THE GIFT OF HERBALIFE

Thanks to the surging profits of a nutrition supplement company, one of America's oldest private equity firms is still going strong.

In 2002, things were looking grim for Herbalife, a Los Angeles-based peer-to-peer marketer of nutrition supplements and health-food products. Two years earlier, the firm's charismatic founder, Mark Hughes, was found dead in his Malibu home of an accidental drug and alcohol overdose.

The company's management was left to deal with a tarnished image, angry distributors, fierce competition from Internet rivals and a moribund product offering.

Meanwhile, the outlook at Whitney & Company was not much better. After reaching a feverish peak in 2000, the private equity firm, led by Peter Castleman, spent the next two years going through an excruciating downsizing.

JH Whitney, as it was originally called, was founded in 1946 by noted industrialist John Hay “Jock” Whitney. It was one of the earliest and most successful venture capital firms in America, backing the success of businesses like Minute Maid orange juice and Compaq Computers. But in 1992, a disastrous leveraged investment in Prime Computer sent the firm to the brink of collapse. Castleman, then a junior partner at the firm, led a generational change and seized the reins of a venerable but damaged institution.

Stamford, Connecticut-based Whitney went from strength to strength throughout the 1990s, and Castleman aggressively pursued an expansion plan for the firm in an effort to grow it into a true rival to multi-product financial houses like The Carlyle Group and Apollo.

But after May 2000, many of the investments made in Whitney's fourth private equity fund started to crumble. The firm began laying off professionals and closing offices. After launching Fund V with a $2 billion target, a drastically slimmeddown Whitney held a final close for the vehicle in 2001 on $1.1 billion. Many market observers questioned whether Castleman's firm would ever raise capital again.

But the next year, Whitney came across what would turn out to be an incredible deal – Herbalife. Teaming with San Francisco buyout firm Golden Gate Capital, Whitney acquired the struggling company for $685 million and subsequently led Herbalife through a startling rejuviation. New products were introduced, local distributors were encouraged to take more control over marketing strategies, and new markets – including China – proved fertile.

Following a December 2004 initial public offering, Herbalife now has a market capitalisation of more than $2 billion. Whitney and Golden Gate's equity stake has reportedly seen a nine-times increase.

Last month, Whitney closed on its sixth fund, rounding up a total of more than $750 million, a success no doubt driven largely by the firm's Herbalife deal. Castleman, by all accounts a physical fitness enthusiast, has once again taken his firm from ill health to renewed, if downsized, vigor

KKR SOLICITATION DOWNSIZED
Kohlberg Kravis Roberts has received one of the largest commitments in private equity history from Washington State – although not nearly as large as the firm had hoped. Sources have confirmed that the Washington State Investment Board has agreed to invest $1.5 billion (€1.3 billion) in the KKR 2006 Fund. The decision was made at a meeting in February between the members of the Washington State Investment Board and KKR cofounder George Roberts. KKR is marketing the fund without a hard target, sources say. Institutional investors active in the asset class believe KKR wants to round up at least $10 billion for the new pool.

APOLLO WRAPS UP NEW FUND
Apollo Management has closed its sixth fund on $10.1 billion (€8.3 billion), putting it among the largest private equity vehicles ever raised. An LP source who invested in the fund cited Apollo's dual LBO- and distressed- investing skill sets, and credited the hybrid focus for distinguishing the firm from its peers. Separately, Blackstone Group has nearly wrapped up its new fund, which sources say will hit its $13.25 billion cap, and Texas Pacific Group is said to be seeking as much as $12 billion for its latest effort. Apollo was founded in 1990 by former Drexel Burnham Lambert's Leon Black, who remains the senior partner at the firm.

BIRCH HILL AMONG CANADA'S LARGEST
Toronto-based Birch Hill Equity Partners, which spun out from Toronto-Dominion Bank last year, has finished raising its first fund as an independent firm, hitting its C$850 million cap. Backers of the fund – Birch Hill Equity Partners III LP – include the California Public Employees' Retirement System (CalPERS), the CPP Investment Board (CPPIB) and the Rhode Island State Investment Commission, among others. Toronto- Dominion Bank, the firm's former parent, has also reportedly committed C$75 million to the fund. Birch Hill's new fund represents one of the largest vehicles in Canada, trailing only Onex Corp.'s primary buyout fund, which raised C$2.2 billion in 2004.

KPCB TARGETS PANDEMICS
Venture firm Kleiner Perkins Caufield & Byers raised $800 million, spread over two funds, collecting $600 million for its primary vehicle, KPCB XII, and another $200 million for its first ever KPCB Pandemic and Bio Defense Fund. Of the $600 million raised for the primary fund, $100 million will go toward “greentech” companies. The firm has invested in the sector in the past, but the new commitment will expand on those efforts. The pandemic and biodefense fund also represents a new initiative for the firm, as well as the venture industry at large. Brook Byers said in a statement the fund is aiming to “close significant gaps in global public health preparedness”.

CALPERS' LOSS IS TIAA'S GAIN
The California Public Employees' Retirement System lost portfolio manager Panda Hershey to TIAACREF, where she will focus on the institution's general partner relationships, with a particular bent toward its venture investments. At CalPERS for nearly six years, Hershey was known as a tough negotiator who had an advanced knowledge of biotechnology investing, the result of her PhD in immunology. Hershey will report to Sheryl Schwartz, a managing director and head of TIAACREF's alternative investment programme. TIAA-CREF, which has been investing in alternative assets since 1997, has $6 billion committed to the private equity asset class.

THIRD ARCLIGHT FUND POWERS UP
Boston-based ArcLight Capital Partners has already amassed $629 million (€528 million) in limited partner commitments for a new fund. The Boston energy specialist is seeking as much as $2.25 billion. The new fund from ArcLight is a follow-up to the firm's $1.6 billion second fund, closed in the summer of 2004. ArcLight invests opportunistically across the entire energy industry, with a focus on hard assets that produce significant cash flow. The firm, last year, inked deals to fund new wind generation projects with CPV Wind Ventures and invest alongside Peabody Energy to develop a coal gasification project in Illinois. ArcLight was founded in 2001 by Daniel Revers of John Hancock Financial Services and Robb Turner of Berenson Minella.

CARLYLE TO RAISE RENEWABLE ENERGY FUND
The Carlyle Group has launched a debut fund targeting the renewable energy space. The firm is said to be seeking as much as $300 million (€252 million) for a debut renewable energy fund, market sources say, and could close the vehicle in the next couple months. Reuters, in a report issued this morning, quoted Carlyle head David Rubenstein as saying that the fund would invest in areas such as the wind, solar energy, biomass and geothermal segments of the market, and a source told PEO that the investments would be structured as leveraged buyouts as opposed to venture deals.

COLONY CLOSES $1.2BN FUN
Los Angeles-based private equity real estate firm Colony Capital has held a final close on Colony Investors VII, which raised a total of $1.2 billion (€1 billion). The opportunity fund will target the US, Europe and Asia, though a majority of the fund is expected to be invested in assets outside the US. Last year, Colony, which currently manages more than $6.1 billion in equity capital, recently acquired the Singapore-based Raffles Hotel chain for approximately $1 billion. The firm is led by Thomas Barrack, who was a principal with the Robert M. Bass Group of Fort Worth, Texas prior to founding Colony.