intends to replant its flag in Silicon Valley this fall. Carlyle

LBO Fundraising

Based on multiple closings throughJune 1 of the given year.

Source: Dow Jones LP Source

$80.03B

$21.15B $26.20B

$14.37B$5.86B

$10.59B

VC Fundraising

200520102014

200520102014

With the secondary market starting to heat up last year, more large portfolios of private equity interests began hitting the market. Ardian scooped up a $1.3 billion portfolio of private equity stakes from General Electric Co.’s GE Capital. The portfolio, predominantly made up of U.S. midmarket buyout funds, included as many as 300 fund stakes, Private Equity Analyst reported at the time, citing two people familiar with the matter. Meanwhile, fund-of-funds manager HarbourVest Partners was shopping a portfolio of private equity stakes valued at around $500 million as it sought to take advantage of generous pricing conditions in the secondary market. The firm sold the portfolio in early June 2014 to Goldman Sachs Asset Management.

The passage of U.S. health-care reform may be one of the sparks that got nearly 40 private equity firms that invest in the industry to form a trade group to increase their visibility in the sector. The Healthcare Private Equity Association was the first sector-focused trade group within the private equity industry, and its founding members included both midmarket and large firms such as Apax Partners, Frazier Healthcare Ventures, Beecken Petty O’Keefe and Co., Kohlberg Kravis Roberts & Co., Linden LLC, Madison Dearborn Partners and Welsh Carson Anderson & Stowe. “HCPEA will work to demonstrate the attractiveness of health-care private equity to the investment community, as generally health care has been under-represented in the private capital markets,” said Brian Miller, the association’s co-founder.

It was the era of club deals and megafunds, and large institutional investors were starting to up the ante as well, making supersize commitments or taking steps to do so. Over the preceding eight months, California Public Employees’ Retirement System, Oregon State Treasury and Washington State Investment Board each handed out individual fund commitments of $300 million or more. And larger commitments were on the horizon. Calpers approved a proposal to allow commitments of as large as $800 million to “top quartile funds” without prior board approval, while the board at California State Teachers’ Retirement System was set to vote on a proposal to allow staff to approve commitments of as large as $500 million to funds it backed previously without board approval.

this month in PEA’s pages... u 1 YEAR AGO u 5 YEARS AGO u 10 YEARS AGO u HISTORICAL DATA

6 Private Equity Analyst June 2015 news

and in 2016. “It is less competitive in the lower end of the market,” he added. The co-founders’ previous firm, NGP, has formed a “long-term strategic investment relationship” with Citrine, and will make capital available for “investment from time to time directly in the future portfolio companies of Citrine,” the firms said in a release at the time. Mr. Goodman declined to elaborate on the relationship with Irving, Texas-based NGP or com-ment on Citrine’s capital raising plans.

TowerBrook Vets Form New FirmA group of former TowerBrook Capital Partners executives are in talks with investors about raising capital for their newly established firm, Freshstream Capital Partners. Rayhan Davis, Adam McClain and Patrick Smulders, all former managing directors at TowerBrook, left earlier this year and are in early-stage talks with investors to raise capital for their first private equity vehicle targeting proprietary investments in western European companies, particularly those in the U.K. and the Benelux region. Mr. Davis served as a deal maker at TowerBrook and was also responsible for debt financing across the firm’s European portfolio. Mr. McClain was TowerBrook’s European general counsel. Mr. Smulders served on the investment committee of TowerBrook and before that was part of the founding team at Doughty Hanson.

Pentagon Enters Silicon Valley The U.S. Department of Defense plans to open its first office in Silicon Valley and provide venture capital in an effort to tap commercial technology that can be used to develop more advanced weapons and intelligence systems. Pentagon officials said the twin moves are part of the department’s broader effort to field technology more quickly and cheaply amid concerns potential adversaries such as China are closing the gap or surpassing U.S. capabilities. However, the Pentagon’s push faces resistance from technology companies and the venture capital community, which has long been wary of becoming ensnared in the department’s bureaucracy and uncertain budget outlook. The Pentagon’s planned office in Moffett Field is expected to

become a key man, while Joe Delgado, a member of the energy and industrial team, has been removed from the slate. The firm opened discussions with investors in CCMP Capital Investors III to alleviate concerns when Mr. Murray’s departure from the firm was imminent, said two people with knowledge of the situation. Promised new investor protections, the limited partners supported a reinstatement of the fund’s investment period, providing the firm a vote of confidence as it looks to name a permanent chief executive.

Energy Firm Targets Small Deals Three former principals of Natural Gas Partners have launched Citrine Energy Capital Management, which will focus on smaller transactions in the energy space. “We saw an opportunity, par-ticularly in the lower end of the middle market, which we define as sub-$75 mil-lion equity checks,” said Daniel Good-man, a co-founder and partner of Citrine. “We believe now is an attractive time to invest in small and midcap oil and gas [companies],” said Mr. Goodman. Citrine, with offices in Dallas and Hous-ton, targets investments of $25 million to $75 million of equity in the North American upstream, midstream and oilfield services sectors. Mr. Goodman said the firm’s principals expect to see more energy asset sales later this year

opened its Menlo Park office in early 2008, but that December, in the depths of the economic downturn, Carlyle said it would shutter the office amid firm-wide layoffs. “We feel it’s important to have a presence on the West Coast to deepen our network of relationships,” said Pete Clare, Carlyle’s co-head of U.S. buyouts. Carlyle hopes those relationships will help it find companies to invest in as well as executives to run them. Patrick McCarter, a Carlyle managing director currently based in Washington, D.C., will lead the firm’s Menlo Park office. Carlyle’s return to Silicon Valley comes amid a slew of buyout activity in the technology sector.

CCMP Gets Investor VoteCCMP Capital Advisors won support to resume investing from its latest fund following the departure earlier this year of Stephen Murray, the firm’s former president and chief executive who died in March, said people with knowledge of the matter. Mr. Murray’s departure triggered a key-man clause for the $3.6 billion fund, CCMP Capital Investors III LP, which the firm finished raising last year. Mr. Murray died after he left CCMP and following a leave of absence, said a person familiar with the matter. CCMP has updated the list of key persons for its latest fund. Douglas Cahill, an operating partner, has

Blackstone Gives Moms More Time OffBlackstone Group said that it is extending its maternity leave benefits to 16 weeks at full pay from 12 weeks. The move, announced in a memo to employees, is designed in part to help the company compete for talented Wall Street women. “The financial services industry has historically struggled to attract and retain women,” Chief Executive Stephen Schwarzman said in the memorandum

reviewed by Private Equity Analyst sister publication The Wall Street Journal. “By having strong policies in place that support working mothers…we hope to help make asset management a more attractive industry for women.” The cost of the extended maternity leave will be pocket change for Blackstone, which has been positioning itself as a top career destination for the best and brightest, akin to Apple Inc. and Google Inc. “With leadership comes the responsibility to set the bar a little higher. I hope everyone follows,” said Blackstone President Hamilton “Tony” James.

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New York 660 Madison Avenue, New York, NY 10065 212 754 0411 Boston 111 Huntington Avenue, Suite 3020, Boston, MA 02199 617 247 7010 Menlo Park 3000 Sand Hill Road, 1-220, Menlo Park, CA 94025 650 561 9600

London 50 Berkeley Street, London W1J 8HA 44 20 7399 3940 Hong Kong 15/F York House, The Landmark, 15 Queen's Road Central, Central, Hong Kong 852 3987 1600

[email protected] www.lexingtonpartners.com

April 2015

Lexington Capital Partners VIII, L.P.

THIS PARTNERSHIP HAS BEEN ESTABLISHED TO ACQUIRE

A DIVERSIFIED PORTFOLIO OF PRIVATE EQUITY AND ALTERNATIVE INTERESTS

IN THE GLOBAL SECONDARY MARKET.

$10,100,000,000

LP_LCP8_10bTombAd_HFA+PEA_DR041515.pdf 1 4/15/15 4:07 PM


the infrastructure of health care. It’s considered the largest dedicated health-care [information] technology fund.” The size of the new fund, as well as the composition of limited partners who invested in it, show that health-care information technology, which some firms refer to as “digital health,” has indeed become a white-hot sector.

Ohio LP Withdraws CommitmentThe Ohio Police & Fire Pension Fund withdrew a $40 million commitment to Black Diamond Capital Management’s latest $1 billion fund offering, amid growing doubts from investors on whether the distressed-for-control market is deep enough to generate attractive returns for all the firms jostling to raise money. The pension fund won’t follow through with an earlier pledge to BDCM Opportunity Fund IV LP “after further evaluation of the midsize distressed debt market,” said David Graham, a spokesman for the $14.9 billion pension fund. It has also decided “not make any new commitments to the space at this time,” he said. The Columbus, Ohio, pension fund didn’t elaborate on its about-face, and a spokesman for Black Diamond declined to comment. The firm, which aims to gain control of companies through the purchase and restructuring of debt, is said to have amassed $600 million to $650 million for Opportunity Fund IV so far, said a person familiar with the matter.

S.C. Raises Pacing TargetsThe South Carolina Retirement Systems plans to make about $750 million in commitments to private equity in the year starting in July and signaled it is interested in energy strategies and smaller managers. The pension system targeted private equity commitments of roughly $150 million to $450 million in the previous year, a time when many limited partners received record cash distributions and had more capital to put to work. As it looks to deploy funds, the $29.51 billion pension fund investor intends to investigate ways to profit from the selloff in the energy markets, according to a draft annual investment plan the South Carolina Retirement System Investment Commission approved in late April. “The recent drop

to that goal, the Alaska Retirement Management Board is calling for a “measured increase in commitment pacing” over the decade, and targeting $517 million in commitments in 2019 – the halfway mark for the 10-year plan – and $542 million in 2024, according to the documents. The pension fund committed $593.8 million to private equity in 2014, exceeding a $450 million commitment target. It decided to go beyond its allocation target to get into new special situations funds in the market, according to documents.

Foundation Becomes FlareSoftware and big-data technologies are upending the country’s system of delivering health care, and venture firm Foundation Medical Partners wants to be in the middle of the fray. So the firm will cease investing in medical devices and therapeutics, and will focus exclusively on health-care software and services as it relaunches with the name Flare Capital Partners. The rebranded firm sets out with a new, $200 million fund, Flare Capital Partners I LP, which is the same size as the firm’s three previous funds combined, General Partner Michael Greeley said. He added that a source of confusion about the firm could be traced to other firms and companies using the word “foundation” in their titles, including Silicon Valley-based Foundation Capital. “Also,” Mr. Greeley said, “we’re not really medical anymore. This fund is dedicated to

have around 15 staffers drawn from active-duty military and reservists. The department plans to use In-Q-Tel, a venture capital firm set up by the U.S. intelligence agencies in 1999, as the conduit. It will provide a small amount of seed capital during a one-year pilot program with the firm.

Alaska Fund Calls for BoostAiming to build out its private equity portfolio, the Alaska Retirement Management Board has proposed raising annual commitments to the asset class gradually in the next decade, with plans to pledge $499 million in 2015, $502 million in 2016 and $507 million in 2017. Private equity investments as of Dec. 31 made up 7.8% of a $22.63 billion portfolio the board has been overseeing, short of a 9% goal, according to investment documents released in advance of a meeting in late April. The pension fund is expected to have 10% of its portfolio in private equity by 2024, according to a proposed pacing plan. To get closer

Big Appetites for Small StakesIn a market where valuations are high and private equity firms are facing increased competition from strategic buyers for deals, getting access to deals through minority stakes can be fruitful.

The value of minority stakes in the European private equity market increased substantially last year. According to data provider Dealogic Ltd., the total value of minority investments more than doubled to $11.93 billion across 296 deals last year, from $5.94 billion across 291 deals in 2013. It was the highest annual total since minority investments stood at $19.99 billion across 330 deals in 2008. The figures are based on stakes of 45% or less.

“Everyone would love to do 100% buyouts, but the market is such that sellers aren’t putting enough of those assets on the market,” said Marco Compagnoni, a partner at law firm Weil Gotshal & Manges LLP.

One of the biggest benefits of minority deals is they give private equity firms the opportunity to invest in businesses unavailable in the market, often because the management is reluctant to concede control.


Jennifer Lopez Tells Venture Capital Conference How to Create a Brand Venture Capital Dispatch, May 6Singer, dancer, actress, philanthropist and now entrepreneur Jennifer Lopez appeared before the National Venture Capital Association to reveal the secrets of her business success.

With 100 million followers on social media, a hit movie and partnerships with Kohl’s Corp., Verizon Wireless and several other

global brands, the svelte 45-year-old said she has gotten as far as she has by working “really, really hard,” taking risks, surrounding herself with partners who have skills that she lacks and never forgetting who she is.

“I’ll always be Jenny from the block, and I love that,” she said, adding that she grew up in modest circumstances in the Bronx and started singing and dancing just so she could make herself proud.

As a woman and a mom and a Latina, she said, “I inspire and empower them to do it as well. I have done it, and if you work hard, you can do it as well. That’s part of who I am and my brand.”

Successful brands need to be authentic, said Ms. Lopez, who described how she and her team constantly challenge themselves to create something of quality that will make a difference in the marketplace.

Her partnership with Kohl’s, for instance, arose because “as a Puerto Rican girl from the Bronx who really had no money, I wanted fashion and style at an amazing price, and now I have the opportunity…to give fashion and style at a price that’s attainable, that’s authentic. People get that. It works, and that’s how you create a multimillion-dollar brand.”

People who represent brands have to understand why they attract followers, she said. After her first movie, Mi Familia, people associated her with Latinos and families, she said, and after her first hit song they associated her with love.

“These things start becoming your brand, and if you can stay in that lane and understand that – I’m an artist, and art and business is the same. You stay with what is real to you,” Ms. Lopez said. “It’s about knowing who you are.”

Successful brands also convey emotion, she added, like the association that State Farm creates between insurance and good neighbors. For a partnership she has with BodyLab, which makes weight-loss products for women, the hashtag on Twitter is #bethegirlofyourdreams.

Next up for Ms. Lopez is developing her partnership with NuvoTV, the English-language cable network for U.S. Latinos in which she has a stake. NuvoTV is backed by Rho Ventures, and Ms. Lopez said she is working with Rho Managing Partner Mark Leschly to help her figure out how to create a billion-dollar company.

“I bring a different spark…than what they have when I walk into a room of business people, but you need both the creative and the business side,” she said. “So over the next 10 to 20 years, we’re going to build something that’s never been done before.”

SEC’s Rozenblit Urges Private Equity to Follow the Golden Rule Private Equity Beat, May 13Private equity firms that wish to stay on the good side of the Securities and Exchange Commission should follow one simple rule, according to one of the men charged with examining the industry.

Igor Rozenblit, co-head of the private funds unit of the SEC‘s Office of Compliance Inspections and Examinations, said the regulator’s primary concern has been protecting the rights of the investors who back private equity funds.

“Do unto others as you’d have them do unto you,” Mr. Rozenblit told attendees at a private equity conference hosted in Washington by the International Finance Corp. and the Emerging Markets Private Equity Association.

Moreover, private equity fund managers should avoid another version of the “golden rule,” which Mr. Rozenblit said he later heard in business school: “He who has the gold makes the rules.”

“I would urge you not to follow that principle,” he added.

The regulator is taking a closer look at the industry and pushing for better governance and transparency in the hope that PE firms will move toward resolving disconnects with investors, said Mr. Rozenblit, who added that the views he shared were his own and not that of the SEC.

“We hope you go and fix it yourself,” said Mr. Rozenblit, encouraging more self-regulation in the industry.

“Sometimes fund managers have this idea that if all competitors engage in a practice, they can as well, because investors must know about it,” he said, pointing to so-called monitoring fees as an example of such a practice.

A number of firms have migrated away from that practice or started sharing the proceeds with investors.

“There were a few [limited partners] that knew about it, but they were mainly the ones that were doing co-invest[ments],” Mr. Rozenblit said, adding that firms should clarify their processes early in a fund’s formation.

“If there’s something going on in your fund complex, investors should know about it,” he said.

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consultant that assisted with CUNY’s portfolio review, will make private equity fund recommendations to the trustees at future meetings, this person said.

Liquidnet Offers Pre-IPO Access The runway to initial public offerings could grow even longer if Liquidnet Inc. executes on its plan. Liquidnet, a 14-year-old operator of so-called dark pools for trading stocks, is attempting to create a market for buying and selling pre-IPO companies. The pre-IPO time frame has already been extended for the Ubers, Warby Parkers and dozens of other so-called technology unicorns, but Seth Merrin, the founder and CEO of Liquidnet, said he expects to expand even wider the pool of buyers of capital and companies who sell those shares. Roughly 150 of the 800 institutional investors that trade in his dark pool have said they would weigh investments in late-stage private companies, Mr. Merrin said. While Fidelity Investments, Wellington Management Co. and T. Rowe Price Associates have been active participants in this market, Mr. Merrin said many of his clients have never done a private deal. Liquidnet will seek to do this by conducting something of a scaled-back roadshow so their investors can see a private company’s financials. Mr. Merrin said companies will be able to choose their investor base, and his clients – the institutional investors – can have a simplified way to look at potential investing opportunities. For this, Liquidnet will charge a fee ranging from 2% to 6% of the size of the fund raised.

Flagship Signs PartnershipsFlagship Ventures, which is ramping up its company-creation efforts through a new, $537 million fund, has teamed up with three corporations that could be helpful to the firm as it creates biotechnology, nutrition and agriculture startups. Flagship, which invests in health care and sustainability, creates a number of its portfolio companies through its Flagship VentureLabs group. The firm has teamed up with AstraZeneca PLC, Nestlé Health Science and Bayer CropScience to gain insights from executives and research and development officials

running; 650 outside mentors; and 45 corporate partners. The Hattery will continue to operate under its own brand name in San Francisco. Tactically, 1776 companies will be able to work at offices in The Hattery and with design and user experience experts there when they spend time in San Francisco, fundraising, recruiting or expanding their businesses there.

CUNY Gets Green LightThe City University of New York’s endowment got the green light to invest in private equity for the first time, after trustees approved a 10% target allocation to the asset class out of the university’s $250 million portfolio. CUNY’s endowment hasn’t previously invested in private equity, said two people familiar with the matter. As a smaller entrant to the market, CUNY is likely to find it harder getting access to the most favored private equity funds compared with larger endowments, one of these people said, adding that the public university will build up its exposure gradually and not force its investment pace. The university began deliberating changes to its portfolio mix earlier this year, this person said. The move into private equity is part of efforts by CUNY to diversify its investment portfolio and grow the endowment. Cambridge Associates, the investment

in prices could present an interesting opportunity for managers to benefit from this market dislocation,” according to that investment blueprint. Private equity made up 8.9% of the systems’ portfolio as of Feb. 28, down from 9.2% as of June 30, 2014. South Carolina has a 9% target allocation to private equity. The Columbia, S.C., pension fund has stressed the need for caution as it dials up pacing targets, especially as investors are running into heavy competition to get into the most favored funds.

1776 Buys The HatteryThe Washington startup incubator and seed fund 1776 is expanding to San Francisco through the acquisition of startup studio The Hattery in a cash and stock deal, according to 1776 co-founder Evan Burfield. Mr. Burfield declined to disclose a price. He said the deal was structured to “align the Hattery team with ours around long-term success” for the quickly-expanding incubator, seed fund and the startups it helps. As part of the deal, The Hattery’s co-founders Josh Mendelsohn, Joshua To and Luis Arbulu will be joining 1776 as strategic advisers. With the acquisition of The Hattery, 1776 reports that it has 1,200 startups in its global network; 38 full-time employees who help them day to day and keep the 1776 co-working spaces and events

VC Trade Group Steps Up Diversity PushThe National Venture Capital Association, which has been pushing to get venture capital firms and their portfolio companies to hire more diverse workforces, has found several new ways to attack the problem.

“I know we have a long way to go, but everyone gets it,” said ScaleVP General Partner Kate Mitchell, who is co-chairing a task force on diversity the NVCA launched in December.

By diversity, the trade group means not just women, but also minorities, veterans, people with disabilities, and lesbian, gay and transgender people. All of these groups are underrepresented in venture firms and in startups.

Diversity has become a painful topic in the tech industry, with surveys showing that the percentage of females at venture firms are in the single digits and that female and ethnic-minority entrepreneurs are significantly less likely to raise venture capital than white males.

As the NVCA task force has looked at diversity in the venture capital sector, ideas it has come up with so far include the creation of “affinity networks” across venture firms so that women could talk to women in other firms if there was no one to talk to in their own firms.

Also being considered are the insertion of language into term sheets, the legal documents companies use when they raise money, to encourage hiring a diverse workforce, and to have venture firms hire diverse interns.


value, including debt, was about $880 million, the person said. The New York Times reported earlier on Cerberus’s letter to its investors. Cerberus tried to sell the company at the urging of its investors, including the California State Teachers’ Retirement System, after a Bushmaster rifle was used by Adam Lanza to kill 20 children, six staff members and himself at the Sandy Hook Elementary School in Newtown, Conn. n

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growing enrollment as the school adds two new residential colleges.

LPs Can Exit Gun Maker Stakes Cerberus Capital Management told its investors that it has created an avenue for them to sell their stakes in a gun maker the private equity firm has been under pressure to divest from since the Sandy Hook school shooting in 2012. Cerberus sent a letter to its investors, which include pension funds and endowments, telling them that it has separated Remington Outdoor Co., the maker of Remington and Bushmaster rifles formerly known as Freedom Group Inc., from its funds and will allow any investor wishing to cash out of the company to do so, according to a person familiar with the letter. Remington will use the proceeds from a 2013 debt sale to pay investors who choose to divest their stakes, the person said. Cerberus said in the letter that the company’s

when it is in the early stages of forming companies. Through these partnerships, all three corporations have invested in Flagship’s new fund, its fifth, which closed in March. The collaborations add to an existing relationship with Merck & Co. Flagship’s corporate partners don’t have any rights to invest directly in the firm’s portfolio companies or to strike deals with them, but they do get a close look at the Flagship’s company-building process and an opportunity to offer guidance to the firm.

VCs Support Box PlatformTwo Silicon Valley venture capital firms, Bessemer Venture Partners and Emergence Capital, have commit-ted up to $20 million each to invest in companies that are leveraging technol-ogy from cloud-storage company Box Inc. Both firms previously invested in Box, the users of which store and share files in the cloud. Box, which has been trying to create an ecosystem of Box apps, announced new technology that makes it easier for developers to create applications that run on Box and can be accessed with either desktop or mobile devices. Several companies announced integrations with Box, including the iPhone app Tipbit, which lets users save attachments or emails directly in Box, and K2, which lets users build applica-tions that include forms and workflows from within Box. Box went public in January and has a market cap of about $2.15 billion, down from about $2.7 bil-lion after the company’s first day of trad-ing on the New York Stock Exchange.

Schwarzman Gives to YaleYale University announced a $150 million gift from Blackstone Group co-founder, Chairman and Chief Executive Stephen Schwarzman to establish a new center for cultural programming and student life. This is the second-largest gift in Yale’s history and among the biggest that any university has received this year. “My hope is that the Schwarzman Center will serve as the crossroads for the campus, but also place Yale at the crossroads of the world,” Mr. Schwarzman, a Yale alumnus himself, said in a statement released by the school. The center is expected to open in 2020 and will help accommodate the Ivy League school’s

12 Private Equity Analyst June 2015 newsComings & GoingsuCarlyle Group is becoming both a destination and a jumping-off point for executives coming from and going to large corporations. The private equity giant has brought on Mike Duke, the former chief executive of Wal-Mart Stores Inc., and José E. Almeida, former chief executive of medical supplies maker Covidien PLC, as operating executives. Meanwhile, Michael J. Cavanagh, who left J.P. Morgan Chase & Co. for Carlyle last year, is joining Comcast Corp. as chief financial officer after less than a year as co-president and co-chief operating officer at the private equity giant, and Carlyle Managing Director David A. Heilbrunn is joining Fifth Street Asset Management Inc. as a managing director.

uStuart Bernstein, global head of the venture capital as well as the clean-technology and renewables units at Goldman Sachs Group Inc., is leaving the firm. A Goldman Sachs spokesman declined to discuss reasons for Mr. Bernstein’s departure. Christopher Buddin will step in to lead the clean-tech group, and Ken Hirsch will take on the venture capital role after Mr. Bernstein departs.

uSeeking to help its portfolio companies better navigate legal gray areas, Andreessen Horowitz has hired former Facebook Inc. General Counsel Ted Ullyot to the newly created position of partner of group policy and regulatory affairs. By adding Mr. Ullyot, the firm said, it aims to create a series of ongoing discussions with policy makers to educate them about the various technologies being created.

uMeanwhile, TPG Capital’s general counsel, Ronald Cami, is leaving the firm after five years as its top in-house lawyer. Mr. Cami has agreed to stay on at the firm while it searches for a replacement and to help with the transition. “I made the decision that I wanted to pursue new opportunities that I’ve been approached about and I am looking forward to new challenges,” Mr. Cami said in an email. Mr. Cami hasn’t disclosed further details about his plans.

uSaguna Malhotra, Stanford Management Co.’s managing director of private equity, will join Adams Street Partners as a partner and member of its investment team. At Stanford Management, Ms. Malhotra was responsible for managing Stanford University’s private equity portfolio.

uLevine Leichtman Capital Partners has added two managing directors. John O’Neill, a former partner at Graphite Capital, will oversee the firm’s London office and lead its efforts in seeking investment opportunities throughout the U.K. and Ireland. Robert Hays, who was director of investor relations at H.I.G. Capital, will serve as co-head of investor relations.

uRally Ventures brought on Art Coviello, the former executive chairman of EMC Corp.’s RSA security division, as a venture partner to expand the firm’s portfolio of enterprise security companies. He has been a member of Rally’s Tech Partners program since the firm was founded in 2013.

uFive staff members have left or are leaving Change Capital Partners this year, after its ambitions to raise a new fund stalled last fall. Among them are Chief Financial Officer Andrew Wood, who left in January, according to a filing with Companies House. Emma Fava, Change’s former head of investor relations, left this year, according to a person familiar with the matter. Marco Sebold, a former managing director, is due to leave in May.

uVC ROUNDUP: MPM Capital hired Gregory Sieczkiewicz, a lawyer with expertise in intellectual property, away from Flagship Ventures as a managing director…Obvious Ventures added energy-industry executive Andrew Beebe as a managing director to focus on clean-tech and renewable-energy startups…Jeff Rowbottom, a Kohlberg Kravis Roberts & Co. executive who heads capital markets for North America, is leaving the firm for health care-focused venture firm Pontifax Group…Kevin Thau, a former Twitter Inc. executive who was chief operating officer at search startup Jelly Industries Inc., joined Spark Capital as a general partner…Ganapathy “Gani” Subramaniam, former chief executive of Cosmic Circuits Pvt. Ltd., joined Walden International as a venture partner.

uLBO ROUNDUP: Golub Capital hired Chip Cushman, most recently a managing director at GE Antares, as a managing director in its midmarket lending group…BlueMountain Capital hired Tripp Lane, a senior deal maker at Apax Partners, to push into European distressed debt investments…Gregg Kaplan, founder and former CEO of Redbox Automated Retail LLC, joined Pritzker Group Private Capital as an operating partner for its services team…Harjinder Johal, Darwin Private Equity’s head of fundraising and investor relations, has left the firm, according to public filings…Joe Rodgers, a former managing director at KPMG Corporate Finance LLC, joined Monroe Capital as a managing director heading the firm’s southeast region group…Inflexion Private Equity hired Carl Wormald, formerly a director at LDC, as a partner in its Manchester, England, office to focus on investment opportunities in the region…Frazier Healthcare said Chris Karkenny, an executive with Apria Healthcare Group Inc., joined the firm’s growth buyout team as an operating partner. n

Michael J. Cavanagh

Ted Ullyot

José E. Almeida

Gregory Sieczkiewicz

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14 Private Equity Analyst June 2015 analysis

By DAWN LIM

Two decades ago, Abilene Christian University took a

page from the playbook of wealthier colleges and introduced private equity into its $75 million endowment.

The Texas private university now oversees a $376 million endowment, 72% of which is invested in alternatives, an asset allocation more commonly associated with much larger endowments and those in the Ivy League. The university generated 11% annual net gains in the 10 years ended June 30 of last year, matching Yale University’s, beating Harvard University’s and surpassing the average 7.1% returns of North American endowments over the same period that was captured by the National Association of College and University Business Officers and Commonfund.

“I hear a lot of different definitions on what is the endowment model. If you look at it as a highly diversified portfolio across nontraditional and traditional assets, then we embrace that,” said Jack Rich, the chief investment officer at Acimco, the investment company set up to run the

endowment. “I’m quick to say we’re not trying to be Yale, Harvard or Notre Dame,” he added.

Abilene Christian University’s endowment has invested about 20% of its portfolio in private equity – including buyouts, credit and venture capital – another 10% in private energy funds and an additional 10% in direct energy assets.

Creating their own twists on the investment models of their large Ivy League peers, particularly Yale, smaller players like Abilene Christian University increasingly are hewing their own paths into private equity and other alternative assets. Along the way, some are proving they don’t have to be a large endowment with an elite in-house investment team to build a deep private equity footprint and score comparable returns.

The private equity push by smaller players comes with its share of risk and particular challenges. Smaller endowments are more likely to be disadvantaged than private equity investors over $1 billion in size. They often have fewer resources to support the staffing needed to thoroughly perform due diligence on funds, as well as to meet reporting and auditing demands. As a result, they often must rely on funds of funds and advisers for access to the asset class, which adds an extra layer of fees. If they are taking a more hands-on role, they also may be writing larger check sizes to build clout with managers, which may make them more vulnerable if a fund falters.

Swensen’s Endowment ModelTheir approach to building private equity portfolios can differ from portfolio management theories popularized by David Swensen, Yale University’s chief investment officer, whose ideas have come to be known as the endowment model, or the Yale model. He advocated a diversified portfolio with a higher proportion of illiquid assets – but only for those with superior access and the resources to choose investments.

The endowment model came under criticism during the economic downturn that began in 2007, when a series of larger institutions were hit by illiquidity issues after exit markets froze. The realization that private equity returns will likely underwhelm if one lacks top-quartile managers also prompted some endowments to reevaluate their private equity exposure.

Beyond Yale: Small Endowments Embrace PE With Their Own ModelsManagers of some of the smallest university endowments are embracing private equity as they seek higher returns amid an environment of low interest rates and slow growth. But rather than mimic portfolio management models popularized by some of the nation’s largest endowments, most notably Yale University, some of these smaller players prefer to carve their own path to private equity.

U.S. Endowments Drawn to VC, Buyouts, Funds of Funds

As of May 18. Dataset comprised 492 U.S.-based institutions. Source: Preqin Ltd.

74%

Percentage of Endowments Interested in Strategy

0

20

40

60

80%

Mezza

nine

Seco

ndari

es

Natural

Re

sourc

es

Growth

Distres

sed

Fund

s of

Fund

sBuyo

ut

Ventu

reCap

ital

64%58%

50%44%

36%

22% 21%

Private Equity Analyst 15 June 2015analysis

if doing so means paying additional costs associated with funds of funds or advisers. In a low-interest rate and low-growth environment, they may have few other choices.

Institutions with between $25 million and $100 million in endowment assets grew out their private equity allocations in the past year, according to data on the dollar-weighted average allocations of North American higher educational institutions from Nacubo and Commonfund.

Private equity allocations for institutions in that group increased by a modest one percentage point to 3% in the year ended June 30, 2014. In contrast, larger players’ private equity allocations fell, thanks to a large volume of cash from portfolio company exits that flowed back into their portfolios.

“The question of whether private equity is relevant for smaller players is coming up again in the endowment community,” said Ken Redd, Nacubo’s director of research and policy analysis. “There is a sense that the economy has gotten better, leading people to think that if you have a good general partner, you can find the next Google and Facebook in its infancy.”

“The combination of the illiquidity and the uncertainty of the return profile means the picture is not as clear as it once was,” said William Jarvis, managing director of the Commonfund Institute. “Organizations are continuing to try to assimilate the full meaning of what the endowment model requires.”

Although it expects to deploy more capital directly going forward, Abilene Christian University has tapped funds of funds in areas where it has found access more challenging, such as venture capital. Swensen’s teachings stress the importance of active management and warn of the risks of tapping funds of funds. Mr. Rich – even as he runs a portfolio he sees as more concentrated by managers than bigger peers – believes asset allocation, rather than manager selection, is the primary driver of returns for Abilene Christian University.

A Small Endowment PE Push Successful stories from endowments like Abilene Christian University have encouraged other small endowments to continue to tweak the Yale model to suit their goals, even


Resource CrunchThe pain of being smaller became palpable for the Ball State University Foundation in 2008 and 2009, when it wanted to take advantage of dislocations in the aftermath of the economic downturn but lacked the resources and confidence to jump on opportunities when they were most cheaply priced.

“As the market was going through a dislocation, there were opportunities we couldn’t take advantage of,” said Tom Heck, chief investment officer for Ball State University Foundation’s $200 million endowment. “If we were a large endowment with internal staff, we’d have been able to be lot more nimble.” The university didn’t need to dip into the endowment to fund operations or sell its fund stakes, putting it in a slightly better position than others.

Ball State University, which in 2011 hired Perella Weinberg Partners as a discretionary consultant for the endowment, invests in private equity through commingled vehicles managed by the firm. Its endowment portfolio is about 50% allocated to alternatives, with 30% invested in private assets. It targets roughly 8.5% in annualized returns toward its objective of meeting a 4.5% spending rate.

“We believe in the endowment style of investing as one that embraces wide diversification and an acceptance of illiquidity,” Mr. Heck said, later adding, “I think it’s possible for a smaller institution to participate in the same private equity portfolio as a large endowment if they can find the right channel.”

Mr. Heck said the additional layer of fees is justified as it is still less than what it would cost the school to build an endowment portfolio on its own. Passive investing is not necessarily an easier option, he added, because institutions that seek to tactically pick segments of the exchange-traded funds market are still required to make “active and ongoing” decisions.

As advisers and consultants continue to provide the smallest endowments with access to private equity, the asset class continues to gain mainstream acceptance.

“It will be interesting to see over time whether aggregate investment capital from smaller players through outsourced CIOs, funds of funds and consultants will impact the environment for large endowments and dilute the opportunity set,” said Mr. Heck.

If that happens, it could test how committed these small endowments are to the investment models they have adopted.

“If the amount of capital flooding into private equity results in disappointing returns because entry prices are being bid up, then institutions who didn’t understand the asset class may decide to leave,” said Mr. Heck. “The institutions who have the long-term horizon and more disciplined approach will remain and benefit.” n

The University of Maine System, which runs a $264.4 million endowment and trust pool, decided in 2014 to build out a new 2% private equity allocation. Its portfolio had no allocation to private equity at the end of 2013. NEPC, the investment consultant, said private equity would provide the system “potential for higher returns compared to traditional domestic equity” when it recommended the move. The system is growing the portfolio by committing capital to Landmark Partners, in a move that will help it plug gaps in vintage years.

The City University of New York got the green light this year to invest in private equity for the first time and ramp up its hedge fund investments, moves designed to diversify the portfolio’s asset allocation and grow the endowment. A smaller entrant to the market with $250 million in assets, CUNY is likely to find it harder getting access to the most favored private equity funds and will lean on its consultant, Cambridge Associates LLC, for recommendations on which firms to invest with, said a person familiar with the matter.

Yale’s Mr. Swensen long criticized the use of consultants and fund of funds to access private equity, questioning whether the profit motives of these entities were aligned with those of their limited partners and whether they have sufficient access to the best managers. But as the market gets increasingly crowded and access to good managers tightens, more endowments may find that they need fund-of-fund managers and other intermediaries, with their access to a stable of managers.

“To presuppose that it’s possible to select underlying funds directly in some way that overcame 85 to 100 basis points of fees of a fund of funds, that’s hard to do at $250 million,” said Travis Pruit, the U.S. business leader for not-for-profit outsourced chief investment officer services at consulting firm Mercer LLC.

Small Endowments Want In on Private Equity

Data is dollar-weighted. Source: NACUBO-Commonfund Study of Endowments

Average Allocations to Private Equity for North American Endowments, for the Year Ended June 30 of the Given Year

0% 3% 6% 9% 12% 15%

20142013

$25M-$50M

$51M-$100M

$101M-$500M

$501M-$1B

>$1B15%

8%

6%

2%

2%

12%

7%

5%

3%

3%


owned by Dow Jones. Public pension funds, long the mainstay of private equity fundraising, maintained a steady flow of commitments or, in some cases, even increased their commitment pace in 2014 to keep up with the cash they were receiving back from their GPs.

Not surprisingly, public pensions accounted for about 31% of the capital raised by firms in this year’s survey sample, roughly on par with last year’s survey and still the largest

By LAURA KREUTZER

Pension plans, particularly public ones, remain the biggest

source of capital for private equity firms in fundraising mode, even as shifting demographics put increased pressure on defined benefit schemes.

That is just one of several takeaways from the latest edition of the Dow Jones Private Equity Analyst Sources of Capital, an annual survey of placement agents and general partners that measures where capital came from for the prior year’s commitments.

The capital accounted for in this year’s survey sample – about $32.42 billion – fell short of prior years, partly due to a lack of participation by many of the largest buyout firms. That makes the results more heavily weighted to subasset classes, such as secondary funds, infrastructure funds and private debt. The smaller survey sample could allow a small group of outliers to have a bigger influence on the data results.

That said, our analysis focuses on data points with the strongest sample sizes and where we felt confident the data illustrates broader trends in the market.

Investors eagerly deployed capital back into private equity funds in 2014, thanks to a steady flow of distributions in 2013 and 2014. U.S. private equity fundraising hit $266.2 billion in 2014, a roughly 12% increase over 2013, according to Dow Jones LP Source, a data provider also

Pensions Are Still LP Top Dogs, but Wealthy Investors Gain Ground

InfrastructureSecondary fundsOther buyoutNonmezzanine private debtCo-investment funds or funds investing directly in deals

Distressed equity or debt fundsMezzanineOtherGrowth capitalVenture capital

Breakdown of Fund Types

Fund count: 71. Numbers do not add to 100% due to rounding. Source: Dow Jones Private Equity Analyst Sources of Capital Survey

1%

Total Capital Raised: $32.42 Billion

1%

3%4%7%

24%

8%

9%

14%

28%


capital contributor to the asset class. Meanwhile, corporate pensions chipped in another 10% of the money raised, up from 6% in last year’s survey sample.

Defined benefit plans, both large and small, face growing liabilities as their beneficiaries age. Many have expanded their allocations to private equity as part of an overall push into alternative assets aimed at bulking investment returns to try to meet those liabilities.

“We’ve seen a real trend on the smaller end toward aggregation of smaller plans,” said Amanda McCrystal, global head of marketing and communications at Pantheon, a global alternative asset manager. “As a group, they can get the purchasing power and the discounts associated with larger amounts of capital.”

Some of the smallest investors also continue to grow in importance to private equity fundraising. Wealthy investors and feeder funds accounted for 6% of the money raised in our survey sample, while family offices contributed 4%. However, the actual percentage of capital coming from wealthy individuals may be even higher, given that a number of the firms indicating they raised capital from “other” sources listed accredited investors or high-net-worth individuals in the “other” category. Investors that fell into the “other” category contributed 15% of the capital raised by firms in this year’s survey sample, up from 8% in last year’s survey.

With yields relatively low in more traditional asset classes such as fixed income, wealthy investors have sought access to higher performing, albeit riskier, asset classes such as infrastructure, oil and gas, and private equity.

Despite the logistic challenges associated with aggregating many small commitments from an investor class that tends to desire more liquidity than do institutional LPs, more private equity firms are eager to tap into this investor class. In the past two years, Kohlberg Kravis Roberts & Co. and Carlyle Group each formed investment vehicles designed to provide accredited investors with access to their funds.

“They aren’t the biggest [participants] in private equity, but they have more capital than the pension funds,” said Paul Ward, a managing partner at Pantheon. “It’s a very big market and a big opportunity.”

Although more limited partners are reducing the number of general partner relationships in their portfolios, private equity firms in our survey sample managed to raise some 45% of their capital from new investors, roughly on par with last year’s survey and ahead of survey respondents in 2013. The capital flowing back to LPs has given them a bit more flexibility to fill out specific niches in their portfolios where they remain underallocated, although placement agents said the bar for adding new relationships remains high.

“The standard limited partner has a fairly robust portfolio, so the new GPs have to be differentiated in some way,” said Alan Pardee, a managing partner at Mercury Capital Advisors, adding that his firm has seen investors strike new GP relationships in the energy sector, metals and mining, farmland and infrastructure, as well as in buyouts.

U.S. investors remain the strongest source of capital for fundraising GPs in this year’s survey, contributing more than two-thirds of the capital raised, roughly on par with last year’s survey. Moderate yet steady economic growth

New LPs vs. Prior LPs (All Funds)

Source: Dow Jones Private Equity Analyst Sources of Capital Survey

0

100%

Prior LPsNew LPs

201320142015

45% 48%34%

55% 52%66%

Capital Source by Investor Type (All Funds)

*Numbers do not add to 100% due to rounding. Source: Dow Jones Private Equity Analyst Sources of Capital Survey

Public pension fundsOtherInsurance companiesCorporate pension fundsEndowments/FoundationsSovereign wealth fundsWealthy investors/Feeder fundsFamily officesFunds of fundsDiscretionary advisersGP contributionsBank/financial servicesUnion pension fundsCorporations directly

2014

2015*

31%

15%

32%

8%12%

5%

6%

6%

10%10%

7%

4%3%

2%2% 2% 2% 1%

3%

6%

1%1% 9%

1%5%

6%6%5%


midmarket funds are finding fundraising quite easy. They can raise funds locally and don’t have to travel that far. “

Although Western Europe has seen a decline in importance as a capital source, Asian LPs continue to grow in prominence, a trend that has been building over the past several years. Asian investors, excluding the Japanese, contributed some 28% of the capital raised from non-U.S. investors in this year’s survey, up from 22% in last year’s survey.

Korea Investment Corp. as well as China’s CIC Investment Corp. and State Administration of Foreign Exchange are some of the Asian institutional investors ramping up their private equity programs in recent years.

Ted Ughetta, a partner in the private equity and investment funds practice at law firm Nixon Peabody LLP, said participation by Asian LPs in the private equity market has expanded beyond the large sovereign wealth funds to include more corporate LPs and family offices.

“They’re following groups like CIC and learning from the experiences of the large sovereign wealth funds,” Mr. Ughetta said. “We’ve seen that from certain Chinese corporations that are looking to set up offices in the States to be more active participants.”

Latin American LPs also expanded their share of the pie, contributing 5% of the capital in this year’s survey sample, up from 2% in last year’s sample. Although differences in survey samples may be at play, participation in private equity from pension systems in Colombia, Peru and Chile has continued to grow in recent years.

After an active 2014, it remains to be seen how many of these trends will sustain themselves through the coming year, although so far fundraising momentum still seems fairly robust. As the year unfolds, however, some investors may pause to reassess the capital that they have deployed.

“There seems to be a bit of a digestion process taking place in the first quarter,” said Mr. Pardee of Mercury Capital. “Investors have done a lot of reups and they’re continuing to do reups. [But] we’ve seen a few investment decisions slide from quarter to quarter.” n

in the U.S., combined with a strong dollar and robust returns flowing back to U.S investors from their underlying private equity managers, all likely contributed to the results. However, the heavier weighting of U.S. managers in this year’s survey sample also likely influenced these results.

Among those firms that raised capital abroad, the percentage that they raised from LPs in Western Europe declined for the second year in a row. Western Europe accounted for only about 16% of the capital raised from non-U.S. investors, compared with 24% of the capital in last year’s survey. The percentage of capital coming from Western Europe has steadily declined in the past several years of this survey: In 2009, investors from Western Europe contributed more than 47% of capital raised by managers in a similar survey.

A relative lack of megafund managers participating in this year’s survey sample likely contributed to the decline, particularly as managers of small and midsize funds often have less need to raise capital abroad and fewer resources for funding overseas marketing campaigns. However, the official implementation of the Alternative Investment Fund Managers Directive, a raft of regulation that effectively limits the ability of non-European managers to raise capital from European investors, is also likely to be a factor.

“At the margin, it’s definitely an influence,” Pantheon’s Paul Ward said of AIFMD’s impact. “The more successful [U.S.]

Capital Source by Geography (All Funds): Non-U.S. LPs

*Numbers do not add to 100% due to rounding. Source: Dow Jones Private Equity Analyst Sources of Capital Survey

Asia (excluding Japan)CanadaWestern EuropeMiddle EastUnited KingdomLatin AmericaAustraliaOtherEastern or Central EuropeJapan

2014*

2015

28%

19%

22%

12%

7%

15%

13%

9%

16%

5%

7%

4% 3%2%1%

2%3%

1%

12%

3%

24%

Capital Source: U.S. vs. Non-U.S. Investors (All Funds)

Source: Dow Jones Private Equity Analyst Sources of Capital Survey

U.S. Investors

Non-U.S. Investors

20142015

37%

63%

34%

66%


By JENNIFER BOLLEN and AYESHA JAVED

Private equity firms are exiting their portfolio companies earlier

for the first time since the economic downturn, amid the strongest exit environment in years.

The length of time buyout firms held portfolio companies fell to an average of 5.5 years as of April 23, according to data provider Preqin Ltd., the first decrease since 2008. Preqin said the average length of time firms held on to investments has been rising in recent years to a record high of 5.9 years for businesses sold in 2014, compared with an average of 4.1 years in 2008.

“The timing stretched because the volume of large-cap deals done in 2006 and 2007 got stuck, effectively, in portfolios, so that provided the longer hold,” said Graeme Gunn, a partner at U.K. fund-of-funds manager SL Capital Partners. “The current positive market environment, quantitative easing in Europe and higher liquidity in the U.S. have allowed private equity funds to reduce the time to exit.”

European buyouts this year had the longest average hold period, hitting an average of 5.7 years, compared with 5.3 years for companies in North America.

The shortened investment periods come amid a surge in confidence in the exit markets. Last year, private equity exits in Europe reached $142.5 billion, which was the highest since 2007, according to data provider Dealogic Ltd. From Jan. 1 to May 15 of this year, there have been 158 private equity exits in Europe worth $37.6 billion.

“We lost two years of activity in the financial crisis when nothing happened,” said Mr. Gunn. “That is becoming a distant memory now, but during this time we had no investments or exits...Today is a good exit environment across the board, so a lot of the funds are taking the opportunity [to exit], as you don’t know when the window will close.”

Alistair Watson, a senior investment manager at Aberdeen Asset Management, said it was natural in the current ebullient exit market for holding periods to decline to more “normalized” levels. “The inventory of precrisis, peak market transactions continues to reduce through exit activity, and these deals have typically had longer hold periods due partly to the ‘lost’ years endured in the financial crisis.”

Mr. Watson added there had been “some attractively priced deals completed in the 2009-to-2012 period, which have performed at or above plan through the recovery, and managers are ready to harvest these investments in the strong current exit environment.”

Some private equity firms have taken advantage of the strong exit market to sell their portfolio companies after shorter-than-average hold periods. In March, CVC Capital Partners agreed to sell London-based online payments company Skrill Ltd. for about €1.1 billion, less than two years after investing in the business, in a deal that valued Skrill at €550 million. CVC also sold gym chain Virgin Active Ltd. in April after less than four years of ownership. The deal generated a return of more than two-times CVC’s investment and an internal rate of return approaching 30%.

“As investors, we would encourage managers to take advantage of attractive exit environments,” said Mr. Watson, “but always to balance current expected exit value against the future growth and value potential of portfolio companies and the associated risks.”

He added that portfolio companies could “undergo significant positive change and operational improvement in a three- to five-year period,” which he said was considered an “optimal” hold period. n

Spring Cleaning: PE Firms Exit Portfolio Companies at Faster Pace

Buyout Firms Starting to Sell Portfolio Companies More Quickly

*As of April 23. Source: Preqin Ltd.

4.5

Global Average Holding Period, in Years

4.44.1 4.3

5.1 5.3 5.55.8 5.9

5.5

0

1

2

3

4

5

6 yrs.

2015*201420132012201120102009200820072006


Global Environment Fund President and Chief Executive Jeffrey Leonard also cited pain in Brazil, adding that raising a Brazil-only fund is “challenging these days.”

But he added that tough times may be precisely the reason to raise such a fund as entry valuations become lower. Mr. Leonard likened maneuvering in difficult markets to his experiences mountain climbing.

“Our rule of thumb was to follow the storm,” he said. “As soon as we saw a storm lifting, that’s when we moved. So when we reached the top, we had a clear sky ahead.”

Despite the obstacles, limited partners, hungry for yield in a low-interest-rate environment, haven’t abandoned emerging-markets private equity.

“We had to move from an allocation view to a selection view,” said Travis Angevine, director of private markets at the Alfred I. DuPont Testamentary Trust. “You have to go and find the manager that is doing something you haven’t seen before,” he said, pointing to a manager his firm recently backed that is focused on low-income housing in Latin America.

“We think there’s opportunity,” said Mr. Payne of BlackRock. “We’re not pulling back. There are not many places in the world where you can buy a lower middle market business for less than six times [earnings before interest taxes, depreciation and amortization]. In some parts of the developing world, that’s still possible.” n

By HILLARY CANADA

Emerging markets private equity is starting to lose

a bit of its luster for some limited partners as returns fail to measure up to the risks.

At the 2015 Global Private Equity Conference hosted last month in Washington, D.C., by the International Finance Corp. and the Emerging Markets Private Equity Association, several institutional investors spoke of disappointing returns and other risks that accompany such investments, including shaky currencies, unfriendly governments, corruption and slowing growth.

BlackRock Private Equity Managing Director Craig Payne said that in his firm’s core funds, the emerging markets allocation has trended down over time, partly because of performance. Out of 65 maturing emerging-markets funds raised in the 2005-to-2010 time range that his firm has backed, Mr. Payne said he could find only three that had returned two-times total value to paid in capital or more. Only one of the funds produced a net return of 20% or better.

“So either we’re doing a very bad job of selecting fund managers, or there is a systemic issue,” he added.

Other limited partners, including University of Virginia Investment Management Co. Chief Executive and Chief Investment Officer Lawrence Kochard and Peter Keehn, global head of private equity at Allstate Investments, said they take a very measured approach to such investments. Both adamantly opposed the idea of backing emerging-markets private equity simply as a means of portfolio diversification.

To get to the point of committing, Allstate needs to “see a compelling case for excess returns,” said Mr. Keehn.

Performance isn’t the only issue weighing on emerging-markets managers. “When we look around the world, there’s not a lot to like,” said Cartica Capital Management Senior Managing Director Teresa Barger, citing slowing global growth as a major obstacle.

“The 2014 elections disappointed,” she said. Many countries “reelected the bad old guys,” so they’re missing out on the “reform momentum” that can bolster economic advances, she said. She pointed to the Philippines, India, Poland and Mexico as the “reformers,” where some action is under way. Other promising nations have fallen short.

“Turkey made big leaps forward when they created policy reforms in hopes of joining EU,” she said. “Sad to say, that has not continued.”

Amid Tepid Returns, LPs Approach Emerging Markets Cautiously

22 Private Equity Analyst June 2015 analysis limited partners

Private equity firms have described the current exit environment as

“biblical,” but that doesn’t mean the returns are heavenly.

In fact, 96% of the 408 U.S. private equity executives polled in Deloitte LLP’s M&A Trends Report 2015 said the exits they made in the previous year fell short of targeted returns. The survey included a total of 2,500 corporate and private equity executives.

Enticed by a receptive market for initial public offerings, as well as corporate acquirers seeking growth through acquisitions and other private equity firms eager to deploy capital, buyout shops have been exiting companies at a record pace, even after holding some businesses less than a year.

Private equity firms world-wide generated some $428 billion from the sales and initial public offerings of 1,604 companies last year, according to data provider Preqin Ltd.

Despite the vast volume of sales, return figures for the past two years have missed the mark for a substantial number of the deal makers polled by Deloitte. The economy was partly to blame for the missed return expectations.

Barry Curtis, a partner at Deloitte M&A Services, said in an email that the disappointment stemmed in part from “optimistic growth assumptions” firms had about the investments they made from funds raised following the financial crisis that began in 2007.

Lower-than-expected growth in many sectors also may have partially offset the high multiples businesses are commanding, Mr. Curtis added.

In the short term, private equity had a difficult time keeping pace with the long-running bull market. Through Sept. 30, Cambridge Associates LLC’s one-year-returns benchmark for global buyout and growth equity funds was a net 15.9%, compared with 19.73% returned by the S&P 500.

Over the longer term, however, private equity outperformed, generating a net 13.89% over a 10-year period, compared with 8.11% for the S&P.

Three out of four respondents to the survey said they anticipate the level of exits will remain high within the next 12 months. More than 60% said they anticipate the primary source of exits will be sales to strategic buyers. About 38% believed exits could come in the form of initial public offerings.

A majority of these same executives believe 2015 will also be a robust year for deals. More than half of the private equity respondents anticipated closing at least five add-on acquisitions in 2015, and of those same respondents, 22% believe they will make more than 11 add-on deals this year. n

European VC Regains GroundVenture capital investment in European companies rose to its highest figure since the third quarter of 2001, according to data from Dow Jones VentureSource. European companies raised €2.6 billion in 345 deals during the first quarter of 2015, an increase of 41% over the amount raised during the fourth quarter of 2014 despite a 5% decline in the number of deals completed. Consumer services received the largest investment allocation during the first quarter, gathering €1.3 billion through 103 deals, 50% of the total VC raised by European companies during the period.

Health-Care Startups Raise $3.9BU.S. medical startups raised a record $3.9 billion in venture capital in the first quarter amid rising investor interest in biotechnology, digital health and health-care services. The period’s health-care total surpassed the previous record of $3.42 billion invested in the second quarter of 2014, according to Dow Jones VentureSource. Driving investment in the sector was a strong market for initial public offerings, increasing confidence in the success of drugs in clinical trials and acquisitions by large drugmakers needing to replenish their pipelines. Biotechnology investment accounted for most of the increase in venture funding, with investors pouring $2.14 billion into biotech companies, up 72% from the first quarter of 2014.

in brief

Industry DataDespite Exits, PE Returns Disappoint

Mixed Bag on PE Exits

Source: Deloitte LLP

Of PE Industry Respondents:

89%

0

20

40

60

80

100%

2014 report2015 report

Those Forecasting Average toVery High Levels of Deal Activity

Those Saying at Least SomePortion of Their Deals the PreviousYear Fell Short of Targeted Returns

96% 96% 94%

Private Equity Analyst 23 June 2015limited partners

Kentucky Retirement Systems Raises the Bar for PE as It Faces Funding Woes

Hit by staff turnover, the system sought a fresh start. Ending Altius Associates’ role as a private equity adviser after a roughly two-year stint, Kentucky Retirement brought on Pension Consulting Alliance in 2014, in hopes the new arrangement would allow the staff to more directly shape the portfolio around Kentucky’s funding challenges.

As part of that effort, Kentucky Retirement, which has backed funds from venture capital firms including Institutional Venture Partners and Duff Ackerman & Goodrich, may scale back its investments to venture and growth equity, out of concern it can’t generate stable long-term returns through the asset class. “The challenge is in justifying locking up money in hope of a winner or two,” said Mr. Peden. “We might keep a ‘baby toe’ in venture capital, but it has to be a compelling story.”

Kentucky Retirement, the largest buyout relationships of which include Leonard Green & Partners and Blackstone Group, plans to focus on smaller private equity funds where it can have more clout as an investor. By targeting groups raising funds of up to a billion dollars, it is hoping its general partners will face less competition than their larger peers. Kentucky Retirement is also considering whether to make its first move into private equity co-investments, in line with efforts to reduce fees and forge more meaningful ties with managers. The system recently got approval to co-invest in real estate deals.

As it recalibrates its approach to private equity, KRS wants to broaden the reach of its portfolio. It will also look into ways to capture energy opportunities amid recent selloffs and will consider more global exposure for its portfolio, which is more than 90% invested in U.S. partnerships. Last year, KRS made its first private credit investment out of its fixed income bucket, awarding a $125 million separate account mandate to Cerberus Capital Management to make senior secured loans to midmarket companies. Across the broader portfolio, the pension fund’s priorities continue to shift to pruning, rather than growing out, alternative exposures.

Kentucky Retirement is no longer as focused on expanding its allocations to real estate, real return and absolute return strategies after spending the last five years “in phase one of building out the alternatives portfolio,” Mr. Peden said.

As a new asset allocation review looms, changes to Kentucky Retirement’s portfolio are likely to be less drastic than they were four years ago, when the system, looking to modernize its mix, carved out a new absolute return sleeve and became more active in real estate, real return and hedge fund investing.

“We’re going to be much more selective and will focus on maintaining the strongest relations as we don’t feel compelled to deploy capital now,” said Mr. Peden. n

By DAWN LIM

Pinched by the state’s failure to meet its pension contribution

requirements, the Kentucky Retirement Systems is raising the bar for private equity as it looks to write larger checks to fewer managers.

The Frankfort, Ky., system plans to make annual commitments of $130 million to $220 million to between three and five managers in the year ahead, a more tempered pace than it had heading into 2008, when it was committing more than

$250 million annually. The pension investor, which has typically pledged $50 million to $100 million to each fund, will now focus on commitments at the larger end of that range.

“We want to get to fewer and chunkier relationships,” said David Peden, who heads investments for some $16 billion in pension and insurance assets.

Mr. Peden, formerly the director of fixed income, took the chief investment officer position last year following a rocky patch for the pension fund. Private equity investments ground to a halt at Kentucky Retirement in 2008 due to liquidity concerns during the economic downturn. When the pension system once again began making commitments to private equity in 2009, it had to tread lightly.

The funded status of its plans deteriorated as the

state fell short on pension contributions. Kentucky has one of the worst-funded pension systems in the country, though pension reform measures passed in 2013 by the state legislature has raised hopes it can improve its funding status. One of the weaker plans administered by Kentucky Retirement, the Kentucky Employees Retirement System’s pension plan for workers in sectors deemed “nonhazardous,” posted that, as of June 30, 2014, it had only 21% of the funds needed to cover the obligations it owed. Critics also scrutinized the fees the pension fund was paying to hedge fund and alternatives managers, putting pressure on Kentucky Retirement to focus on controlling costs.

Kentucky Retirement SystemsAssetsKentucky Retirement manages $11.55 billion in pension assets, of which 9.8% was in private equity, as of March 31. It also oversees $4.19 billion in insurance assets, of which 6.3% was in PE. The target allocation to PE is 10% for both pools.

Key PersonnelDavid Peden is the chief investment officer and Bill Murnighan is acting director of private equity. Brent Aldridge recently became director of real estate and real return assets.

Recent Commitments DB Secondaries Opportunities Fund III LP, Cerberus Business Finance Lending Platform separate account.

24 Private Equity Analyst June 2015 fund newsGeneral Partners: BuyoutSpirits Capital Cheers On Millennials’ Taste for the New

York’s Bacchus Capital Management and TWT Investment Partners, of Ridgefield, Conn., seek investments in wine.

Although there are angel investors for hard liquor, private equity participation in spirits has been low. “It’s harder to [build brands] in spirits as the consumption of spirits in bars is almost always in mixed drinks – not like beer or wine, where you can finish a bottle or two in an evening,” he said.

Still, Mr. Martin said, “most of the profit in alcoholic beverages is made in distilled spirits.”

Spirits Capital writes equity checks of $5 million to $25 million but believes the bulk of the opportunities occur in the $5 million-to-$10 million segment of the market, where new brands are aplenty.

Spirits Capital, which funds investments in partnership with Silver Pine on a deal-by-deal basis, made two investments in April: Rum maker Real McCoy Spirits Corp. and Spud Partners LLC, producer of a vodka made from potatoes.

Investments going forward will focus on the type of spirits that millennials favor. “American craft whiskey is booming, including bourbon and rye and, to a lesser extent, rum,” Mr. Martin said.

Mr. Martin and Mr. Hemmer’s partnership can be traced back to more than a decade ago, when the latter was with Chicago firm GTCR.

The pair said they tried to buy family-held spirits companies and portfolios of tail brands from larger spirits companies but were deterred by the “unrealistic prices.” But with Spirits Capital’s strategy of scaling emerging brands, strategic buyers’ ability to pay a premium for assets turns into an advantage.

Mr. Martin said Spirits Capital views major spirits companies, which need to supplement existing brands’ slow growth by adding newer brands to the mix, as a natural exit channel. “Strategic buyers are able to rapidly broaden a spirits com-pany’s distribution as they can run it through their own network to substantially grow revenue,” said Mr. Hemmer. “They also benefit from material synergies throughout the cost structure.” n

By AMY OR

It seems that not even vintage spirits stand the test of time, at

least not among younger consumers.

“Blended Scotch is declining as aging boomers are consuming less. And they aren’t appealing to next generations, the Xers and the millennials,” said Todd Martin, a former president of Allied Domecq PLC’s North America division and founder of Daucourt Martin Imports LLC. “They aren’t interested in something with traditional heritage.”

Spirits Capital Part ners, of Dallas, seeks to cater to these changing tastes in distilled spirits.

Set up by Mr. Martin, in partnership with Chicago’s Silver Pine Partners, Spirits Capital is seeking to back emerging spirits

brands that have a track record of attracting drinkers but need capital to give them the extra push to bring their products to markets throughout the country.

“Millennials aren’t choosing traditional brands that have been around for 30 or 40 years. Instead, they are finding brands that they can call their own,” said Silver Pine founder and Managing Director Vincent Hemmer.

Data provider IBISWorld said in a January note that the industry’s potential market size would get a lift from those born during the early 1990s baby boomlet reaching drinking age in the next five years.

“Spirits are more popular today than when these customers were born,” according to the memo. “Distilleries have begun to alter product mixes to enhance the selection of milder ready-to-drink beverages to capture this audience’s interest.”

Financial investors have participated in various segments of the alcoholic beverage industry. Kohlberg Kravis Roberts & Co. and Affinity Equity Partners, for example, backed South Korean brewer Oriental Brewery Co. in 2009 and sold it to Anheuser-Busch InBev NV last year. Firms like New

Spirits Capital PartnersThe FirmFounder Todd Martin set up Daucourt Martin Imports LLC, an importer and distributor of French spirits to the U.S. market that launched brands X-Rated Fusion Liqueur and Jean-Marc XO Vodka, both sold to Gruppo Campari-Milano Spa in 2013.

The PortfolioReal McCoy brand of rum was based on the original recipes of Prohibition-era smuggler Bill McCoy. Spud Vodka, meanwhile, came second in the 2015 Ultimate Spirits Challenge with 94 points.

Private Equity Analyst 25 June 2015

Menlo VenturesThe FirmBased in new larger offices on Menlo Park, Calif.’s storied Sand Hill Road, Menlo Ventures continues with six managing directors, including Doug Carlisle, Shawn Carolan, Venky Ganesan, John Jarve, Mark Siegel and Pravin Vazirani. Mr. Carlisle and Mr. Jarve will retire after this fund. Menlo hopes to fill the two partner slots from within, the firm said.

The FundMenlo Ventures XII LP closed in April at $400 million, the same size as its predecessor fund, which closed in 2010. These two funds are a third or less the size of Menlo’s ninth and 10th funds, which closed at $1.2 billion in 2005 and $1.5 billion in 2000.

Recent DealsIn April, Menlo counted seven exits in eighteen months, including those of Dropcam Inc. (acquired by Google Inc.’s Nest Labs for $555 million), EdgeCast Networks Inc. (acquired by Verizon Communications Inc. for $395 million) and Flurry Inc. (acquired by Yahoo Inc.).

fund newsGeneral Partners: VCMenlo Ventures Stays Fresh With $400M for Fund XII

Entrepreneurs aren’t just looking for firm brands anymore, Mr. Siegel said, “but for individual people who are really smart about my market, my business and have interesting things to say and [to] add value on my board.”

Menlo will continue in Fund XII with other practices that worked in Fund XI, the partners said. Although they declined to comment on returns, Fund XI has done well, according to a summary published by limited partner Washington State Investment Board, with a net internal rate of return of 81.6% as of Sept. 30.

The firm will make about half of its investments from Fund XII in enterprise companies and half in consumer companies, instead of favoring enterprise investments as it did in the past. It is also making a more concerted effort to reach out to media rather than working to stay out of the news.

The firm is tweaking its seed program as well, carving about $15 million out of Fund XII, compared with $20 million out of Fund XI, and making larger investments in about half as many companies, which will mean about 30 investments instead of 60.

The changes reflect what Mr. Siegel called “a glut of seed companies,” not all of which will be able to raise follow-on funding, and a more thoughtful approach to seed investing by Menlo.

Entrepreneurs will be offered milestones to keep them on track, and if the startups don’t work out, “we will be sure to keep those people in the family,” he said, offering space in Menlo’s larger new office on Sand Hill Road so entrepreneurs can try to turn their technology into something new.

Seed companies also sometimes get acquired, said Managing Director Venky Ganesan, and “we figure these entrepreneurs will be doing this again.”

Menlo also plans to continue adding entrepreneurs in residence who can incubate companies at Menlo and expects to double its venture partner numbers to about a half dozen, Mr. Siegel said. These are people like Jim Dawson, the former chief sales officer of Fusion-io Inc. (now part of SanDisk Corp.), and Avery More, the founder and former chief executive of CompuCom Systems Inc., who have long track records in the industry and can help Menlo source deals.

Mr. More, for instance, was on the board of Check Inc. and was responsible for leading Check’s sale to Intuit Inc. last year for about $360 million. n

By DEBORAH GAGE

Navigating generational transitions can be difficult for venture capital firms,

whose business is generally based on nurturing networks developed by small partnerships in which the loss of a single person could be critical to the firm.

But Menlo Ventures has cultivated some best practices as it approaches its 40th anniversary next year and begins to invest its 12th fund.

Menlo closed the new fund in April at $400 million, the same size as its previous vehicle, and has begun to pass the responsibility for investing it to a new generation of partners.

Two of its six managing directors – Doug Carlisle, who joined Menlo in 1982, and John Jarve, who joined in 1985 – will begin the process of retirement after this fund, following in the footsteps of founder H. DuBose Montgomery, who started the firm in 1976.

Retirement at Menlo doesn’t mean disappearing onto the golf course, however. The idea is to be gracious and generous and provide continuity for the firm’s younger partners, according to General Partner Mark Siegel.

At Menlo, retirement means staying active in the firm’s operations for another three or four years, keeping an office and continuing to sit on boards, while cutting back on economic interests in the firm to make room for new people.

New people keep Menlo vital, Mr. Siegel said, because older

partners may have “lost some of the drive and hunger it takes to be an investor. Venture capital is more competitive than ever today, and you’ve got to have both feet in.”

26 Private Equity Analyst June 2015 fund news

U.S. & Canada

BuyoutsuBanc Funds, Chicago

Banc Funds, one of the oldest private equity firms focused on investments in small banks, thrifts and other financial institutions, has raised a little more than $416 million so far for Banc Fund IX LP, according to a regulatory filing. The capital raised so far puts the fund more than halfway to the $600 million offering amount indicated in the filing. Investors approving commitments to the fund include the Washington State Investment Board and the Minnesota State Board of Investment, according to the pension systems’ various meeting minutes. The fund’s predecessor, Banc Fund VIII LP, a $650 million pool raised in 2009, generated a 12.42% net internal rate of return as of Sept. 30, according to WSIB performance data.

uBoathouse Capital, Wayne, Pa.

Junior capital investor Boathouse Capital said it held a final close on $230 million for its second fund licensed under the Small Business Investment Company program. Boathouse Capital II LP will focus on structured debt and equity investments of $5 million to $25 million in growing businesses in the lower midmarket, according to a news release. The firm closed its first SBIC fund, Boathouse Capital LP, in 2011 with $120 million, including matching capital from the U.S. Small Business Administration. Boathouse participates in acquisition financing, growth capital investments, majority and minority recapitalizations, management buyouts, leveraged buyouts and employee stock ownership plans.

uCatalyst Capital Group, Toronto

Canadian distressed-for-control investor Catalyst Capital Group said it reached a first closing on its most recent fund, Catalyst Fund Limited Partnership V, with $650 million in capital commitments. Fund V is targeting $1.25 billion and has a hard cap of $1.5 billion. The fund’s predecessor closed on $812 million of capital in 2013, surpassing the vehicle’s target, according to Dow Jones records. Catalyst said the new fund received support from existing investors in previous funds, together with new institutional investors, including university

U.S. & CANADA

Buyouts26Banc Funds Boathouse Capital Catalyst Capital Group27Clearlake Capital EnerVest I Squared Capital Leavitt Equity Partners Napier Park Financial Partners Northleaf Capital Partners Old Ironsides Energy Post Capital Partners28SFW Capital Partners Signal Hill Equity Partners Staple Street Capital TPG Growth Trilantic Capital Partners

Mezzanine & Other Debt28Apollo Global Management30Harbert Management Corp.

Venture Capital30AKT IP Ventures Altitude Life Science Ventures Aspect Ventures Atlas Venture Catalyst Investors Collaborative Fund Cross Culture VC Draper Nexus Ventures31Founders’ Co-op GreatPoint Ventures Illuminate Ventures Insight Venture Partners Institutional Venture Partners Longwood Fund Mission Bay Capital MkII Ventures32MPM Capital Redpoint Ventures Rethink Education RiverVest Venture Partners SherpaVentures Slow Ventures True Ventures Whitecap Venture Partners

Secondary32Landmark Partners33Pomona Capital

Funds of Funds33Altegris34Knightsbridge Advisers

EUROPE

Buyouts34Elysian Capital35EQT Partners Kings Park Capital

Venture Capital35Joint Polish Investment Fund Management Safran SA

Secondary35Mantra Gestion

ASIA

Mezzanine & Other Debt35Babson Capital Management

Venture Capital37Lightspeed Venture Partners

LATIN AMERICA

Buyouts37Linzor Capital Partners

MIDDLE EAST

Venture Capital37Eucalyptus Growth Capital Middle East Venture Partners

roundups

Private Equity Analyst 27 June 2015fund news

Partners I LP at its $100 million hard cap in the second quarter, the person added. Established in August, Leavitt Equity Partners is an investment subsidiary of Leavitt Partners, a health-care consultant founded by former Health and Human Services Secretary Mike Leavitt, to help industry stakeholders adapt to the changing dynamics of health-care provisions in the country. Mr. Leavitt, who is chairman of Leavitt Partners, served in the administration of President George W. Bush.

uNapier Park Financial Partners, New York

Napier Park Financial Partners, the private equity arm of Napier Park Global Capital, has closed on $454 million for a new aircraft leasing fund. The firm teamed up with lessor Air Lease Corp. to form the fund, Blackbird Capital I LLC, according to a news release. In addition to providing 9.5% of equity to the fund, Air Lease will provide servicing to Blackbird. Napier Park plans to use the equity in the acquisition of about $2 billion in commercial aircraft assets by the end of 2016. Napier has previously teamed up with corporate partners to form investment joint ventures. The firm operates a railcar leasing fund that was established as part of a joint venture with Trinity Industries Leasing Co., a subsidiary of Trinity Industries Inc.

uNorthleaf Capital Partners, Toronto

Canadian private equity firm Northleaf Capital Partners said its Northleaf Venture Catalyst Fund held another closing, adding Ontario Pension Board as its newest investor. Total commitments from all investors now amount to $264 million, the firm said. The fund, a joint initiative between Canadian institutional investors and the governments of Canada and Ontario, invests chiefly in Canadian venture capital and growth equity funds and also makes co-investments. It started making investments in January 2014 and has backed six venture funds and made five direct investments in companies so far. It has committed to funds managed by XPV Capital, Georgian Partners, Versant Ventures, Golden Venture Partners, Version One Ventures and Relay Ventures, and completed direct investments in Wattpad Inc., Vision Critical Communications Inc., Silanis Inc., eSentire Inc. and FreshBooks Inc.

uOld Ironsides Energy, Boston

Old Ironsides Energy said it held the final closing of its latest vehicle, Old Ironsides Energy Fund II, with $1.3 billion in commitments. The oil and gas investment manager said in a news release that Fund II will acquire and develop assets in the upstream and midstream sectors, primarily in the U.S. and Canada. Old Ironsides traces its roots back to the former energy investment team of insurer Liberty Mutual Holding Co.

uPost Capital Partners, New York

Post Capital Partners, a firm focused on investments in small buyouts, has raised $100.5 million for its latest fund, according to a filing with the Securities and Exchange

endowments, charitable foundations, pension plans, family offices and financial institutions. Montana Board of Investments approved a $15 million commitment to Fund IV in 2012, according to meeting minutes.

uClearlake Capital, Santa Monica, Calif.

Special situations and private equity firm Clearlake Capital was gearing up for a first close on its flagship fund between the end of May and early June at around its $1 billion target, people familiar with the matter said. The firm plans to wrap up fundraising for Clearlake Capital Partners IV LP around June and could raise up to $1.35 billion for the fund, according to an investor due diligence memo. The firm’s third fund, a 2012-vintage vehicle that closed at $785 million, generated a net internal rate of return of 23.7% and a net investment multiple of 1.2 times, as of Dec. 31, according to investor data.

uEnerVest, Houston

Energy investor EnerVest planned to hold a first closing of between $1.2 billion and $1.3 billion on its 14th fund as early as late April, said a person with direct knowledge of the matter. The vehicle, EnerVest Energy Institutional Fund XIV LP, likely will have a series of interim closings before it completes fundraising by around June 30, the person said. The vehicle has a $2.5 billion target and a $3 billion hard cap and will pursue investments in natural gas and oil properties throughout the U.S. Limited partners committing to Fund XIV include the Washington State Investment Board and the Orange County Employees Retirement System. The firm raised its last fund about three years ago, closing on $2 billion in commitments in 2013. That vehicle, EnerVest Energy Institutional Fund XIII LP, once levered up, had a purchasing power of $3.3 billion, Private Equity Analyst previously reported.

uI Squared Capital, New York

I Squared Capital said it closed its debut infrastructure investment fund with total commitments of $3 billion. ISQ Global Infrastructure Fund LP received support from limited partners including pension funds, sovereign wealth funds, insurance companies, asset managers and family offices in the U.S., Canada, Europe, the Middle East, Asia and Australia, according to a news release. Limited partners committing to the fund include Rhode Island State Investment Commission and New Mexico Regional Retirement Board. Mitsubishi Corp. committed $100 million as part of a strategic partnership for infrastructure investment alongside I Squared, according to an earlier news release.

uLeavitt Equity Partners, Salt Lake City

Leavitt Equity Partners has raised more than $75 million so far from strategic health-care companies and health-care entrepreneurs for its inaugural fund to co-invest in health-care deals, a person familiar with the situation said. It aims to wrap up fundraising for Leavitt Equity


in North America with annual revenue of $50 million to $500 million. It plans to make investments of $15 million to $50 million, though with support from co-investing limited partners, it could invest as much as $75 million in a transaction. Mr. Owens said the firm plans to invest in between eight and 12 deals from Fund II.

uTPG Growth, Fort Worth, Texas

TPG Capital’s midmarket and growth equity platform, TPG Growth, has closed its third fund with more than $3 billion in capital commitments, according to a news release. TPG Growth III LP surpassed its $2.75 billion target after five months on the market, according to a news release. The fund also landed about $1 billion more than its predecessor, TPG Growth II LP, which closed in 2012 at $2 billion. Investors committing to TPG Growth III include the Washington State Investment Board, Oregon Investment Council, New Jersey State Investment Council, New Mexico State Investment Council, Teachers’ Retirement System of Louisiana and State of Wisconsin Investment Board.

uTrilantic Capital Partners, New York

Trilantic Capital Partners, the private equity firm formed in 2009 by a group of former Lehman Brothers Holdings Inc. merchant banking executives, raised nearly $333.1 million so far for a North American energy-focused fund, according to a filing with the Securities and Exchange Commission. The firm began marketing the $500 million vehicle, Trilantic Energy Partners (North America) LP, last year. In North America, Trilantic typically invests $50 million to $250 million at a time in companies with enterprise values of $100 million to $1 billion. The firm, which has offices in New York, London and Saint Peter Port, Guernsey, closed a U.S. buyout fund, Trilantic Capital Partners V LP, at $2.2 billion in late 2013.

Mezzanine & Other DebtuApollo Global Management, New York

Apollo Global Management has raised about $1.05 billion for a fund dedicated to credit opportunities in the energy sector, in what appears to be a final closing of the vehicle, according to filings with the Securities and Exchange Commission and a person familiar with the situation. Apollo Energy Opportunity Fund LP has reached its target amount, with no more capital being offered, the May 8 SEC filing shows. Another filing shows a related vehicle, Apollo Offshore Energy Opportunity Fund Ltd., has collected about $736.9 million. The person with knowledge of the matter said the two vehicles belong to the same pool of capital, and that the amount raised by the offshore vehicle is included in the amount raised by the core fund. The energy credit fund is separate from another energy-related pool the firm is raising, Apollo Natural Resources Partners II LP, its second natural resources fund.

Commission. The amount raised so far for Post Capital Equity Partners III LP surpasses the fund’s $100 million target and is slightly larger than the firm’s previous fund, which wrapped up in 2008 with a little less than $100 million, Private Equity Analyst previously reported. The firm held an initial closing on $52 million for the fund in the spring of 2014.

uSFW Capital Partners, Rye, N.Y.

SFW Capital Partners is the latest specialty investor to quickly wrap up a fund at its hard cap. The firm closed on a total of $347.5 million, including limited partner and general partner commitments, for its latest vehicle focused exclusively on investments in analytical tools and related services, said SFW Partner Roger Freeman. The firm set out roughly seven months ago to raise a successor to its debut fund, which closed on $300 million in 2008. It targeted $325 million for SFW Capital Partners Fund II LP, but managed to close the fund at its hard cap thanks in part to participation from a “meaningful” number of return investors and a handful of exits, said Mr. Freeman. SFW has an extremely narrow focus: It backs the types of software businesses that other companies rely on for information, data and analytics that support research, product development, process control, quality assurance, compliance, diagnostics, and sales and marketing. The firm typically makes equity investments of $10 million to $75 million in companies with earnings before interest, taxes, depreciation and amortization of up to $25 million.

uSignal Hill Equity Partners, Toronto

Signal Hill Equity Partners said it has closed its third fund and a parallel partnership with 142 million Canadian dollars in committed capital. The firm said Signal Hill Equity Partners III LP was oversubscribed as surpassed its initial target of C$100 million. The firm also announced a closing for Signal Hill Equity Partnership (International) III LP. Signal Hill said it received commitments from new and existing investors. A predecessor vehicle, Signal Hill Equity Partners II LP, closed in 2008 with C$100 million in commitments. Signal Hill, with offices in Toronto and Calgary, Alberta, targets equity investments of C$8 million in C$30 million in business and consumer services, specialty manufacturing, building products, food and consumer products, and resource services companies with enterprise values of C$15 million to C$75 million.

uStaple Street Capital, New York

Staple Street Capital said it reached the fund’s hard cap, closing on $265 million for its first institutional fund. After launching fundraising in the summer, the firm held a first close for Staple Street Capital II LP in December. Staple Street focused its marketing efforts primarily in North America, according to co-founder and Managing Director Stephen Owens, raising capital from endowments, foundations, insurance companies, pension funds, family offices and funds of funds. The firm is targeting companies

$39,600,000

a wholly-owned subsidiary of

$57,000,000

NYSE: ED

$108,240,535Headquarters

$45,895,000Structured Parking

NYSE: GT

$84,400,000

A portfolio company of KKR

$83,000,000

A portfolio company of AIM

€22,000,000

A portfolio company of Liberty Global Europe

$19,000,000

A portfolio company of AEA Investors

$45,000,000

NASDAQ: MAT

$160,000,000

A portfolio company of Rhone Group

CAD 54,000,000

A subsidiary of IMP Group Limited

$158,600,000

NYSE: MOH

$76,000,000

Acquisitions CriteriaSale-Leaseback Financing From AG Net Lease

AG Net Lease is actively seeking to invest in long-term, net-leased corporate real estate in the US and abroad in transactions ranging from $15 million to $600 million. AG Net Lease is seeking to purchase in excess of $500 million in real estate assets annually. We believe Angelo, Gordon’s credit and real estate underwriting expertise ensures highly competitive pricing and speed of execution to tenants and sponsors.

Contact Gordon J. Whiting, Portfolio Manager212-883-4157 • [email protected]

Angelo, Gordon & Co. • www.angelogordon.com/netlease

Sale-Leaseback Financing

• Size: $15 - 600 million • Location: North America and other established markets• Lease term: 15 - 20 years, plus renewals• Property Type: Industrial, office, retail, flex/R&D and special-use• Tenant Credit: Rated and unrated • Lease: Single tenant, triple net• Additional: Build-to-suit and expansion


independent firms. The groups operated as separate franchises since the closing of Atlas’s seventh fund in 2006, and in 2013, they chose to make their split official. After preparing for the transition, they informed limited partners of the decision in late 2014. Atlas’s health-care team kept the Atlas name and moved into new offices in Cambridge, Mass. The firm now known as Atlas began raising $250 million for Atlas Venture Fund X LP at the end of last year.

uCatalyst Investors, New York

Catalyst Investors, a growth equity firm focused on technology-enabled businesses, has raised $377 million for its fourth fund, according to a news release. The final closing for Catalyst Investors IV LP surpassed the fund’s $350 million target and is larger than the $213 million the firm raised for its third fund, Catalyst Investors III LP, back in 2012. Catalyst plans to invest between $10 million and $60 million at a time in companies across sectors that span business and consumer services, including digital media, e-commerce, health-care information technology and education technology, as well as cloud computing and communications infrastructure. The firm has already funded its first investment out of the new fund in a communications infrastructure entity, IWG II Holdings LLC, which was formed in partnership with InSite Wireless Group to acquire communication tower sites from CTI Towers Inc.

uCollaborative Fund, New York

Collaborative Fund, an early investor in startups such as Kickstarter Inc. and Lyft Inc., is readying to close its third fund, according to two people familiar with the situation. The fund, targeted originally at $40 million, will close with about $65 million, one person said. Collaborative closed a $33 million fund last year, and a much smaller fund before that. The firm backs companies in the sharing-economy sector. It also invests in startups that have a social mission, including AltSchool, Good Eggs Inc. and Hampton Creek Foods Inc.

uCross Culture VC, Los Angeles

Cross Culture VC, a new early-stage venture firm led by Lady Gaga’s former manager Troy Carter and Intel Capital Partner Marlon Nichols, is raising a maiden $50 million fund, according to a regulatory filing. Speaking on behalf of the firm, Mr. Nichols declined to comment, citing regulations around fund solicitation. The fund, Cross Culture Ventures I LP, didn’t have any commitments as of early May, according to the filing. Mr. Carter, who rose to prominence while managing Lady Gaga’s career, is chief executive of the Atom Factory, where he now manages stars including John Legend and Meghan Trainor.

uDraper Nexus Ventures, San Mateo, Calif.

Draper Nexus Ventures has moved closer to the $125 million offering amount for its next fund, closing on $80.3 million, according to a regulatory filing. The firm reported

uHarbert Management Corp., Birmingham, Ala.

Harbert Management Corp. said it closed its third mezzanine debt fund at $165 million. The vehicle, Harbert Mezzanine Partners III LP, received support from existing investors and new commitments from institutional investors, including public and private pensions, fund-of-funds firms and family offices, according to a news release. A predecessor fund, Harbert Mezzanine Partners II LP, closed in 2006 with at least $92.7 million, according to a filing with the Securities and Exchange Commission. The new fund typically will invest $3 million to $15 million in small to midsize companies seeking funding for organic growth, acquisitions, recapitalizations and management buyouts.

Venture CapitaluAKT IP Ventures, New York

Incubator AKT IP Ventures said it launched a fund targeting $20 million to turn patents into businesses. AKT IP Ventures focuses on the mobile, wearables, Internet of Things, big data, medical technology and what it calls “multitouch” sectors. The fund will back startups in the AKT IP Ventures incubator’s existing portfolio, as well as between 10 and 15 new joint ventures, it said. It will help with prototyping, design, marketing and sales, with the goal of turning ideas into businesses and into exits within 18 months, it said.

uAltitude Life Science Ventures, Seattle

Altitude Life Science Ventures has set out to raise up to $75 million for a new investment fund, according to a regulatory filing. No commitments had been received for the fund, Altitude Life Science Ventures Fund II LP, as of late April, the filing indicated. Altitude’s investments include Cambrios Technologies Corp., Constellation Pharmaceuticals Inc. and Siluria Technologies Inc. Recently, its portfolio company Ikaria Inc. was acquired by Mallinckrodt PLC for about $2.3 billion. The firm also was an investor in Kythera Biopharmaceuticals Inc., which went public in 2012.

uAspect Ventures, San Francisco

Aspect Ventures said it closed its debut fund, Aspect Ventures LP, at its $150 million goal. The firm was launched by Jennifer Scott Fonstad, a former managing director at Draper Fisher Jurvetson, and Theresia Gouw, a former a managing partner at Accel Partners. The firm has made more than a dozen seed and Series A investments in startups including Vida Health Inc., which makes a mobile app that connects people with personal health coaches; and Exabeam Inc., which makes cybersecurity software, a news release said.

uAtlas Venture, Cambridge, Mass.

Atlas Venture hit its $280 million hard cap for its first biotechnology-only fund. Atlas technology and health-care investors said in October they would split into


and Snapchat Inc., reached a final close at $1.4 billion on its latest fund. After launching during the winter with a $1.2 billion target, Institutional Venture Partners XV LP ended up oversubscribed. At $1.4 billion, IVP’s Fund XV is 40% larger than its predecessor, which closed with $1 billion in 2012, and almost twice the size of the firm’s 2010-vintage Fund XIII, which raised $750 million.

uLongwood Fund, Boston

Longwood Fund, an investor in Flex Pharma Inc., which went public in January, has filed a $90 million offering for its third fund. The health-care firm hadn’t closed on any capital for Longwood Fund III LP as of late April, the regulatory filing said. Longwood investments include Colorescience Inc., maker of a line of women’s makeup with sun protection, and Calithera BioSciences Inc., a cancer-treatment developer, Dow Jones records show.

uMission Bay Capital, San Francisco

Mission Bay Capital, a seed-stage venture firm investing in life science companies emerging from the University of California and the San Francisco Bay Area ecosystem, has closed MBC Fund II at $25 million, according to a news release. MBC was created in 2009 by QB3, a University of California research institute and accelerator.

uMkII Ventures, San Francisco

MkII Ventures, a micro-VC firm founded by San Francisco investor Ron Palmeri, has decided to focus on a single portfolio company, Layer Inc., and is raising a fund through AngelList to invest in Layer apps. Mr. Palmeri has become chief executive of Layer, which lets developers add messaging functions to any app,

last September that it had closed on $29.3 million for Draper Nexus Technology Partners II LP. Draper Nexus invests in technology, energy and industrial companies in the U.S. and Japan.

uFounders’ Co-op, Seattle

Founders’ Co-op has closed its third and largest fund with just over $20 million, according to a blog post from co-founder and General Partner Chris DeVore. Founders’ Co-op, which launched in 2008 with a $2.5 million fund, focuses on early- and seed-stage startups in the Pacific Northwest. The firm’s goal is to help build a regional ecosystem that can support software and technology businesses that could eventually develop into large corporations on the scale of local players Microsoft Corp. and Amazon.com Inc. In line with this goal, the firm maintains a partnership with the University of Washington, with the shared goal of accelerating commercial innovation in the region.

uGreatPoint Ventures, Cambridge, Mass.

GreatPoint Ventures is in the market with a $50 million offering for GreatPoint Ventures Innovation Fund LP, a regulatory filing said. The firm, founded in 2004, has backed companies including waste-to-biofuel maker Coskata Inc., obesity drugmaker Zafgen Inc. and water-purification company Oasys Water Inc.

uIlluminate Ventures, Oakland, Calif.

Small, female-led firm Illuminate Ventures is seeking up to $30 million for its second fund. The firm, founded by Managing Partner Cindy Padnos, had yet to close on any of the $30 million offering for Illuminate Ventures II LP as of early April, the filing said. Its prior fund closed on $20 million in 2013.

uInsight Venture Partners, New York

Insight Venture Partners is in the homestretch of wrapping up a pair of funds totaling more than $4 billion, according to people familiar with the funding. In a document distributed to investors and viewed by Dow Jones, the growth-stage firm said it gathered $2.9 billion of commitments for Insight Venture Partners IX LP. That puts the firm well ahead of the $2.75 billion target it set for Fund IX, and within sight of its $3 billion hard cap. At $3 billion, Fund IX would be roughly 15% larger than its predecessor, Insight Venture Partners VIII LP, a 2013-vintage fund that raised $2.57 billion. People familiar with the offering said a final close is imminent for Fund IX and a separate fund, Insight Venture Partners Growth-Buyout Coinvestment Fund LP. It is unclear what the target is for that vehicle or if it will follow the same strategy as Insight’s previous co-investment vehicles, but it has raised about $1.1 billion so far.

uInstitutional Venture Partners, Menlo Park, Calif.

Institutional Venture Partners, the late-stage venture firm that has backed companies such as Netflix Inc., Twitter Inc.

Historical U.S. Fundraising

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(No. of Funds)Total Raised (B)Still Open (B)Raised YTD (B)


rate of return of more than 20%, RiverVest said in a news release. The firm said it sees many attractive opportunities in drugs and medical devices and will continue its strategy of building companies that it can sell in five years or less. Fund III has backed three companies since its initial close last year, the firm said.

uSherpaVentures, San Francisco

SherpaVentures is raising up to $175 million for its second fund, SherpaVentures Fund II LP, according to a regulatory filing. SherpaVentures, which was founded by two early backers of car service Uber Technologies Inc., raised $150 million for its first fund.

uSlow Ventures, San Francisco

Slow Ventures, an early-stage investor that originally was structured as an investment club, has raised a new, $65 million fund. The new fund, Slow 4, came from limited partners that include technology entrepreneurs and leaders, and a select set of venture capital firms, according to a news release. Kevin Colleran is the managing director of the fund, which includes partners Kevin Colleran, Dave Morin and Sam Lessin. The four people involved in the fund met while working at Facebook Inc. Mr. Morin also is the chief executive of the social network Path Inc.

uTrue Ventures, San Francisco

True Ventures has set out to raise up to $175 million for True Ventures Select I LP, according to a regulatory filing. The firm, founded in 2005, manages a portfolio including Bandcamp Inc., Blue Bottle Coffee Co. and Puppet Labs Inc.

uWhitecap Venture Partners, Toronto

Canadian early-stage investor Whitecap Venture Partners has raised 70 million Canadian dollars for a new fund that partners there hope to turn into a C$100 million fund. Limited partners in the new fund, Whitecap III LP, include Bank of Montreal, Kensington Venture Fund and several family offices. Before raising this capital, Whitecap was an evergreen fund, investing its own partners’ – but not outside – money into Canadian startups across three industries: medical technology, food technology, and information and communications technology. Whitecap seeks to invest $2 million to $7 million in seed to Series A deals, and to add follow-on capital of up to $6 million more, up through the time of an exit. It plans to make its total investment in any given company as much as $15 million.

SecondaryuLandmark Partners, Simsbury, Conn.

Landmark Partners said it hit the $1.6 billion hard cap for its latest real estate secondaries fund, amassing one of the largest global pools of capital dedicated to the space. The new fund comes as the real estate secondaries market

and the Layer Fund so far has $500,000 committed by Bloomberg Beta along with undisclosed commitments from several other investors. Mr. Palmeri launched MkII Ventures toward the end of 2010 after he helped dismantle his previous firm, Minor Ventures, which was forced to shut down after its founder and limited partner, Halsey Minor, became financially overextended. Mr. Palmeri bankrolled MkII Ventures himself at first and then raised an evergreen fund of about $10 million from investors including Pacific Partners, SV Angel and Michael Arrington’s Crunchfund.

uMPM Capital, Cambridge, Mass.

MPM Capital, which works closely with pharmaceutical companies while funding health-care startups, has closed its new venture fund at $400 million and brought Novartis AG and Astellas Pharma Inc. in as investors. Novartis and Astellas are limited partners of MPM BioVentures 2014 LP, which closed May 8. MPM sought $380 million and capped the fund at $400 million, according to Managing Director Luke Evnin. The team, which began discussing the fund with LPs in late 2013, held a first closing in mid-2014 and has invested the pool in six startups, he said. MPM’s new partnership is a jump from its previous fund, MPM BioVentures V LP, which closed just shy of $275 million in 2010.

uRedpoint Ventures, Menlo Park, Calif.

Redpoint Ventures quickly raised its new venture fund and kept it at its sweet spot of $400 million. The firm’s sixth fund, Redpoint Ventures VI LP, is the same size as its prior pool, which closed in 2013 and followed a similarly sized fund raised in 2009. Redpoint began rounding up investments earlier this year and received interest from existing limited partners, Dow Jones earlier reported. The firm’s portfolio saw four IPOs and six sales since 2014, with a total market capitalization of more than $8 billion, said Satish Dharmaraj, a partner at the firm, in a blog post announcing the fund May 13. Its portfolio includes companies such as Stripe Inc. and NextDoor.com Inc., and its now-public companies include HomeAway Inc., 2U Inc. and Zendesk Inc.

uRethink Education, San Francisco

Rethink Education, a venture firm focused on education technology, is raising $125 million for its second fund, according to a regulatory filing. As of early May, there were no commitments to the fund, Rethink Education II LP. The predecessor fund raised $25 million in 2012, according to a regulatory filing.

uRiverVest Venture Partners, St. Louis

Life sciences investor RiverVest Venture Partners announced the final closing of RiverVest Venture Fund III LP at $80.2 million. The fund is a bit larger than its $75 million predecessor, which the firm wrapped up in 2008 after an initial close in 2006. That fund has a net internal


according to a news release. The majority of Pomona Investment Fund’s investments will be made through secondary commitments, with a supplementary focus on primary and direct deals. Founded in 1994, Pomona Capital, the private equity platform of Voya Investment Management, in April held a final close on $1.75 billion for its latest secondary fund, Pomona Capital VIII LP.

Funds of FundsuAltegris, La Jolla, Calif.

The Securities and Exchange Commission in April approved a new fund that plans to buy stakes in funds run by Kohlberg Kravis Roberts & Co. The fund will

finally starts to hit its stride, with volume growing more than tenfold in the past decade. The final tally for Landmark Real Estate Fund VII amounts to more than double the $718 million Landmark raised for a predecessor fund, which closed in 2011. With backing from limited partners including Kentucky Teachers’ Retirement System and Nebraska Investment Council, the firm passed the $1 billion target it set for Fund VII.

uPomona Capital, New York

Pomona Capital is launching Pomona Investment Fund to give accredited investors easier access to private investing. The new vehicle, distributed by Voya Investments Distributor LLC, will have a $25,000 minimum subscription requirement and an investor-friendly tax reporting structure,

Limited Partner Fund Commitment (M) Fund Target (M)Board of Regents of the Athyrium Opportunities Fund II LP $40.0 N/A University of Michigan Emergence Capital Partners IV LP $15.0 $335.0 *Los Angeles County Employees’ Blackstone Capital Partners VII LP $200.0 $16,000.0 Retirement AssociationMerced County Employees’ GSO Energy Select Opportunities Fund LP $7.5 N/A Retirement Association Taurus Mining Debt Fund $5.0 N/ANew York State Common TPG Growth III LP $300.0 $3,000.0 Retirement Fund TPG Partners VII LP $250.0 $10,000.0 Capital Alliance Private Equity IV $85.0 $600.0 PVP Fund I-A LP $30.0 N/ANew York State Teachers’ Rhône Partners V LP €100.0 N/A Retirement System ICG Europe Fund VI LP €70.0 $2,500.0 Thoma Bravo Special Opportunities Fund II LP $70.0 $1,000.0 *Oregon Investment Council Blackstone Capital Partners VII LP up to $500.0 $16,000.0 EnCap Energy Capital Fund X LP $150.0 $5,000.0 RRJ Capital Master Fund III LP $150.0 $4,000.0 TPG Specialty Lending Europe Fund I LP $100.0 N/A GGV Capital Select LP $50.0 N/APennsylvania Public School Coller International Partners VII LP $100.0 $5,000.0 Employees’ Retirement System Clearlake Capital Partners IV LP $75.0 $1,000.0South Carolina Retirement System Blackstone Property Partners LP up to $300.0 N/A Investment Commission South Dakota Retirement System Blackstone Real Estate Partners VIII LP $300.0 $13,000.0State of Michigan Retirement Systems New Leaf Ventures Partners $150.0 N/A TPG Partners VII LP $150.0 $10,000.0 FS Equity Partners VII LP $100.0 $850.0 * Kelso Investment Associates IX LP $100.0 $2,500.0 Khosla Ventures V LP $50.0 $1,000.0 Public Pension Capital $50.0 N/A (separate account) Flagship Ventures Fund V LP $22.0 N/A * Advent Latin American Private Equity Fund VI LP $20.0 $2,000.0 *Teachers’ Retirement System Apollo Natural Resources Partners II LP $75.0 N/A of Louisiana GSO Energy Select Opportunities Fund LP $75.0 N/AVermont Pension Investment Committee HarbourVest Partners Fund X LP $50.0 N/AVirginia Retirement System TPG Partners VII LP $300.0 $10,000.0 Oaktree Opportunities Fund X LP/Oaktree Opportunities Fund Xb LP $200.0 $10,000.0/N/A Blackstone Real Estate Partners VIII LP $150.0 $13,000.0 KKR Special Situations Fund II LP $150.0 $3,000.0 Pantheon/VA NRP LP $100.0 N/A Penwood Select Industrials Partners IV LP $100.0 N/A Gateway Mezzanine Partners II LP $50.0 N/A **Closed. N/A - not available. Source: Compiled by Dow Jones Private Equity Analyst from pension fund disclosures.

Recent Disclosed LP Commitments


Europe

BuyoutsuElysian Capital, London

A firm set up by a founding partner of European buyout firm Doughty Hanson has reached a first close on its new fund, according to a person familiar with the matter. Elysian Capital, a U.K. lower midmarket-focused firm run by Doughty Hanson co-founder Ken Terry, reached a £180 million first closing for its second fund in late April, the person said. The fund launched at the beginning of this year with a £225 million target and a £250 million hard cap. Elysian closed its £130 million debut fund in September 2010 after launching fundraising following the start of the financial crisis.

be managed by alternative investment firm Altegris. The Altegris KKR Commitments Fund will be available only to accredited investors. The minimum investment will be $25,000, a lower threshold than some similar funds that have launched in recent years. The fund will charge investors up to 2.6% in annual fees, or $260 per $10,000 invested. Unlike other funds hoping to lure such investors, the Altegris fund will be able to advertise and to make information about its performance available to the public because it had to clear more regulatory hurdles. KKR has lent its name to the fund, but it won’t have any role managing it and won’t get a share of its annual fees. The firm will collect its standard management fee on the investments the fund makes in its buyout pools, which is typically between 1% or 2% a year and a 20% cut of profits above certain levels.

uKnightsbridge Advisers, Bartlesville, Okla.

Fund-of-funds investor Knightsbridge Advisers has closed on $253 million for its eighth venture capital pool. Knightsbridge Venture Capital VIII LP closed at its $200 million hard cap, the firm said in a news release. The $253 million total includes a separate account and the general partners’ commitment. The fund will invest predominantly in early-stage venture capital partnerships that focus on IT and, to a lesser extent, life sciences and energy technology. In addition, the fund will make select investments in venture growth equity and venture capital secondaries.

Market MonitorNew Enterprise Associates ranks as one of the venture capital industry’s most prodigious fundraisers, and this month is no exception, with the firm closing on $2.8 billion for its 15th fund, the most the firm has ever raised for a single pool. A $350 million co-investment vehicle boosts NEA 15’s firepower to $3.15 billion, exceeding the record $3 billion fund raised by Technology Crossover Ventures in 2007, which was gathered at the height of the venture boom. The new fund also marks the start of a leadership transition at the firm as Scott Sandell joins NEA veteran Peter Barris as managing general partners.

2014 Funds Through MayType of Fund Number Amount* (M)Buyouts/Corporate Finance 114 $69,332.4Venture Capital 101 $16,518.7Funds of Funds 22 $3,614.2Mezzanine 10 $1,729.2Other Private Equity 6 $5,480.2Total 253 $ 96,674.8

Top 5 Buyout Funds Closed In Most Recent Month Fund Name Fund Region Firm Name Location Total Amt. Raised* (M) Target Amt. (M)1 ISQ Global Infrastructure Fund LP Global I Squared Capital Advisors New York $3,000.0 $2,000.0 2 TPG Growth III LP U.S. TPG Growth San Francisco $3,000.0 $2,750.0 3 Equistone Partners Europe Fund V Western Europe Equistone Partners Europe London $2,194.7 $2,366.9 4 Waterland Private Equity Fund VI LP Western Europe Waterland Private Equity Investments Bussum, Netherlands $1,668.4 $1,512.45 Norwest Equity Partners X LP U.S. Norwest Equity Partners Minneapolis $1,600.0 N/A

Top 5 VC Funds Closed In Most Recent MonthFund Name Fund Region Firm Name Location Total Amt. Raised* (M) Target Amt. (M)1 New Enterprise Associates 15 LP U.S. New Enterprise Associates Timonium, Md. $2,800.0 $2,500.0 2 Institutional Venture Partners XV LP U.S. Institutional Venture Partners Menlo Park, Calif. $1,400.0 $1,000.0 3 Menlo Ventures XII LP Global Menlo Ventures Menlo Park, Calif. $400.0 $400.0 4 MPM BioVentures 2014 LP U.S. MPM Capital Boston $400.0 $380.0 5 Redpoint Venture VI LP U.S. Redpoint Ventures Menlo Park, Calif. $400.0 $400.0 April 13 to May 14. *Non-USD amounts converted using exchange rate of the first day of the month of the fund closing and fund offering. Source: Dow Jones LP Source

*Totals are rounded to one decimal place.


world-wide for investment opportunities. The investment entity will be overseen by Jean-Pierre Cojan, Safran’s executive vice president of strategy and transformation. It will be directed by Grégoire Aladjidi, who has joined Safran to take this position, and Hélène de Cointet.

SecondaryuMantra Gestion, Paris

Mantra Gestion said it raised €53 million in total capital commitments so far for Mantra Secondary Opportunities fund, above the firm’s target of €50 million. The firm in a news release said it is confident Mantra Secondary Opportunities, which began fundraising in August, will hit its hard cap of €75 million. Mantra Secondary Opportunities will build on the model adopted by the firm’s Mantra Alternative Private Equity fund of funds, which began investing in 2011, the firm said. The secondary fund will buy stakes in closed private equity funds that focus on intellectual property, life insurance settlements, litigation funding, technology applied to water, agribusiness, timber, mining, royalty strategies, and shipping and aircraft leasing.

Asia

Mezzanine & Other DebtuBabson Capital Management, Springfield, Mass.

Babson Capital Management wrapped up fundraising for its latest Asia-Pacific focused mezzanine fund, closing on $177.6 million. The fund, Gateway Mezzanine Partners II LP, will be managed by teams in Sydney and Hong Kong, and used primarily to invest in private equity-sponsored transactions across Australia, New Zealand, Singapore, Japan and Hong Kong. Virginia Retirement System committed $50 million to the fund, Dow Jones reported in May. The firm raised “approximately $100 million” for a predecessor which closed in 2012, according to a spokesman. Babson’s private credit platform, which manages more than $29 billion, includes mezzanine and private equity teams based in the U.S., Europe and the Asia-Pacific region.

uEQT Partners, Stockholm

European firm EQT Partners has set a €6.75 billion hard cap for a new fund and asked limited partners for additional time to invest it, according to a letter to investors and a person with knowledge of the fundraising. EQT initially targeted €5.25 billion for its latest flagship buyout fund, but after encountering demand for more than double that amount, it set the €6.75 billion cap with plans to hold a closing June 1. It is unclear whether the close will be its first and final, though one investor said it was likely, given the demand. If it reaches its hard cap, EQT VII would be more than 40% larger than its predecessor, EQT VI, which launched in 2011 and received €4.75 billion in commitments.

uKings Park Capital, London

Kings Park Capital, a private equity firm set up by former UBS AG bankers, has hit a final close on its second fund. The firm has raised around £75 million in commitments for its new fund and a further £10 million for co-investments, according to co-founder Jason Katz. The firm has been fundraising since the end of 2013 and hit a final close on the new vehicle in early April. Kings Park Capital was set up in 2007 by Mr. Katz and fellow UBS banker Hugo Robinson, with the pair raising £57.5 million for their first fund in 2008. The new fund’s investors are mainly high-net-worth individuals, but the firm also managed secured its first institutional investor for the fund, said Mr. Katz.

Venture CapitaluJoint Polish Investment Fund Management, Warsaw

Joint Polish Investment Fund Management announced the first closing of its new venture capital fund, Joint Polish Investment Fund I, at $42 million. It is the first institutional venture capital fund operating out of Poland that is completely dedicated to life-science investments, a news release said. The fund will investment in early and midstage companies with a close relationship to Poland. Investment activities will focus on areas with strong growth, relatively short holding periods and high return potential, such as companies in the area of medical technology, enabling technology or mobile health. JPIF I is backed and supported by the National Centre for Research and Development, an executive agency of Poland’s Ministry of Science and Higher Education supporting national sciences as well as generation innovation policies.

uSafran SA, Paris

French aerospace and defense company Safran SA is getting into the venture capital game with Safran Corporate Ventures. The company is setting aside €50 million over the next three years to fund its venture capital vehicle. Safran is considering investments in areas such as advanced materials, robotics, energy production and network sensors, the company said. The business will initially seek investments in Europe and North America, though eventually look

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Middle East

Venture CapitaluEucalyptus Growth Capital, Tel Aviv

New investment firm Eucalyptus Growth Capital plans to raise $300 million for a fund focused on late-stage Israeli companies, according to a news release. The partnership, led by Dadi Permutter, Rami Hadar and Eldad Tamir, will focus on investing in late-stage Israeli companies as they head to initial public offerings while creating revenue in the hundreds of millions of dollars.

uMiddle East Venture Partners, Beirut

Middle East Venture Partners announced the first close of Middle East Venture Fund II at $15 million. The fund, which has already made four investments, is the firm’s fourth fund, succeeding its $70 million Impact Fund, which launched last year. The new fund aims to close in the second quarter of this year with commitments of $30 million. It will invest $500,000 to $3 million in Middle Eastern technology companies, concentrating on Web and mobile startups. Mobile communications company Zain Group is a limited partner. n

Want more detail on these and other fundraisings? Visit our subscription website at www.privateequityanalyst.com.

Venture CapitaluLightspeed Venture Partners, Menlo Park, Calif.

Lightspeed Venture Partners is raising up to $115 million for an India-focused fund, Lightspeed India Partners I LLC, according to a regulatory filing. The firm invests in the U.S. and internationally and has investment advisers in Silicon Valley, India, Israel and China. Lightspeed had raised $1.05 billion for its 10th flagship investment fund, Lightspeed Venture Partners X LP, as of a November regulatory filing.

Latin America

BuyoutsuLinzor Capital Partners, Santiago, Chile

After roughly six months on the road, Linzor Capital Partners closed on $621 million for its latest and largest pan-regional Latin American private equity fund. Linzor Capital Partners III LP is a follow-up to Linzor Capital Partners II LP, a $465 million fund that closed in 2011. Similar to its predecessors, Fund III will acquire companies in Latin America, primarily in Mexico, Chile, Peru and Argentina. The firm typically invests between $20 million and $85 million in equity capital per deal in companies with enterprise values between $75 million and $400 million.

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38 Private Equity Analyst June 2015 deals & exits

challenges it faces amid a thinning customer base that has led to declining sales. Sales in the first quarter were down 21.3% to $322.1 million, compared with the same period in the prior year. Full year 2014 revenue was approximately $1.48 billion, dropping 14.2% from $1.72 billion in 2013. Weight Watchers has struggled with profitability in recent quarters due to restructuring costs, recording a net loss of $5.4 million in the first quarter of 2015.

The company is working to gain back customers and expand its reach among members of the millennial generation, who have different dieting habits than those of prior generations. Despite a strong brand, however, these challenges, combined with an already hefty debt load, have weighed on the company’s share price and could make one potential exit route – namely a sale to other private equity investors – trickier, said analysts, bankers and a private equity executive.

Weight Watchers was the brainchild of Jean Nidetch, a Queens, N.Y., housewife who started conducting weight-loss meetings in her basement in the early 1960s. In 1963, she launched the company, which grew quickly throughout the U.S. More than a decade later, H.J. Heinz Co. bought Weight Watchers and held it until 1999, when it sold the company to Artal for $735 million. Heinz maintained a small stake in the company and still sells Weight Watchers’ and Smart Ones brand frozen meals.

The company’s growth has suffered amid the growing popularity of digital-based fitness apps, such as Under Armour Inc.’s MyFitnessPal Inc., as well as the low popularity of dieting among millennial consumers. More than 25% of baby boomers, defined as those aged 51 to 69, were on a diet, compared with only 12% of millennials, or those aged 18 to 34, as of January 2014, according to research company NPD Group. Yet, in 2015, the U.S. millennial population is projected to hit 75.3 million, surpassing the projected 74.9 million baby boomers, according to NPD.

“It’s certainly true that millennials are likely to embrace [do-it-yourself] and app-based solutions, at least relative to the general population,” said Monty Sharma, chief executive of North Castle Partners-backed Jenny Craig Inc. and Curves International Inc. in an email. “But everything we’ve seen suggests that all consumers, whether millennials or not, fall off these programs quickly after the initial engagement.”

Weight Watchers was somewhat slow to embrace the digital revolution – although it has been working swiftly to catch up. In March, the company bought Weilos Inc., an online social media startup that provides a mobile health and weight-loss community, for roughly $6.7 million.

By LILLIAN RIZZO

Weight Watchers International Inc., a company devoted

to helping people shed unwanted pounds since the 1960s, is carrying some weight of its own – about $2.3 billion in debt.

The New York company took on the bulk of that debt thanks in part to Artal Luxembourg SA, the investment vehicle

of a European family that initially backed the company in 1999 via its private equity investment adviser Invus Group. The investment has paid off handsomely for Artal and Invus but poses challenges for Weight Watchers as it fights to adapt to changing consumer habits.

“Unfortunately, the brand hasn’t been modernized for a long time and [the company] is trying to do that now,” said one analyst tracking the company.

In 2012, Weight Watchers completed a $720 million Dutch auction tender offer to repurchase a portion of Artal’s shares at $82 each, forcing the company to refinance its debt. Artal still owned 51.9% of Weight Watchers stock as of Dec. 31, 2014.

As of 2012, the investors had pocketed $3.8 billion through a combination of dividends and stock sales, an exceptionally strong return on their $224 million

initial equity investment, according to a 2012 report by Forbes magazine.

Weight Watchers has a debt payment of about $300 million coming up in 2016 and $2.1 billion due in 2020, according to filings with the Securities and Exchange Commission. The company’s heavy debt load exacerbates the

LBO FocusDebt Weighs On Weight Watchers as Dieters’ Habits Change

Weight Watchers International Inc. IndustryWeight loss, dieting support program

Private Equity OwnerArtal Luxembourg SA, through its investment adviser Invus Group

Year of Initial Investment1999

Initial Deal Size$735 million

Capital Structure$229.2 million tranche B-1 term loan maturing in April 2016, $2.058 billion tranche B-2 term loan due April 2020; $50 million undrawn revolving credit facility due 2018

Fiscal 2014 Revenue$1.48 billion

Fiscal 2013 Revenue$1.72 billion

CompetitorsJenny Craig Inc./Curve International Inc.

Source: U.S. Securities and Exchange Commission

Private Equity Analyst 39 June 2015deals & exits

Weight Watchers also still generates “a decent amount of cash flow,” said another analyst who didn’t want to be named. As of April 4, there was about $211 million in cash on the balance sheet, following a $60 million early tender offer to lower debt.

Private equity firms have shown interest in well-known di-eting brands. North Castle bought Jenny Craig from Nestlé SA, combining it with Curves International in 2013. Similar to Weight Watchers, Jenny Craig is a program that’s designed to help members lose weight with a support system. Roark Capital Group has put diet program Atkins Nutritionals Inc. up for sale, The Wall Street Journal reported, and MidOcean Partners still owns the South Beach Diet brand.

Weight Watcher’s stock also has declined significantly, to $6.19 per share as of May 26, down from $21.58 a year ago, potentially making it a cheaper buy. Time will tell whether the company has as much success getting as lean and mean as the many clients it has helped. “I don’t think there’s much doubt the Weight Watchers’ program works and self-dieting does not. But the question is how do you modernize it?” said the first analyst. n

“Support and tracking weight loss has changed fundamentally through digital technology,” said Bruce Cohen, head of retail private equity at global management consulting firm Kurt Salmon. “Now maybe a support group needs to be super local, like meeting at someone’s home, or doing it over webcam, texting and using social media tools like Instagram.”

The company has started cost-cutting initiatives and introduced “Expert Chat” and digital coaching platforms. It also began a partnership with Humana Inc., a health and wellness company, offering Humana’s employees free and discounted plans for Weight Watchers. This partnership, however, won’t significantly impact revenue in 2015, management said during an earnings call on May 5.

Many of these measures are designed to appeal to a growing consumer focus on healthy lifestyle habits, such as eating more nutritious foods and regular exercise, over dieting, a trend current Chief Executive James R. Chambers acknowledged during a recent public earnings call. “As we stated in our last call, the underlying desire for weight loss is still a very important part of the equation,” said Mr. Chambers. “However, the consumer wants to get there through a more holistic mind-set of generally healthier eating, wellness and fitness, with weight loss being a critical element of this bigger picture.”

It’s unclear exactly what future plans Artal and Invus have for Weight Watchers as Invus did not respond to requests for comment and Weight Watchers declined to comment. Because Invus invests out of an evergreen structure, it could conceivably hold its stake in the company for many years to come and potentially benefit yet again if and when the company’s performance improves.

Should the firm’s wealthy family backers decide to sell, however, analysts and at least one private equity executive point to several factors that could still make Weight Watchers an attractive target for prospective investors. Most notably, they point to the company’s strong brand recognition. “The brand could be worth taking a haircut on the debt and taking this company private,” said the executive.

Weight Watchers Timeline1961 .....Jean Nidetch attends obesity clinic and begins holding meetings in basement.

1963 .....Ms. Nidetch officially launches Weight Watchers.

1978 .....H.J. Heinz Co. acquires the company.

1999 .....European family investment vehicle Artal Luxembourg SA acquires the company for $735 million via investment manager Invus Group.

2012 .....Weight Watchers conducts a $720 million Dutch auction tender offer with Artal.

2015 .....Ms. Nidetch dies at age 91.

40 Private Equity Analyst June 2015 deals & exits

By ANETTE JÖNSSON

Venture capital firms continued to pour money into China

during the first three months of 2015, putting the industry on course for another banner year.

Investors injected a combined $6.53 billion into venture-backed Chinese companies in the first quarter, which was down marginally from the record-breaking $6.86 billion committed in the fourth quarter of 2014 but well above the historical trend, Dow Jones VentureSource data show. Just three months into the year, the industry has already invested 40% of the record $16.21 billion it committed to Chinese startups in 2014.

“It looks like it may be another record year,” driven by a probable increase in both the number of investments and the size of individual deals, said Johnny Jiang, an investment manager with IDG Capital Partners in Hong Kong.

Part of the reason for the increase in activity, he said, is that several of China’s large listed technology companies, such as Tencent Holdings Ltd., Baidu Inc. and 360.com, are now at a stage where they are looking to put excess capital to work through venture-style investments in small companies. They are also pushing up prices, he said, which is contributing to the larger deal sizes.

Total investment increased by 173% compared with the first quarter of last year, making this the second most active quarter since VentureSource began compiling the data in 2006. Dow Jones VentureSource is owned by Dow Jones & Co., publisher of Private Equity Analyst.

The number of deals increased to 215, up 56% from the same period last year, but was down from 270 in the fourth quarter of 2014, reflecting the increase in deal sizes.

The rise in deal sizes was particularly pronounced in later-stage financing rounds, where the median investment jumped fourfold to $80 million compared with a year earlier. It was also more than double the median investment of $34.3 million in the previous quarter. Overall, the median financing size fell to $8 million from $9.8 million in the fourth quarter of last year, but was largely in line with the number for 2014 as a whole.

The largest deal in the first quarter was the $850 million investment in mid-March into Shanghai Hantao Information Consultancy Co., which operates online search and city portal Dianping.com. It was followed by a $700 million round for Beijing Sankuai Technology Co., which provides online deals for local goods, services and events through sites such as Meituan.com; and the $478.7 million committed to Shanghai Lujiazui International Financial Asset Exchange Co., a provider of online and mobile platforms for investment and financing, commonly known as Lufax.

VC FocusVenture Capital Continues to Flow Into Chinese Startups

Company Name Headquarters Industry GroupAmount

Raised (M) Investors

Shanghai Hantao Information Consultancy Co.

Shanghai Consumer Services

$850.0 Hina Group, Temasek Holdings Pvt. Ltd., Wanda Group

Beijing Sankuai Technology Co. Beijing Consumer Services

$700.0 Hillhouse Capital Management

Shanghai Lujiazui International Financial Asset Exchange Co.

Shanghai Business & Financial Services

$478.7 BlackPine Private Equity Partners*, CDH Investments, China International Capital Corp.

Shanghai Lazasi Information Technology Co.


$350.0 CITIC Private Equity Funds Management, JD.com Inc., Sequoia Capital, Shanghai Hantao Information Consultancy Co., Tencent Collaboration Fund

Shenzhen Binxun Technology Co. Shenzhen Consumer Services

$200.0 58.com Inc.*, Matrix Management Corp., Sequoia Capital

Youxin Hulian (Beijing) Information Technology Co.

Beijing Consumer Services

$170.0 Baidu Inc., Coatue Management, Kohlberg Kravis Roberts & Co.

Shanghai Qijia Net Information Technology Co.


$160.0 Undisclosed

Beijing Dianfeng Technology Co. Beijing Consumer Services

$110.0 CITIC Capital Holdings, Matrix Management Corp., Morningside Group (Holdings) Ltd., Renren Inc.*, Sequoia Capital

Beijing Jiufu Times Investment Consultant Co.

Beijing Business & Financial Services

$110.0 Grandis Capital (HK) Ltd., Guangjie PE Fund, IDG Capital Partners, Incorp Capital, SIG Asia Investment, Union Fortune

*Led round. Source: Dow Jones VentureSource

Largest Chinese Deals in First Quarter of 2015

Private Equity Analyst 41 June 2015deals & exits

There were 21 venture-backed IPOs in the first quarter, 50% more than in the fourth quarter of last year, but below the 27 deals completed in the first three months of 2014, when the Chinese government lifted its 15-month moratorium on new listings. The combined IPO value increased by 31% to $1.7 billion from $1.3 billion in the previous quarter, but was down from $2.05 billion a year earlier.

Online gaming company Beijing Kunlun Tech Co. completed the largest VC-backed IPO in the first quarter, raising $229 million in connection with its listing on the Shenzhen Stock Exchange’s ChiNext board in mid-January.

China-based VC firms also took advantage of the cheap capital available in the current low-interest-rate environment to raise $922 million in the first three months this year, 2.5-times the amount raised in the fourth quarter of 2014. The fundraising was split between six firms, compared with nine in the previous quarter. n

Venture capital firms were particularly fond of the Chinese consumer services sector, which spawned eight of the top 10 deals and made up 67% of overall investment.

Online shopping site providers, such as Sankuai, were a driving force behind investments into consumer services, but notably, the vast majority of that capital went into later-stage companies that were already generating revenue. This suggests venture firms as a group are eager to limit their risks.

“As valuations are getting higher, people are becoming more cautious about big-scale investments, and companies with revenue provide more certainty,” IDG’s Mr. Jiang said. He added that although valuations are looking high at the moment, “for the right company, there is always room for it to go even higher as the business grows.”

IDG Capital was the most active investor in China in the first three months, with 21 deals, followed by Sequoia Capital with 18 and Matrix Partners with 13.

2012 2013 2014 20151Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

Business and Financial Services

$221.0 $87.6 $122.7 $107.2 $146.2 $202.0 $52.4 $346.6 $243.3 $526.4 $412.0 $435.2 $1,345.9

Consumer Goods $279.7 $104.5 N/A $119.6 $151.5 $31.4 $3.5 $33.8 $43.2 $148.3 $32.6 $58.2 $52.5

Consumer Services $523.9 $889.7 $524.5 $1,060.5 $300.8 $519.7 $1,042.0 $846.2 $1,498.4 $2,270.7 $2,219.8 $3,759.3 $4,409.5

Energy and Utilities $50.2 N/A $16.2 N/A N/A N/A $17.2 $10.2 N/A N/A $10.2 N/A N/A

Health Care $27.6 $47.9 $107.9 $30.0 $4.8 $166.3 $100.8 $38.9 $78.9 $181.1 $89.1 $231.5 $183.5Industrial Goods & Materials

$43.2 $55.6 $24.2 $24.0 $25.7 $62.1 $4.8 N/A $4.5 $3.0 $32.1 $23.3 $16.6

Information Technology $129.5 $314.8 $89.2 $113.5 $102.0 $200.0 $331.3 $144.2 $524.1 $495.2 $525.7 $2,311.0 $523.6

Source: Dow Jones VentureSource

Chinese Consumer Services Sector Draws The Most Investment Attention in First Quarter (M)

Venture Investment in China Maintains Strong Pace in First Quarter

Source: Dow Jones VentureSource

0

2,000

4,000

6,000

$8,000M

Total Amount Invested (M)

1Q154Q143Q142Q141Q144Q133Q132Q131Q134Q123Q122Q121Q124Q113Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q090

75

150

225

300

Total Number of Financings

56

81 85

117

85107 110

133

102

131 128116

9383

66

90 83

107

135 143 138

172

237

270

215

$537.1 $704.2 $822.0 $957.6

$2469.6

$1136.7 $1118.1

$2051.3 $1928.0$2084.9$1731.0 $1660.0

$1278.5 $1500.3

$884.7$1454.7

$731.0$1181.4

$1552.8 $1419.9

$2392.3

$3627.9$3331.4

$6860.5$6534.8

42 Private Equity Analyst June 2015

LUCIAN SCHÖNEFELDER

Director, Private Equity, Kohlberg Kravis Roberts & Co.

Lucian Schönefelder is viewed by some of his peers as a future leader at Kohlberg Kravis Roberts & Co. In 2014, the London-based martial arts enthusiast who specializes in Krav Maga – a form of self-defense developed for the Israeli military – was tasked with

establishing the European arm of KKR’s new growth equity business. Investing in technology companies seeking global expansion and with around $500 million at his disposal, Mr. Schönefelder has overseen the $50 million acquisition of a minority stake in IT software firm Arago GmbH and led its $30 million investment in Israeli Internet business ClickTale Ltd. A director in KKR’s technology, media and telecommunications team since 2013, he has completed deals worth $1.9 billion in the past 12 months. The German-born Mr. Schönefelder started out in J.P. Morgan’s mergers and acquisitions unit in London in 2004 before joining KKR in 2007. He was promoted to principal in 2009. Outside of work, he is developing an online platform to connect charity donors and volunteers with nonprofit organizations.

CRISTINA HENRIK

Principal, Boston Consulting Group

Cristina Henrik is described by colleagues as a “powerhouse” of Boston Consulting Group’s private equity practice in London, which she helped build since joining as a founding member in 2009. The team has since quadrupled in size and Ms. Henrik,

peopleRising StarsDeal Makers Dominate Europe’s Under-40 Rising StarsWith private equity exits reaching their highest levels on record, deal makers have returned to the fore in the industry. With that in mind, our U.K. sister publication Private Equity News has selected 40 of the most influential European private equity executives under the age of 40. The list includes executives who have navigated portfolio companies through sales and initial public offerings, generating strong returns for their firms, as well as people who have come up with innovative and groundbreaking financing structures to support portfolio companies. Below we feature six of PEN’s “40 Under 40 Rising Stars” profiles.

who has advised on 25 due diligence processes on deals between £200 million and £2 billion over six years, was promoted to principal in 2014. Her career as an analyst, investment manager and consultant has set Ms. Henrik apart from her peers, with deals experience spanning the consumer goods, technology, telecommunications, payments, business services, education and industrial goods sectors. After six years at Eastern European private equity firm Plasmass International specializing in packaging materials and a stint at Banco Santander SA’s infrastructure private equity fund, she switched to consultancy at OC&C Strategy Consultants and then took a job at BCG. Ms. Henrik speaks four languages and became the first Romanian national to receive an M.B.A. at Dartmouth College’s Tuck School of Business in 2008. She is co-authoring a BCG research paper on minority investment, which will be published later in 2015.

ANDY DAWSON

Managing Director, Advent International

Andy Dawson has been building his reputation and relationships in the consumer and retail sector, working on many of Advent International’s highest-profile deals ahead of his promotion to managing director in December. He is a director at U.K.

retailer DFS Trading Ltd., which Advent bought in 2010 for £500 million, and floated on the London Stock Exchange in March 2014, raising £98 million and valuing DFS at £543.2 million. Mr. Dawson also worked on deals to buy an $845 million stake in Canadian sportswear brand Lululemon Athletica Inc., in 2014. He joined Advent as an associate in 2004, and is recognized for “technical and analytical skills that complement his ability to motivate and encourage people,” according to a lawyer.

Private Equity Analyst 43 June 2015

Partnership Capital Fund I, Mr. Coffin spent much of the year liaising with investors across the U.S., Europe, the Middle East and Asia. Within five months of their launch in May, both funds closed after having secured a combined £1.05 billion. Mr. Coffin is also responsible for sourcing and managing Inflexion’s investments in the north of England, a role he has held since mid-2013, and includes joint oversight of the firm’s eight-strong back-office function in Brazil, India and China. The marathon runner began his career at consultancy Deloitte LLP in London in 2002, moving to the mergers and acquisitions team within N M Rothschild & Sons Ltd.’s banking group in 2005. He joined Inflexion as an investment executive in 2007, before a promotion to assistant director in 2009.

CHRISTOF RATJEN

Principal, Nordic Capital

London-based Christof Ratjen joined Nordic Capital in 2011 after seven years executing leveraged finance deals at Barclays Capital. He was made principal at the buyout firm at the beginning of 2015 following a stellar 2014, when he executed €2.7 billion

worth of financings for its portfolio companies. This included a €350 million package for German health-care group GHD GesundHeits GmbH, which was the first-ever loan with U.S.-style documentation for a European company with no U.S. exposure. He was also responsible for Norwegian debt collection group Lindorff Group AB carrying out a €1.5 billion debt package, which was the largest ever European financial institutions-related high-yield bond deal. Mr. Ratjen says his year of German military service prepared him for the sometimes “brutal” hours of finance. n

JUERGEN PINKER

Managing Director, Blackstone Group

German-born Juergen Pinker was promoted to managing director in Blackstone Group’s London office in late 2013 and has been leading the firm’s investment strategies in Germany as well as in European industrials, chemicals and logistics. He oversaw Blackstone’s

acquisition, alongside Hellman & Friedman, of a 70% stake in the German classified advertisement business Scout24 Holding GmbH for around €1.5 billion. The deal, completed in February 2014, was Germany’s largest buyout in 12 months. Mr. Pinker also led the acquisition of corporate services provider Intertrust Group in early 2013 and its subsequent merger with European fiduciary manager ATC Group, which Blackstone bought in mid-2013 from HgCapital for €303 million. He started his career in the industrials sector covering German buyouts for Carlyle Group in 2001, relocating to London in 2007 to cover European industrials and chemicals. By 2009, Mr. Pinker, who speaks Japanese, had moved to distressed debt specialist Strategic Value Partners before joining Blackstone in 2011.

MALCOLM COFFIN

Investment Director, Inflexion Private Equity

Manchester, England-based Malcolm Coffin has had a busy 12 months. Asked by Inflexion Private Equity Managing Partners John Hartz and Simon Turner in early 2014 to lead the firm’s dual fundraising for the Inflexion Buyout Fund IV and Inflexion

people

44 Private Equity Analyst June 2015 people

Emerging markets private equity veteran David

Wilton joined Morgan Stanley Alternative Investment Partners as a managing director in 2014. Before that, he served as chief investment officer at the International Finance Corp., where he oversaw some $400 million to $500 million in annual commitments to emerging markets private equity funds.

Q: What personal quality has helped you the most in your career?

A: Curiosity to understand how things work, not being too concerned what other people think and skepticism of the herd. I am not a fan of groupthink.

Q: What is one thing that people might be surprised to know about you?

A: I was for a short time the silent partner in an art gallery, my souvenir of which is a very nice Mark Flood lace painting.

Q: What is your idea of misery?

A: Treading water without any idea of the way forward. There is always something new – a concept, a discovery, a tide in the affairs of the world. If you are simply floating without seeing a new direction to investigate, something is wrong.

Q: What is one of the most influential books that you’ve read and why?

A: Kenichi Ohmae’s The Mind of the Strategist. I read it decades ago and it changed my perspective on business from numbers to a dynamic, organic thing.

Q: What quality (or qualities) do you most appreciate in a friend or colleague?

A: Knowing things I do not know and sharing and articulating them well. A room full of people who all know the same thing is both dull and dangerous. The world is large and complex and the only way to obtain even a modest grip on it is different experience and knowledge in the room. My experience is that even in your own field of expertise – where you have most of the picture and where you are least likely to seek advice – it pays to get other views, as the

missing piece of the puzzle is quite likely to be seen by someone approaching the issue from a different background.

Q: What personal faults do you have the least tolerance for in others?

A: Lack of transparency. I play with all the cards on the table and get very irritated with those who play with cards concealed under the table.

Q: Other than private equity, what job (or career) would you most like to try?

A: I find private equity, particularly the growth equity and VC parts of the spectrum and emerging markets, endlessly interesting. I can’t think of anything that would get me up in the morning with a greater spring in my step. Other things that interest me such as art, design and gardening are hobbies and nothing that I would like to pursue as a career.

Q: If you had to describe your work style in three words, which ones would you choose?

A: Think. Rush. Pause. (repeat)

Q: What is your greatest regret?

A: Not learning a language closely followed by not learning an instrument. As a child in New Zealand, there seemed to be little need to speak anything but English, and despite strong encour-agement from my parents, I never saw the point in putting much effort into language classes. Big mistake from taking too narrow a view.

Q: If you had to choose a personal motto, what would it be?

A: The one we have: Qui Volunt Valent. Those who have the will have the ability. Determination counts for a lot.

Q: If you’re life had a soundtrack to it, what would the title song be?

A: Either Miles Davis’s “So What” or Michel Legrand’s version of “My Funny Valentine,” which sounds nothing like the regular version. Whenever I am on holiday, Miles Davis is the first thing in the CD player and when “So What” comes on, the holiday is officially started. n

–Compiled by Laura Kreutzer

A Private Word With David Wilton

David Wilton– Masters of

Commerce from the University of Canterbury, New Zealand

– Serves as chairman of the advisory council for the Emerging Markets Private Equity Association and was a member of the International Development Working Group of the G8 Impact Investing Task Force

PLEASE ALLOW US TO SHARE OUR CAPITAL STRUCTURING EXPERTISE WITH YOU — 313.237.5100 | WWW.PENINSULAFUNDS.COM

A junior capital provider must have more than just money to help their partners close a deal; they must also have experience and expertise. Non-sponsored and independently-sponsored middle-market transactions especially require an investor with an extensive background managing the many unique issues these deals often encounter. Peninsula Capital Partners has this experience, with a 20-year history of focusing on such deals and with well over 100 closed transactions. Founded in 1995, we were among the first firms with this unique market focus, and we have not deviated from it. Our approach is to understand the sensitivities and goals of our transaction partners and provide them a tailor-made, junior-capital solution, either as a control or non-control investor. This depth of experience is our greatest asset; one that we would like to share with you on your next transaction.

Please call us to discuss how we may help you close your next deal. We’ve got experience to burn.

FIVE, TEN, FIFTEEN, TWENTY…

The Private Fund Group—Selected Fundraisings

Delivering excellence. Exceeding client expectations.The Private Fund Group credit-suisse.com

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Yukon CapitalPartners II

$4,131,250,000

Placement Agent October 2014

New Mountain Partners IV

SEK 12,120,000,000

Exclusive Advisorand Placement AgentOctober 2014

Proventus Capital Partners III

$3,560,000,000

Advisor and Placement Agent

CCMP Capital Investors III

September 2014

$400,000,000

Exclusive Placement AgentJune 2014

Cypress Acquisition Partners

Retail Fund, L.P.

$5,150,000,000

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Onex Partners IV LP

$154,300,000

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Greenstone Resources L.P.

$1,900,000,000

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HitecVision VII

€2,276,000,000

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Hayfin Direct LendingFund LP

$496,000,000

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Intervale CapitalFund III, L.P.

$2,435,000,000

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Pine Brook CapitalPartners II, L.P.

€210,612,666

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AAC Capital BeneluxFund III, C.V.

$3,850,000,000

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GTCR Fund XI

€1,300,000,000

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Orion EuropeanReal Estate Fund, C.V.

$6,000,000,000

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Energy Fund XVI, L.P.

$2,677,000,000

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MBK Partners Fund III, L.P.

$1,300,000,000

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Sentinel Capital Partners V, L.P.

€5,328,000,000

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The fifth Cinven Fund, L.P.

£2,000,000,000

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HgCapital 7, L.P.

$1,600,000,000

Advisor andExclusive Placement Agent2013

Marlin Equity IV, L.P.

$704,294,348

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York Special Opportunities Fund II

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ElmTree Net Lease Fund II

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Amerimar Enterprises, Inc.

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The Energy & MineralsGroup Fund III, LP

$50,000,000

Residential Whole Loan Separate AccountOctober 2013

FMJM RWL LLC

$3,438,000,000

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Crescent MezzaninePartners VI, L.P.

Exclusive Placement Agent

€1,356,000,000

July 2013

HayFin Special Opportunities

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The Private Fund Group—Selected Secondary Transactions

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$356,052,915 $208,891,553 $495,000,000 $170,000,000

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November 2014

September 2014 August 2014 June 2014 June 2014

Fund restructuring with primary staple

Sale of an infrastructure private equity fund interest

Sale of a portfolio of private equity fund interests

Manager sponsored sale of direct PE assets with primary staple

Manager sponsored sale of hedge fund LP interests

Project Skywalker

ProjectFlight

ProjectChorus

ProjectAria

ProjectHawk

$268,312,110


Fund restructuring with primary staple

ProjectLynx

$125,840,000


Manager sponsored RE asset sale

ProjectCantata

$1,085,000,000

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Manager sponsored sale of direct PE assets

with primary staple

ProjectBumper

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