OCEAN OF OPPORTUNITY

What do limited partners talk about when GPs and service providers are not around? Would you believe substantive issues?

The Institutional Limited Partners Association, with 130 members representing more than $300 billion, held its semi-annual meeting in New York last month and dedicated the proceedings to a discussion of the secondary market and to the highly esoteric topic of liquidity tools in private equity.

Esoteric, because although secondary trades are a growing feature of the private equity landscape, many other ‘liquidity solutions’ exist more in flipbooks than in practice. An attendee of the exclusive meeting says that ILPA members learned about structured products and ‘basis swaps,’ by which investors trade upside or downside potential for some other exposure, such as cash or fixed income returns.

Many ILPA members spoke of an eagerness to participate in secondary deals as buyers. Those that admitted to being sellers were prone to view this as a portfolio management tool rather than a bailout. Still, says an attendee, “people are intrigued by the area, but how may of them will actually execute is an interesting question.”

The discussion went beyond mere products and techniques. Some speakers waxed philosophic about how much liquidity was a good thing in a congenitally illiquid and long-term asset class.

On a separate note, the association also agreed to endorse ‘the efforts’ of valuations guidelines created by the Private Equity Industry Guidelines Group (PEIGG) and indicated that, pending further work with other groups such as the NVCA and Association for Investment Management Research, retooled PEIGG valuation guidelines would eventually be officially ‘endorsed or adopted,’ according to an ILPA statement.

A small number of non-ILPA interlopers were allowed to attend some of the sessions, but strictly for the purposes of educating. “There are plenty of opportunities to interact with GPs and service providers,” says an ILPA member. “What is rare is an opportunity for LPs to discuss issues amongst themselves. That's difficult to do in public, open meetings.”

The next meeting, as usual, is at an undisclosed location. “We don't want GPs showing up,” says a member.

HOFFEN LEADS MORGAN STANLEY SPINOUT
Morgan Stanley's private equity arm, Morgan Stanley Capital Partners, will spin out to establish an independent firm, led by managing director Howard Hoffen. The independent firm will continue to manage the Morgan Stanley Capital Partners funds as a subadvisor to the bank. The firm, which employs about 50 professionals, is also preparing to begin fundraising for a new fund that will have a target of $3 billion. In 1999, Morgan Stanley Capital Partners IV closed on $3.2 billion (€2.57 billion). Hoffen was named head of the firm in 2001 after Alan Goldberg quit to form his own private equity firm, now called Lindsay Goldberg & Bessemer. Three years earlier, private equity co-head Frank Sica left to join Soros Private Equity.

TOM HICKS TO RETIRE
Thomas Hicks, of Hicks Muse Tate & Furst, announced he will step down from the influential buyout firm he co-founded. John Muse, based in Dallas, will become chairman of the firm next March. Muse, Furst and London-based partner, ‘rising star’ Lyndon Lea, will comprise the ongoing management committee of Hicks Muse. In a letter to investors, Hicks said he wished to spend more time managing his personal sports investments, including the Texas Rangers baseball team. Hicks did his first buyout in 1977. In 1983, Hicks co-founded buyout firm Hicks & Haas, then partnered with Muse in 1989. In 1994, Hicks Muse Tate & Furst was incorporated. The firm downsized in 2002 following disastrous tech and telecom investments.

GOODMAN LEADS COMBINED CSFB DIVISIONS
Credit Suisse First Boston has announced plans to combine its private equity, hedge fund and other alternative asset businesses. The new division, based in New York, will be called Alternative Capital Division. It will be led by Bennet Goodman, who previously served as chairman of CSFB Merchant Banking and Leveraged Finance. The new group will also include CSFB's global fund placement business.

NEA NAMES VISWANATHAN PRINCIPAL
The bi-coastal venture capital firm announced the arrival of Ravi Viswanathan as principal. Viswanathan, formerly of Goldman Sachs, will focus on information technology investments from the firm's headquarters in Reston, Virginia. Earlier this month, New Enterprise Associates closed its NEA 11 on $1.1 billion, after a whirlwind fundraising period that took less than six months.

KLEINER PERKINS DOWNSIZES
The Menlo Park, California venture capital veteran announced that four of the firm's six second-tier partners will ‘spend more time with family and on personal causes.’ These partners are Kevin Compton, William Hearst, Vinod Khosla and Doug Mackenzie. One partner, Tom Jermoluk, has ‘elected to leave the firm to return to an operating role,’ a statement said, noting that the firm had six managing partners and six partners. The firm also commented on its eleventh fund, saying it had reached a first closing. The statement said the vehicle ‘is a $400 million fund.’ Last year, Kleiner Perkins co-founder Eugene Perkins passed away aged 80.

KANE LEAVES HARVEST FOR MTS HEALTH
MTS Health Partners, a New York merchant bank focused on the healthcare industry, has named William Kane senior managing director. Kane was a senior managing director at New York buyout firm Harvest Partners, although most recently he was a special limited partner focused on healthcare deal generation. He was with Harvest Partners for 17 years. MTS was formed in 2000, and the following year closed a debut $80 million (€66 million) fund. MTS was founded by Curtis Lane, the former head of Bear Stearns' healthcare investment banking group, and Andrew Paul, a former managing general partner of New York buyout firm Welsh Carson Anderson & Stowe.

JP MORGAN HOUSES TWO BOSSES
JP Morgan Chase announced seemingly equal status for the heads of its two private equity firms, Jeff Walker and Richard Cashin. The firm also named David Coulter, the new chairman of investment banking, as their boss. Walker, is the head of JP Morgan Partners, while Cashin is the head of One Equity Partners, the private equity division of Bank One, which is being acquired by JP Morgan Chase for $58 billion (€47 billion). The announcement is seen by many as a temporary fix. Walker is close to current JP Morgan Chase chairman and CEO William Harrison, while Bank One head James Dimon has been a major backer of Cashin. Under terms of the merger, Harrison will step down in 2006 and be replaced as chief executive officer of JP Morgan Chase by Dimon.

TRIVEST PROMOTES ELIAS
Trivest Partners, a Miami-based middle-market buyout firm, promoted Jamie Elias to managing director. Elias joined Trivest in 1997. Elias was on the board of one of Trivest's most successful investments ever – Aero International, a maker of inflatable beds that Trivest acquired in 2001 with $30 million in equity and sold at the end of 2002 to Investcorp for $231.5 million. In 2001, the firm closed its third fund on $316 million.

RIPPLEWOOD NAMES INDUSTRIAL PARTNER
The New York-based private investment firm said Paul Liska has joined on as an industrial partner. Liska had previously worked at Sears Roebuck, where he served as executive vice president and president of the company's credit and financial products business. He also served as Sears' chief financial officer. Prior to Sears, Liska was president and chief executive officer of Specialty Foods. “Paul brings to Ripplewood nearly 25 years of extensive experience in sectors that we are targeting for future potential investments,” Ripplewood managing director Robert Berner III said in the statement. Ripplewood Holdings manages approximately $10 billion of capital, focusing primarily on investments in the US and Japan. In January, the firm took part in its second deal with operating partner ZelnickMedia when it acquired music and video direct marketing company Time Life from Time Inc.