New York-based JC Flowers & Company, the investment firm founded by former Goldman Sachs partner Christopher Flowers, is scouting out deals and setting up partnerships in the wake of his high-profile exit from Japanese bank Shinsei last February alongside Ripplewood Holdings' Tim Collins.
Now, in Germany, Flowers is teaming up with Shinsei, as well as NORD/LB Norddeutsche Landesbank and WestLB AG, to buy non-performing loan (NPL) portfolios. The venture, SGK Servicegesellschaft Kreditmanagement GmbH, will have around €400 million ($490 million) in NPL portfolios at the outset, thanks to a transfer of failing commercial real estate loan portfolios from NORD/LB and WestLB. According to the consortium, leverage from the private sector will increase potential acquisitions in Germany's sizeable bad loan market, with an estimated volume of between €160 billion and €300 billion.
“We hope it will be an attractive market,” says Ravi Sinha, the firm's ([A-z]+)-based co-founder. “There should be some attractive opportunities to buy into that sector.”
Sinha says the partnership with Shinsei, a bank with NPL experience, could be valuable in attracting private sector business.
In August, Flowers successfully bid for Dutch merchant bank NIB Capital from its Dutch pension fund owners ABP and PGGM. The firm's €2.1 billion bid trumped rival offers from Cerberus Capital Management, GE Capital Corp, Dutch/Belgian financial services group Fortis and the Netherlands' Rabobank.
The deal is being viewed as a platform towards further expansion into Europe. Sinha adds that NIB Capital itself has potential for growth, citing the bank's credit markets and its upper mid-market client orientation.
Building upon his deal-by-deal successes, Flowers has raised around $900 million for his debut private equity vehicle, JC Flowers I, which focuses on investments throughout the financial services sector. Closed in 2003, the fund's limited partners include financial institutions like ABN Amro, AIG, Banco Santander, GE, Goldman Sachs and JP Morgan Chase.
The fund has been actively investing in the financial services sector. In June, Vesta Insurance sold its 35 per cent interest in auto insurer Affirmative Insurance Holdings to Flowers and Delaware Street Capital for $78 million, roughly $15 a share. Last year, Flowers and Augur Capital bought a majority stake in publicly traded German insurance company Württembergische und Badische Versicherungs AG from financial conglomerate Wüstenrot & Württembergische AG.
For stodgy financial companies everywhere, there is no hiding from the global ambitions of Flowers and company.
WARBURG PINCUS CLOSES ON $8BN
The vast pools of money rushing into the global private equity market show no sign of drying up. On the heels of multi-billion dollar fund closes from Apax Partners (€4.3 billion), BC Partners (€5.8 billion), CVC (€6 billion), The Carlyle Group ($7.85 billion for US and $2.2 billion for Europe) and Goldman Sachs Capital Partners ($8.5 billion) among others, global private equity firm Warburg Pincus has announced a final close of its latest buyout fund on $8 billion (€6.4 billion). Warburg Pincus Private Equity IX LP is the firm's largest vehicle since it was established in 1966. The fund attracted over 80 per cent of commitments from investors in previous funds, including the Washington State Investment Board, which was the largest single investor in the new fund. New investors in the fund included the Oregon Public Employees' Retirement System, Caisse de Dép^t et placement du Québec and The Boeing Company.
PENSIONS REPORT BIG PE GAINS
Two major public pensions have recently captured headlines for large gains, especially in their private equity programmes. The $36 billion (€30 billion) state pension fund of Massachusetts (MassPRIM) saw a formidable 13.4 per cent overall return for the fiscal year ending 30 June. Alternative assets including private equity and venture capital returned more than 25 per cent for the Boston-based pension; real estate investment contributed an even more notable 30.8 per cent gain. The results from Massachusetts dovetailed nicely with the private equity performance figures posted late last month by CalPERS, which delivered a 23 per cent return during the 12 months ending 30 June. And in real estate, the Californian leviathan achieved a whopping 38 per cent return.
CARLYLE NOTCHES FOURTH US REAL ESTATE FUND
The Carlyle Group has closed its fourth US real estate fund on $950 million (€780 million). The fund focuses on opportunistic investments in the office, hotel, industrial, retail, residential and senior living sectors. The firm's last fund, Carlyle Realty Partners III, closed in 2002 on $570 million. Investments from that fund averaged $13 million each, with around 58 per cent to 60 per cent leverage. Carlyle focuses on major US markets like New York City, Southern California and Washington, DC, where the firm has invested $1.3 billion since December 2003. The firm closed its debut fund in 1998 on $471 million, with a follow-up vehicle closing 1999 on $252 million. As of March, the firm had made 98 investments, exiting 57. Robert Stuckey is the Washington-based head of Carlyle's real estate operation in the US, which also has offices in Denver and Newport Beach, California.
KRG POSTS $715M THIRD FUND
Denver-based KRG Capital Partners has announced the closing of a third buyout fund on $715 million (€588 million). The latest vehicle exceeded the firm's initial target of $600 million, set when fundraising launched in December 2004. KRG has raised nearly $1.4 billion in equity capital in the last six years. According to a statement, almost all of KRG's existing institutional investors returned for Fund III, as well as a number of new partners, including state pension plans, universities and European investors. The new fund will continue the firm's buy-and-build strategy for its acquisitions in the middle market, with a focus on industry niches that address certain macroeconomic and demographic trends.
CONNECTICUT EYES SMALLER BUYOUT FUNDS
The Connecticut State Treasury should allocate as much as $225 million per year to small and middle-market buyout funds, one of the pension's advisors has recommended. Austin, ([A-z]+)-based Alignment Capital has determined that the $20 billion (€17 billion) pension is underweight in smaller buyout funds. The consultant said these funds “outperform large funds and have better risk/return characteristics,” according to board minutes. Alignment recommended that Connecticut allocate roughly $563 million per year to private equity funds, and of that as much as $225 million to small and middle-market buyout funds. The Connecticut State Treasury, led by sole fiduciary and elected official, state treasurer Denise Nappier, has an 11 per cent target allocation to private equity. The private equity portfolio is overseen by principal investment officer David Scopelliti.
BRYNWOOD GARNERS $250M
Connecticut middle-market firm Brynwood Partners has announced the closing of its latest fund on $250 million (€202 million). The fund, Brynwood V, brings the firm's total capital under management to approximately $400 million. Since Brynwood V's first closing in August 2004, the firm has established four new platform companies. The firm recently acquired Uniflex, a manufacturer of customised plastic and paper bags as well as plastic packaging, medical and security products. Founded in 1984, Brynwood makes control investments in lower middle-market companies and targets operations in consumer products, light industrial manufacturing, specialty retailing and business services industries.
AIG HIGHSTAR CLOSES $800M FUND
New York- and Houston-based AIG Highstar Capital, the private equity infrastructure fund sponsored by American International Group, has closed its second fund on $800 million (€660 million), almost doubling the size of its first fund, which closed on $406 million in November 2000. AIG Highstar Capital II has already committed more than $520 million to several investments, including power generation facilities around the world and a water utility company in the US. Limited partners in AIG Highstar Capital II reportedly include British Columbia Investment Management, Everest Reinsurance, Kamil Holdings, Lexington Insurance, Mars Retirement Trust, Pioneer Group and Principal Life Insurance.