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JUNE 23, 2010 Mapping ‘Volcker Rule’ Maneuvers As Congress puts the finishing touches on its financial-reform legislation, 6 ‘VOLCKER RULE’ TARGETS executives are working feverishly to develop a game plan for hundreds of billions 2 Duo to Pitch Own Funds of Funds of dollars of and assets they might have to divest under the measure’s “Volcker Rule.” 2 Early Word Goes Out on Mining Play President Obama has said he wants the bill on his desk by the end of this week, 2 Startup Appeals for Outside Backing ahead of the G-20 summit in Toronto starting on Saturday. The tight timetable sparked an intense lobbying effort by banks to take much of the bite out of the 2 CapStreet Undershoots Equity Target Volcker provision. But if the strict wording survives, it would take a severe toll on 13 large banks that operate 20 asset-management units overseeing some $450 bil- 3 Deutsche Auction Plan Riles Bidders lion of private equity and hedge funds — vehicles the institutions could no longer 3 IVP Races to ‘One-and-Done’ Close be affiliated with (see list on Pages 6-7). Partly in anticipation of the rule, has made it known that some of its 3 Riverside Taking Final Commitments See VOLCKER on Page 7 5 Organic-Farm Play Makes the Rounds Alaska Permanent Vexed by Investor Status 5 New Mexico Seeks Investment Help Is Alaska Permanent Fund eligible to invest in private equity vehicles? 11 FUND-RAISING ACTION For a while, the $35 billion operation essentially fudged the issue when it came to assuring fund managers that it was an accredited investor under the SEC’s Regulation D. But it recently put a halt to the practice, leading some firms to reject its commitments. At issue is wording in Reg D that defines eligible institutional investors as banks, insurers, employee-benefit plans, trusts or charitable organizations. Alaska Permanent, which is funded largely by royalty payments that Alaska receives from oil companies and distributes most of its realized profits to residents as dividends, doesn’t appear to fit into the classifications. THE GRAPEVINE Reg D, which is drawn from the U.S. Securities Act of 1933, is intended to pro- tect unsophisticated investors. In this case, however, it’s shutting out a hefty play- Executive-recruiting firm Heidrick & er. And it’s not that Alaska Permanent wants to stop investing in private equity Struggles has hired Jonathan Goldstein See ALASKA on Page 5 to work as a partner in its private equity practice in . Goldstein was AXA Spreading Out Massive BofA Package among the founders of Sextant Search, which shut down last July. A month AXA Private Equity wants to syndicate part of the $1.9 billion portfolio of private later, he and two colleagues landed at equity fund stakes it purchased from in April. Korn/Ferry International — where he The effort is aimed in part at paring down AXA’s share of the package, which remained until a few weeks ago. Todd was among the largest to trade on the secondary market in recent years. Monti heads Heidrick & Struggles’ pri- While the exact syndication process is still hazy, it appears AXA is going with a vate equity unit. traditional co-investment format in which various players are invited to take part in a deal. Only in this case, it’s happening after the initial purchase has already The $100 billion Government of closed. Investment has added a staffer AXA is focusing its pitches on large pension systems and endowments, includ- to its New York office. The recruit, ing those in its own limited-partner base. The firm doesn’t plan to take much of a Connie Ma, spent the past seven years at fee on top of what it has already paid for the investments. American Securities of New York. She While unusual, there is some precedent for the scenario. And there are several See GRAPEVINE on Back Page See AXA on Page 8 June 23, 2010 Private Equity INSIDER 2

Duo to Pitch Own Funds of Funds private-company transactions would focus on businesses that need expansion capital, are just getting started or are in Two fund-of-funds specialists have joined forces to start distress and hope to go public via reverse mergers. their own shop. Even though it plans to own no more than 9.9% of any Helen Lais and Mark Regal teamed up in March to start the company, Kodiak intends to be heavily involved in the oper- operation, dubbed Arborist Capital. They’re now close to pitch- ations of its investment targets. Its fund would deploy capi- ing a debut fund. tal over a two-year period, and would have an overall life of Lais previously worked as a partner at AlpInvest Partners, five years. initially focusing on building up the firm’s Kodiak got started with $300 million from its founders holdings. She later moved into an expanded role, but left early and advisors, and has made about 20 investments so far. Its this year amid rumors that she had run out of opportunities portfolio companies include cMoney, PGI Energy and STW for advancement. Resources. Regal was a director focusing on venture capital and growth Some investments haven’t panned out. The firm inked a capital vehicles within ’s customized-funds divi- deal on March 25 to funnel $15 million into Milwaukee Iron sion. He left in October, after nine years at the bank. Lais is Arena Football, but the team filed a notice with the SEC on based in Chappaqua, N.Y. Regal is stationed in . O June 4 indicating that it never received an initial $1 million installment “despite repeated demands for payment.” And Early Word Goes Out on Mining Play oil company EGPI Firecreek backed out of a $15 million transaction in March, saying it would dilute shareholders. Sentient Group is giving investors advance notice on its Kodiak is led by managing director Ryan Hodson, who next mining-company fund. previously was a managing director at Blackwater Capital. The Cayman Islands firm plans to set a $1 billion equity The firm’s overall staff numbers about 15, and it’s seeking as target for Sentient Global Resources Fund 4. It expects to many as five recruits to focus on portfolio-company opera- begin a formal marketing push once its prior vehicle is 70% tions. The shop is unrelated to Kodiak Capital Partners of deployed, likely in early 2011. That 2008-vintage fund has so . O far drawn 55% of its $816 million equity pool. Sentient invests in owners of mining properties world- CapStreet Undershoots Equity Target wide that need development to become productive, and seeks to sell the businesses once the mines are generating It turns out CapStreet Group’s latest fund won’t reach its cashflows. The firm organizes its funds so each new one can equity goal. make follow-up investments in its predecessors’ portfolio The buyout shop’s CapStreet 3 vehicle is on track to companies, potentially speeding up the deal-exit process. have $190 million to $225 million on hand when it cuts off Sentient takes stakes of up to 20% in public companies marketing on June 30. That’s a change from what industry and up to 49% in private operations. Its first fund, set up players were predicting as recently as mid-May, when it looked with $126 million in 2001, is producing a rate of return like the offering’s final close would come this month at its $250 above 25%, while its $376 million second fund from 2006 is million target. returning more than 20%. The third is running in the mid- The effort has taken nearly two years. But some limited teens. partners remain bullish on CapStreet, after seeing the firm’s Sentient is led by the Sydney-based Peter Cassidy, who first two vehicles deliver decent returns. For example, its 2000- earlier managed investments at insurer AMP Life. Nicholas vintage second fund has returned more than two times Mead leads the firm’s fund-raising efforts, which will take deployed capital. place without the help of a placement agent. O Those results have come despite an instance of “style drift,” in which CapStreet tried its hand at venture capital deals. Startup Appeals for Outside Backing “These guys have done some venture in the past, and luckily not anymore, but they didn’t even do that bad,” one investor Kodiak Capital Group is laying the groundwork for its first said. formal fund. The past two years in particular have brought some highly The New York firm, launched in October 2009, plans to profitable deal exits for CapStreet. Even so, many of those begin marketing the vehicle Oct. 1 under the banner of moves came after the firm began pitching Fund 3 — meaning Kodiak Capital Group 2. It’s looking at a capital-raising goal some investors may have written off the shop based on returns of $100 million. that aren’t indicative of its current performance. It’s also likely The plan is to take minority stakes in up to 20 publicly that some prospective backers passed on the offering due to traded and private companies. The public-company deals pressures from the global . would take the form of private investments in public entities, Placement agent Knight Capital was brought on late in the or PIPEs, involving preferred shares or common stock. The process to help round up investors. O June 23, 2010 Private Equity INSIDER 3

Deutsche Auction Plan Riles Bidders close for its Institutional Venture Partners 13 this week with $750 million. That’s in line with a recently instituted equity Secondary-market investors are grumbling over a plan by limit for the vehicle, and beats a $600 million target set when DB Private Equity to bid on a package of fund stakes controlled the entity began making the rounds among existing investors by parent . in February. At issue is an offering in which Deutsche expects to shed At the time, IVP said it would try to wrap up the effort €500 million to €600 million (up to $740 million) of commit- around this time of year. What wasn’t expected was that the ments to 66 private equity vehicles — holdings the bank took shop would attract more commitments than it could take, and on with its March purchase of Sal. Oppenheim jr. & Cie of would have to either trim some backers’ contributions or turn Luxembourg. Cogent Partners is expected to begin them away altogether. showing the package to prospective buyers shortly. The strong response in part reflects the fact that that the So what’s the problem with DB Private Equity taking some new fund’s 2007-vintage predecessor was booking a gross rate or all of the portfolio? Other investors think the operation’s of return of 67% as of yearend 2009, aided by investments in connection to Deutsche might give it an unfair advantage in Twitter and Zynga. That’s a strong showing for any private equi- the bidding contest, perhaps in the form of greater insight into ty vehicle, let alone a venture capital pool created at the begin- the assets. “Obviously the guys internally want to have a crack ning of the global financial crisis. It has also helped that at it,” one secondary-market broker said. “It’s not clear if it’s a investors’ overall liquidity positions have improved lately. proper process, or if it’s being gamed. You don’t have to be Mr. However, one investor who passed on the offering said he Einstein to see that this could be only a phony auction that will was skeptical of IVP’s ability to put all of Fund 13’s capital to ultimately go to the in-house bidder.” work effectively. IVP backs later-stage wireless-technology, But another broker said that while DB Private Equity is Internet, media and business-service companies, often busi- interested in Sal. Oppenheim’s assets, there’s enough of a nesses that received seed capital from venture capital firms Chinese wall between the group and its parent to prevent any including Kleiner Perkins and Sequoia Capital. Its other portfo- conflicts. lio companies have included Netflix and Tivo. Cogent’s presence also serves as an assurance. Sources Fund 12 raised $600 million, double the amount IVP col- deemed it unlikely that the Dallas firm would risk tarnishing lected for Fund 11 in 2005. While a number of the firm’s vehi- its own reputation by engineering a shady auction. Likewise, cles have produced especially strong returns, Fund 12 was the Deutsche’s hiring of a broker suggests a desire to achieve the first to do so since the 1998-vintage Fund 7. That $187 million highest possible price for its offering. entity was generating a 93.6% rate of return as of yearend There has been some talk that prospective bidders are play- 2009, according to Preqin. However, IVP’s team and invest- ing up the possibility of underhanded dealings as a way of dis- ment strategy were revamped for its 10th fund, which raised couraging competing bids. $225 million in 2001. O DB Private Equity is the result of a reorganization that fol- lowed Deutsche’s Sal. Oppenheim purchase. The €6 billion Riverside Taking Final Commitments operation, led by Chris Minter and Rolf Wickenkamp, encom- passes the private equity group from Deutsche Bank Private Riverside Co. is about to finish marketing its latest Europe- , RREEF’s secondary-market team and Sal. focused buyout fund. Oppenheim’s fund-of-funds division, Sal. Oppenheim Private The vehicle, Riverside Europe Fund 4, is expected to hold its Equity. final close in the next month or so with about €475 million The assets Deutsche is putting in play had been run by Sal. ($585 million). While accounts of the entity’s equity target Oppenheim Private Equity, but probably haven’t moved onto have varied, the final haul falls below its limit of €550 million. DB Private Equity’s balance sheet. Word of the offering has Like many private equity shops, the $3 billion Riverside has been circulating since March. seen its campaign drag out as liquidity concerns, capital short- Deutsche’s secondary-market division got its start by buy- ages and long-term economic worries have sent investors to ing holdings from the parent bank. That 2007 transaction the sidelines. The New York firm held a first close for the new entailed the unwinding of a collateralized fund obligation fund at the end of 2008 with €100 million. Deutsche created four years earlier, with RREEF using about That said, Riverside has a solid reputation. Riverside half of the equity in a $775 million secondary-market and co- Europe Fund 3, a 2005-vintage vehicle with €320 million, is investment fund to take some of the underlying investments producing a rate of return around 11%. Its two predecessors — stakes in a mix of private equity vehicles. O are doing just as well or better, although each weighed in below €50 million. IVP Races to ‘One-and-Done’ Close Riverside also is expected to finish raising capital for its first Asia-focused fund in the near future. It has been seeking Institutional Venture Partners needed just one try to beat roughly $100 million for the entity. The shop’s most recent core marketing expectations for its newest fund. buyout fund completed its marketing drive a year ago, sur- The Menlo Park, Calif., firm was set to hold a first and final passing its $900 million target to wind up with $1.2 billion. O June 23, 2010 Private Equity INSIDER 4 PLUG IN To the inside moves of buyout and venture capital funds

Every week, Private Equity Insider FEBRU ARY 14, 2 Credit Suisse Leads 2007 2 Boldt Offer Travelers Bear Negotiating Placement-Agent Pur ing CIO Outsour Auction 3 Carlyle’ Bear Negotiatings Me Placement-AgentBear Stearns’Purchase reports on developments you’re not FEBRUARY 14, 2007 xico Push Comescing up Short 3 Amer Those in the kno ’ asset-ma icanasset-management Industr arm is in talks to buy a placementsition agent. nag 2 Credit Suisse Leads Travelers Auction targ w emen Those3 inPr theism know Ramps are Uppointing Digital-Mediaial Gains to MomentumCrane Capitalas theen bank’stir mostet, likely al acqui- are p t ar e Londo thoug ointin m is in t 2 Boldt Offering CIO Outsourcing sition target, although it’s unclear wh ether the transactionvan den would Thillart, involven-base theh it’ g to Cr alks t 4 San Fr d s uncle ane Capital o b chase entire London-basedancisco operation Pension or Picks just Managersa stake in its business.vat eCrane, eFEBRU led by opLeoera ar wh uy a p 3 Carlyle’s Mexico Push Comes up Short Te quity empl tion o ether the traas the ba lacemen van den4 Gr Thillart, employs roughly a dozen professionalsam whostaff .raise money vehicles, for pri- roys ro r jus nk t ag een 2 AR ughl t a st n ’s mos ent. supposed to know about. vate equity vehicles,Wavers real on estateSteadfast funds Equity and Caphedge funds, alongThose withCr indisome otherY 14,eal es y a dozen p ake in i sactio t lik 3 American Industrial Gains Momentum 4 edit Suisse Leads tate f ts b n wo ely acq staff. Cloc Munich,2 T vid unds a rofes usines uld in ui- k Ticking for Philly Proposals Boldt Offer uals a 2007 nd he sionals who ras. Cra volv 3 Prism Ramps Up Digital-Media Team Those individuals are located in offices worldwide,uni tincluding tha or oNewnt York, re lo dge f ne, le e the 4 US Hears Emer 3 t has s o and M cat unds, alo ise mo d b Munich, Toronto and Melbourne. At Bear, they would join a fragmentedThisCarlyle’ is placementtr elb ed in o ne y Leo uinggg CIOle OutsourTor urne. A ffices w ng wi y fo 4 Pension Picks Managers unit5 WIthat Harper has struggled ging-Mark to recover from some senior staffOc 3departures.to n’t the f d to r avelers Auctiont B th so r pri- ets Pitc Amerber 2004,s Mexicof ir Pushs Comeseco upver Short f ear, they w orldw me o This isn’t theWinds first Up time Mark Bear has tried to importpr iva placement-agent staff.t time In B ro ide, incl ther 4 Green Wavers on Steadfast Equity Cap 5 h 3 ate eqican Industrialor exa Gains Momentumea m some senioould j udin FUND-RAISING ACTION Pr uity de mple, the bacingr has trie Bearoin a Negotiatingf g N Placement-Agent Pur October 2004, for example, the etingbank Effortbought a specialty-financeism Ramps business Up alsDigital-Media focusing f on d r s ragmen ew Y 4 rom nk b to im taff depa t ork, 4 Clock Ticking for Philly Proposals 7privateCALENDAR equity deals from -based BDC FinancialSan Fr and combined the three-man Bosto oug po r ed placemen n-base ht a sp rBeart a pStearns’tures. 4 JP Morancisco PensionSee Picks BEAR Managers on Page d2BDC Financialecial lacemen t 4 US Hears Emerging-Markets Pitch Gr tThosey-fina in the knot-ag een sitio nce b ent s 4 W gan Debuts With Infren na ntd co usines taff. I 5 WI Harper Winds Up Marketing Effort Cloc J.P. Moravers on Steadfast Equity Cap tir ar mbine asset-mas focu n JP Morgan Debuts Withs t Infrastructuregan Chase Fund van dene LoThillart,get, al d the thr sing 4 rukcTtur Te on THE GRAPEVINE US Hears Emerickinge-r elafor Philly Proposalshas ra am va ndo thoSee wBEAR a onenag e-maP 5 FUND-RAISING ACTION J.P. Morgan Chasehas raised over $1 billion forThe a funden thatte dwill as invest in iseinfra- te e n-base u re p e n 5 ti sets — i d o st q gh o agemen 2 See for yourself. Sign up for WI Harperber inf ty, J ver $1 b aff astructurui i in .P t t Tom Reststructure-related assets — its first such vehicle. ras . Mo ts fir illio . y v em d o t’s uncletin ar 7 CALENDAR real es truct rgan st su n Thosef indi ehicles, r pera g t m is in t isThe le entity, J.P. 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Start my 3-issue FREE a trial ar ’s Pine T subscriptions ff to n ena in which T i d chief ex ay 2006nagin t e on r w in pl riv ee Equity g dir an es ves it t ec o set u ec tmen pu ut r to t ive iv ar p r Robertt K p Earl P est is o e no their o ro w sepa fes- squabbles. o n w oehn e o PRIVATE EQUITY INSIDER. we n f Therell, aref no strings the o rat irm who co-f ely p s. ldes ur- o t p See TRIVESTunde on P lay d - Tr ives attached -- I won’t receive an invoice unlessage 6 t I choose L Confidential to subscribe.

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Organic-Farm Play Makes the Rounds Alaska ... From Page 1 A San Francisco firm is forming a fund that would buy con- funds. On the contrary, it has been seeking to more than dou- ventional farms and convert them for organic production. ble the $945 million it currently has deployed to such vehicles. The year-old operation, Vital Farmland, is seeking $100 The Juneau-based Alaska Permanent has asked the SEC to million for the vehicle. It’s pitching the entity as a private equi- issue a statement acknowledging that it is a permitted backer. ty fund, although it also has some characteristics of a hedge It also has been pushing for inclusion under a 2007 SEC pro- fund. posal that would broaden the accredited-investor definition to The fund, simply called Farmland, would start by locking include virtually all government entities. Alaska Attorney up capital for three years. After that, any investor could cash General Daniel Sullivan discussed the matter at a March 5 out, just as they could in a hedge fund. In those instances, Vital meeting with Kayla Gillan, a senior advisor to SEC Chairman Farmland would attempt to sell the backer’s stake to other lim- Mary Schapiro. However, there have been no indications of ited partners, or buy the shares itself. Failing that, it would liq- when the SEC might act. “[Alaska Permanent] is not the high- uidate assets. est priority for the SEC,” one source said. “They are sympa- Ideally, the fund’s holdings would produce enough cash- thetic, but they are time constrained. They have this financial flows to prevent most redemptions. Following a private equity reform going on.” distribution format, it’s aiming to deliver annual yield pay- “It makes no sense,” the source continued. “Some dentist ments equal to 7-8% of invested capital. Overall, the goal is to can walk in with a net worth of $2 million . . . But [Alaska produce a 14% rate of return over the vehicle’s 30-year life. Permanent] can’t invest.” The idea is that organic food and beverage sales have been In the years following the 2004 creation of its private equi- growing, even in the current recession. They represented ty program, Alaska Permanent didn’t volunteer information about 4% of overall food sales in the U.S. last year. Organic about whether it was accredited. If a manager asked, it would items can sell for up to twice the price of non-organic prod- state that it exists either to benefit Alaska residents or the state ucts. Vital Farmland is looking at properties in Colorado, New itself. Apparently, nobody objected. Jersey, Oregon, and Pennsylvania. But for reasons that aren’t clear, a 2008 SEC investigation of Former Cabezon Capital partner Alana Aldag joined Vital possible investment violations by Florida State Board made the Farmland two months ago to lead fund-raising efforts and find system nervous. While the Florida probe was dropped this deals. The firm was founded by venture capital and real estate March, concerns lingered that Alaska Permanent could face specialist Craig Wichner and organic farmer Jason Bradford. O SEC action or lawsuits from Alaska residents if any of its hold- ings went bad. Alaska Permanent has taken a similar stance New Mexico Seeks Investment Help toward privately placed corporate bonds and hedge funds. Alaska Permanent invests in private equity funds primarily New Mexico State Investment wants to hire an internal through separate accounts with HarbourVest Partners and staffer who would help restart its private equity program, and Pathway Capital, and had tasked the two firms with commit- is resuming efforts to find a new consultant. ting a combined $500 million during the fiscal year ending The new employee would take the title of deputy chief June 30. But as of April 9, they had pledged only $249 million. investment officer, and would be responsible for most in-house Alaska Permanent’s head of alternative investments, Maria investment oversight. Meanwhile, the $14 billion organiza- Tsu, said at a May 26 board meeting that the hangups over the tion’s board is looking at the coming months to begin search- system’s status as an accredited investor were among the rea- ing again for a private equity advisor. sons for the slow pace. The new advisor would replace the now-defunct Aldus For private equity managers, the subject raises another Equity. New Mexico State Investment halted deployments to question: If it turns out that Alaska Permanent isn’t accredited, private equity funds when Aldus was implicated in the New could it void commitments down the road? Even as they strug- York Common Fund scandal in April 2009, and later fired the gle to raise capital, some of those shops have passed up contri- Dallas firm. But a subsequent search for a new advisor was put butions from the organization rather than face that possibility. on hold as the operation got bogged down scrutinizing invest- They’re puzzled over the matter. “It just doesn’t make any ments made on Aldus’ recommendation. sense. If you are a [general partner] and Alaska Permanent In the meantime, general consultant NEPC has been coun- Fund is proposing to give you $50 million or $100 million, you seling New Mexico State Investment on its private equity fund are highly motivated to figure [it] out,” said one manager who portfolio. On the basis of an NEPC asset-allocation study, the runs money for the system. “This is all a shock to me.” organization last month increased its allocation for such Other U.S. investment vehicles that might have a similar instruments to 9% from 6%. It already had 8% of its capital in status to Alaska Permanent include New Mexico Land Grant or the asset class. Texas Permanent School Fund. But Alaska Permanent is espe- New Mexico State Investment runs money for three state cially large, and it’s unknown if the other entities have consid- endowments and 15 state agencies. O ered their accreditation. O June 23, 2010 Private Equity INSIDER 6

‘Volcker Rule’ Targets: Units That Banks Might Have to Shed

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Bank Unit ($Mil.) H P R F Comment Bank of America BAML Capital $5,000 • Formerly known as Lynch Global Private Equity, the unit Partners acquires controlling stakes in companies through equity and mezzanine-debt investments. BAML Global 16,600 • • • Makes direct investments and operates fund-of-funds unit Capital Strategic Capital Access Funds, which backs vehicles focusing on underserved markets in the U.S. In April, sold $1.9 billion portfolio of stakes in private equity funds to AXA Private Equity. Bank of America, BlackRock • • • • The three banks hold a combined 79% stake in BlackRock: 34.2% for PNC Bank and BofA, 24.6% for PNC and 19.9% for . BlackRock is the world’s Barclays largest asset manager, with $3.4 trillion across virtually all aspects of the investment world, including alternative investments. It’s unclear whether the Volcker Rule was intended to force banks to divest such holdings. BofA’s stake was reduced from 49% and PNC’s from 24.6% in December, when BlackRock completed its purchase of Barclays Global Investors from Barclays. Bank of New York BNY Mellon Asset 62,000 • • • Operates hedge funds, funds of funds and private equity vehicles Management through 20 investment units. Also seeds new fund managers wishing to establish track records before marketing to others. Mellon Global 3,500 • Holds 15% stake in Optima Fund Management, a $3.5 billion fund-of- Investing hedge funds operation. Citigroup Citi Capital Advisors 14,700 • • Even as financial-reform legislation threatens to force the divestiture of Citi Capital Advisors, the unit seeks to raise $3.5 billion for hedge funds and private equity vehicles. It employs nearly 170 investment staffers and manages $3.9 billion in hedge funds, $7.4 billion in private equity funds and $3.9 billion in infrastructure vehicles. Earlier this year, Citi sold two alternative-investment units. Apollo Management bought real estate division Citi Property Advisors in March and SkyBridge Capital bought Citi’s fund-of-hedge-funds operation in May. A third unit, Citi Private Equity, remains on the block. Deutsche Bank DB Private Equity 7,500 • • Deutsche formed the unit in April, combining the private equity operations of its wealth-management team, the private equity secondary-market part of its RREEF unit and the private equity fund- of-funds operations of newly acquired Sal. Oppenheim jr. & Cie. RREEF 54,000 • • The bulk of its assets are in real estate investments, but the unit also manages private equity infrastructure vehicles. DB Advisors Hedge Under • • In the final stages of shutting down a business that at one time Fund Group 1,000 oversaw $4.5 billion in funds of hedge funds. It also operates smaller, single-manager funds. Goldman Sachs Asset 147,000 • • • • The two units oversee $98 billion in private equity funds and $17 Management; billion-plus in hedge funds, which include Goldman’s well-known Merchant-Banking Global Alpha quantitative investment vehicle. Goldman’s merchant- Division banking division oversees its own private equity investments. HSBC HSBC Capital (USA) 1,000 • • The decade-old unit, formerly known as Midland Montagu Private Equity, is one of five private equity groups worldwide that the bank is thinking about selling. The other four are non-U.S. businesses not covered by the Volcker Rule. It invests directly in companies through buyouts and mezzanine financings. It also pursues real estate opportunities. Continued on Next Page

June 23, 2010 Private Equity INSIDER 7

‘Volcker Rule’ Targets: Units That Banks Might Have to Shed (continued)

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Bank Unit ($Mil.) H P R F Comment J.P. Morgan J.P. Morgan Asset $25,000 • • • Operates a 20-year-old fund of hedge funds business with $7.6 billion Management of assets and an $18 billion private equity fund-of-funds unit. 8,000 • Invests directly in private companies, largely through an Asia-based team that pursues emerging-market opportunities. Highbridge Capital 21,000 • • Largest bank-owned hedge fund operation, which also has around $5 Management billion of private equity investments. In 2004, J.P. Morgan bought its first stake in Highbridge from founders Glenn Dubin and Henry Swieca. It completed the transaction in July 2009, when it bought its final stake in the unit. The bank is awaiting the outcome of the Volcker Rule debate on Capitol Hill before finalizing talks to purchase Gavea Investments, a $5 billion-plus hedge fund operation in Brazil. Morgan Stanley 24,000 • • Includes $15 billion of real estate assets and $4 billion of investments Asset Management in infrastructure projects. The investment bank only recently started re-establishing its presence in the private equity business after selling buyout unit to Citigroup’s Citi Capital Advisors in 2007. Morgan Stanley 43,000 • • Includes hedge fund-seeding unit FrontPoint Partners, which Morgan Alternative Stanley bought in 2006. In January, the bank said it was Investment contemplating the sale of FrontPoint, as well as its minority stakes in Management fund operators Abax Global Capital, Avenue Capital, Hawker Capital, Lansdowne Partners and Traxis Partners. Northern Trust Northern Trust Global 3,000 • • More than a dozen of the unit’s investment professionals run a fund of Advisors hedge funds. PNC Financial PNC Equity 1,000 • The largely autonomous unit runs buyout and mezzanine-finance Services vehicles capitalized by the bank and outside investors. PNC Capital Advisors Under • The unit operates three small funds of hedge funds assumed via its 1,000 2006 acquisition of Mercantile Bancorp. State Street State Street Global 6,300 • • • Manages a combined $6.3 billion on behalf of clients in hedge funds Advisors and private equity vehicles. US Bancorp Wealth Management 7,000 • • • • Its investments in hedge funds and private equity vehicles are “tiny by Group comparison” to the unit’s traditional holdings, a bank spokesman said.

to divest its alternative-investment holdings. The bank was Volcker ... From Page 1 managing a whopping $93 billion of private equity holdings as private equity units are for sale. But don’t expect a wave of of March 31 — more than 11% of its total assets. It has anoth- fund-management units to go on the block anytime soon. er $54 billion in other alternative-investment strategies, Banks including Goldman Sachs, J.P. Morgan and Morgan including hedge funds and mezzanine-finance investments, all Stanley would likely attempt to exhaust all other options before within its asset-management and merchant-banking divisions. selling units to outsiders. By spinning off their alternative- “For the investment banks and some of the investment businesses to their current management teams, for companies, they would have to at least consider de- instance, banks would be able to keep those highly profitable banking or conversion as an option,” said Greg Lyons, co-chair- units out of the hands of competitors. man of the financial-services practice at Debevoise & Plimpton. Goldman and Morgan Stanley have yet another option: shed- “If it’s not a substantial part of your operations, as a fiduciary ding the bank status that they assumed in the duty to your shareholders, you have to consider if getting rid of wake of the failure of in September 2008. the bank is a better option.” By all accounts, Goldman oversees the world’s largest pri- But while such a move might seem like an easy way to vate equity portfolio and thus has the most to lose from having See VOLCKER on Page 8

June 23, 2010 Private Equity INSIDER 8

rather than plowing them into a fund with higher fees, the Volcker ... From Page 7 shop stands to generate some goodwill among its backers. sidestep the effects of the Volcker Rule, de-banking might be There’s also the issue of capacity. AXA’s most recent second- tantamount to jumping from frying pan to fire. The Senate ary vehicle, AXA Secondary Fund 4, has $2.9 billion of equity bill contains a provision for institutions that elect to drop their overall. According to Preqin data, the 2006-vintage entity had bank holding company registration and be regulated as non- a little more than $2 billion of dry powder left when the deal bank companies. The proposed Financial Stability Oversight was struck. Council — an 11-member regulatory panel — would have the However, AXA likely didn’t have to pay the full amount for power to deem any such institution as being important enough the BofA portfolio up front, and could have spread the pur- to the system to warrant its own set of regulations. chase across more than one fund. Managing director Vincent “Companies that opted into holding-company status . . . Gombault said at the time that AXA still had $1 billion left for might have wanted to get out from under bank-holding com- future deals. That was just days after AXA agreed to buy a $718 pany status,” said Mark Nuccio, co-head of the banking practice million secondary-market package from . at Ropes & Gray. “But the new law will subject those who de- Still, the BofA transaction could position AXA to begin its register . . . to continued regulation by the , next fund-raising drive. “Our impression is this is going to albeit with customized rules to be determined.” kind of tap out their current fund and then some, and this Even an outright sale of a fund-management unit wouldn’t gives them the ability to start raising a new fund and give some necessarily be as straightforward as it might appear. Giving up co-investments to their investors,” one secondary-market management of a fund or withdrawing capital could spur staff manager said. departures that trigger so-called key-man provisions, which in One possible obstacle for AXA is convincing buyers that the turn could allow limited partners to pull out. BofA investments are worth what it paid, an estimated 90 cents Some limited partners also might be unwilling to invest in on the dollar or more. Along the same lines, it has to find tak- future vehicles without an anchor contribution from the bank, ers who can grasp secondary-market values in the first place. making the fund-management unit a tough sell. And any sale “I think it’s really hard to syndicate a deal broadly like that of fund stakes would require the approval of a majority of because not a lot of people have the expertise to understand it,” investors in the vehicle, which can be hard to secure. another source said. “No one on Capitol Hill is focused on the way the funds are A few big buyout-fund operators run a large portion of the structured and operating,” said Lawrence Kaplan, a lawyer in vehicles in the pool. the bank regulatory group at Paul Hastings of New York. “If Separately, another wrinkle has emerged in the deal. It they are forced to liquidate, you could get fire sales, but there turns out that a group of BofA personnel who agreed to spin are so many possible unintended consequences it’s hard to say.” off to New York hedge fund manager Sterling Stamos are the As for Goldman, most in the private equity arena would same ones running the portfolio AXA just bought. The agree it’s hard to imagine a natural buyer of such a massive Charlotte-based crew, encompassing group head Jason fund-management business. Cipriani and about 10 others, negotiated the move as part of the Until recently, many bank executives were in denial about sale. They will continue to oversee the investments on AXA’s the ramifications of the Volcker Rule, which is the brainchild behalf and will collect a small fee for doing so. They will also of former Federal Reserve chairman and Obama advisor Paul manage some private equity fund interests that BofA didn’t Volcker. Other bankers have remained optimistic, believing the sell. O Volcker Rule will be watered down, if not before the legislation is signed into law, then by regulatory actions during the three- year lead-in period. Some seem convinced that they ultimate- ly will be allowed to retain their alternative-investment units as long as they aren’t investing bank capital. Search Prior Articles Such optimism may help to explain Citi’s pronouncement last week that it plans to add another $3.5 billion of private In Private Equity Insider equity and hedge fund assets, regardless of what happens in Congress. Yet at the same time, the bank is rumored to be close You can instantly find out about any fund manager, to inking a deal for the sale of its $10 billion Citi Private Equity O limited partner or anything else ever mentioned in fund-of-funds portfolio. Private Equity Insider by searching the newsletter’s archives at: PEinsider.com AXA ... From Page 1 reasons AXA would want to spread its purchase among other Free for Private Equity Insider subscribers. $7.95 per investors. For one, a single-shot deal of that size comes with a article for everyone else. lot of risk. And by offering the holdings as co-investments June 23, 2010 Private Equity INSIDER 9 SeeSee itit

ComingComingWhether it’s an industry danger or a money-making opportunity

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CITY/ST/ZIP: L Covers competition among prime TEL: and other industry vendors. E-MAIL: Fax this coupon to: 201-659-4141

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CALENDAR

Main Events Dates Event Location Sponsor Information Sept. 27-30 SuperReturn Asia 2010 ICBI www.icbi-events.com Sept. 28-29 Private Equity Analyst Conference 2010 New York Dow Jones www.dowjones.com Nov. 16-19 Super Investor 2010 Paris ICBI www.icbi-events.com Jan. 25-26, 2011 Private Equity Analyst Outlook 2011 New York Dow Jones www.dowjones.com Feb. 28-March 3 SuperReturn International 2011 Berlin ICBI www.icbi-events.com March 3-4 Women’s Private Equity Summit Half Moon Bay, Calif. Falk Marques www.falkmarquesgroup.com March 21-23 ACG InterGrowth 2011 San Diego ACG www.acg.org

Events in US Dates Event Location Sponsor Information June 29-30 Investment & M&A Opportunities in Healthcare Chicago iiBIG www.iibig.com June 29-30 REFF Wall Street New York Euromoney www.reffwallstreet.com June 30 Asset Management Thought Leadership Symposium New York RCA www.rcaonline.org July 12-13 Private Equity Forum New York PLI www.pli.edu July 13 Private Equity Investing in Education Companies New York Capital Roundtable www.capitalroundtable.com July 19-21 Waste to Energy Finance & Investment Summit San Diego Infocast www.infocastinc.com July 21-23 & Private Wealth Management Forum Newport, R.I. Opal www.opalgroup.net July 22 Investing in Government Services & Defense Companies New York Capital Roundtable www.capitalroundtable.com Sept. 13-14 Distressed Debt Conference 2010 New York Deal Flow Media www.dealflowmedia.com Sept. 13-15 Utility Scale Solar Finance & Investment Summit San Diego Infocast www.infocastinc.com Sept. 15-16 Private Equity Summit for Institutional Investors San Francisco Opal www.opalgroup.net Sept. 21-22 Alternative Investments Summit San Diego IMN www.imn.org Sept. 22-24 Investing in Distressed Debt New York IQPC www.iqpc.com Sept. 23 Private Equity Portfolio Companies New York Capital Roundtable www.capitalroundtable.com Sept. 23-24 Mergers & Acquisitions 2010 Chicago PLI www.pli.edu Sept. 23-24 Distressed Commercial Real Estate Forum New York IMN www.imn.org Sept. 29-Oct. 1 Healthcare Deal Making Summit Nashville Infocast www.infocastinc.com Sept. 30 Private Equity Investor Relations New York Capital Roundtable www.capitalroundtable.com

Events Outside US Dates Event Location Sponsor Information June 28-30 SuperReturn Emerging Markets 2010 Geneva ICBI www.icbi-events.com July 6-7 Infrastructure Investor: India Delhi PEI Media www.peimedia.com July 14-15 International Wind Financing Summit London Hanson Wade www.hansonwade.com Aug. 30-Sept. 1 Infrastructure Investment World Brasil 2010 Rio de Janeiro Terrapinn www.terrapinn.com Aug. 31-Sept. 3 Infrastructure Investment World Asia 2010 Hong Kong Terrapinn www.terrapinn.com Sept. 15-16 Private Equity Intl. CFOs & COOs Forum London PEI Media www.peimedia.com Sept. 15-17 Capital Creation 2010 Monte Carlo WBR www.wbresearch.com Sept. 22-23 PEI Turkey Forum Istanbul PEI Media www.peimedia.com Sept. 22-23 Investing in Distressed Debt London IIR & IBC www.informaglobalevents.com Sept. 30 National Summit on Private Equity Toronto Canadian Institute www.canadianinstitute.com Oct. 5-6 Private Equity Int’l. India Forum Mumbai PEI Media www.peimedia.com Oct. 12-13 Private Equity Indonesia Summit 2010 Jakarta IQPC www.iqpc.com.sg Oct. 17-20 SuperReturn Middle East 2010 Abu Dhabi ICBI www.icbi-events.com Oct. 18-21 Private Equity World Africa 2010 Johannesburg Terrapinn www.terrapinn.com Nov. 8-10 Infrastructure Investment World Africa Johannesburg Terrapinn www.terrapinn.com Nov. 15 Canadian Private Equity Markets Summit Toronto Insight Information www.insightinfo.com To view the complete conference calendar, visit The Marketplace section of PEinsider.com

June 23, 2010 Private Equity INSIDER 11

FUND-RAISING ACTION

Target Placement Amount Manager Fund, Key Executive Type: Focus Agent (Mil.) Action Linden, Linden Capital Partners 2, Buyout: Healthcare Park Hill Group $300 Held final close Chicago Anthony Davis, Eric Larson and Brian Miller with $375 million. Partners Group, Partners Group European Mezzanine, Mezzanine finance: €500 Held final close Zug, Switzerland Rene Biner Europe with €553 million. Vital Farmland, Farmland, Buyout: Organic (None) $100 Just started San Francisco Craig Wichner farmland marketing. ASee Page 5 To view all past Fund-Raising Action entries, visit The Marketplace section of PEinsider.com

tin- r con secto as the t year rket er las % ma brok ng 33 fol- hotel oppi tivity, ctive a wh of ac ree- ost-a ing it illion st th the m s, giv $4 b almo se, was l sale , with ndled ataba Eastdil Winsed Hotel Rankingf hote ec oasnd Salesms ha Soareal D ges ion o ong s ee fir s D on Pa Eastdil Secur. 3 bill a str he thr deals surge d $5. ished on. T f top ed to okere fin 4 billi to Real Estatel iAlert’st o dy 2007 u dil br d Elliott t $2. ding g and alrea East ar a ccor ankin firm g ARY 14, ear, a see r The s strin re. Hodges W last y ore ( ables. stdil’ d FEBRU sha Jones Lang LaSalle,sales n or m ue t ut Ea le an ed by large illio ’s leag ers. B artic low of all $25 m year brok n (see TOP INDUSTRIAL BROKERS IN 2006 ters les of n last enter wo 6 quar ks sa rth i ing-c d Ellis ar, to h trac ’s fou hopp st ye hic stdil nd s CB Richar la age 8 6 TOP INDUSTRIAL DEALS IN 2006 w s Ea all a ich 32% on P y wa ce, m g, wh d by TEL TEL BROKERS IN 2006 8-9). ictor offi nkin soare See HO OP HO he v gs of ial ra ns, 8 T T ankin dustr sactio ers the r he in tran TEL DEALS IN 2006 won n in t ). kered 9 TOP HO broke es 6-7 unbro was Pag ding stors ing on inclu g inve Cushman Recruiting‘Gr Retaileen’ BrokFund rank ales, givin 3 ture tel s ed in Newland ,Englandp. Ven Ho Eng swoo op- New e fell 10 sh 3 Developer Raising ks Retail k ket in in on eting and ortfolios Offere mar kets mark Cod it th rmar ss., is ape ut Goldman Fund Bac . Offices on Bloc ave h supe , Ma rea, C at abo  Start my 3-issue3 FREE trial liosubscriptions h ers of intree tan a lued to YES! i tfo st ra ol va kage Listed il por p clu in B trop lio is ge. Repositioned Calif 2 Big Retailreta P oop u based n me ortfo acka ters 4 ial Pac m large to sc firm Bosto oot p as a p cen Two nities ment f the are-f rties pping higan Industr ortu velop ns o n-squ prope 6 sho The 1.9 4 Mic re opp a de sectio illio the ted 2 al ra uent 2.5 m pping as lis s initi x Available Flatley Co., affl . The sho ss., h yer’ Hotel Syndicator to Expand Platfor rs in shire is , Ma Jones Lang LaSalle.he bu lio or REAL ESTATE ALERT.5 There are cen te noamp stringsakefield kland w ithattachedrice, t ortfo -- ping ew H f Roc n area that p tire p Area Office Comple ern N o osto n. At the en Profit 5 Bay ial Ranking south n. Cushman & W the B illio on ents in m id es Industr abs llio Tedeschi Realtyrkets $440 can b repr l ops $500 mi hile, erma bout stors ckage retai 7 CB T eanw g sup d at a . Inve e pa p its M din alue 25% e. Th ilt u age 5 Apartments Up for Gr estan o is v ly 6. y rat ch bu on P nd fre rtfoli ough panc , whi AIL I won’t receive an invoice10 unless I choosea -sf po d be r to subscribe.occu latley See RET VEHICLES illion woul ios. erage gs. F m yield rtfol % av oldin INVESTMENT nual ub-po a 96 tail h 10 an ree s o has m’s re of th rtfoli he fir d any ’s po s of t fun latley arter added t From the Freshest F ee-qu alue- lates thr n v the bout illio ts, in sell a 300 m tmen oup will gs it e a $ inves lti- ops Plano forrais Apartmentment Fundo mu NAME: THE GRAPEVINE ea buildin ans t apart ed tw in e Blackstone o-aGr r ed pl yield perat inoff ks lik Chicag operties ancel high- rket. als o the sp ri- It loo and he has c ding d ma incip after rn, p oston ulk.T ING Spinoffnoff Dr f fin e fun se pr hicle retu s the B ith Equity Officeninb Pr spi ulty o of th who n ve -15% pertie ted w ertha can maxi- ING diffic ector eir ow d a 13 pro ath it of An f the that s artners, ch th rgete amily inheri -one,r thinks riety use o ss in laun ve ta ulti-f ne-by tone g a va rban beca akne ed to ld ha d m quity o Blacks getin subu of we d Concert Realtyplann P d wou resse soft e is y tar and nt sign ING, 3 fun dist up ding buzz ofits b ntown fere o-base ile at mily g or lined inclu pr dow k a dif Chicag s wh lti-Fa ormin ncert year, mize the e too on, fund t Mu rperf d Co s last COMPANY: rs for ton shingt amily oncer unde rs sai layer buye Blacks Wa e it f 05. C ing vesto nal p Robert gs. York, wher te 20 cquir . In titutio ons. als — at Intelligence buildin New Ore., la by a oblem ins uisiti incip ties th gy in land, rily a pr n from acq t’s pr oper strate Port ma ide. s not illio begin oncer nd pr age 11 and olios. ionw g wa 100 m g and tly, C to fi on P Seattle portf to nat raisin east $ losin aren nable big eking und of at l first c . App ere u See SPINOFF lipped sse for its F ents ld a place — w f whichi uity mitm to ho took of eq ng- com ough ever ew Sands e Capital, n ed lo en ng n Andr millio as hir ING — closi and ADDRESS: Dunmor to $200 nd, h ve Ed t the up ty fu perati n Bu Bradley Muth raise ortuni rty o so een, t opp tic Pa t. Emer t firs cra esiden m Wes McSw Demo ice pr y fro time as a v imaril ty, pr rs. Bentley age Emerson t equi vesto solici nal in will titutio st ins See GRAPEVINE on Back P See for yourself how REAL ESTATE ALERT guarantees CITY/ST/ZIP: Coa

your edge by tipping you off to private wheelings and TEL: dealings in the commercial-property market. E-MAIL: FREE 3-ISSUE TRIAL SUBSCRIPTION Sign up for a Fax this coupon to: 201-659-4141 and each week you’ll get the latest word on the secret To order by phone, call 201-659-1700 strategies of opportunity funds, foreign buyers and other Or mail to: Real Estate Alert smart money. We’ll also tip you off to big owners 5 Marine View Plaza, #400, Hoboken NJ 07030 preparing to offer their real estate holdings. You can also start your free trial at REAlert.com June 23, 2010 Private Equity INSIDER 12

in 2007 by Palomar Ventures alumni buyout firm Abatis Capital, which has THE GRAPEVINE Brian Garrett and Rick Smith, hopes to been trying to raise $1 billion for its raise about $50 million for the vehicle. first fund. He has also held fund-rais- ... From Page 1 The effort comes after the duo scaled ing roles at AllCapital, Morgan Stanley most recently held the title of vice pres- back plans for their first fund, which Alternative Investment and State Street ident. She’s set to take her new post in held its final close in 2008 with $20 Global. mid-July, assisting in evaluating and million. Crosscut invests in seed- and monitoring investments in buyout, early-stage digital-media and entertain- Morgan Stanley Alternative Investment growth-capital and distressed-asset ment companies, and so far has 10 has openings for two new staffers on its funds. portfolio companies in its debut pool. secondary-market team, which cur- rently numbers eight. The recruits Placement agent MVision has hired a BlackRock is seeking a junior private would take the title of associate or ana- managing director for its New York equity analyst for its fund-of-funds lyst, with one working in West office. Lina Russo’s duties at the London group, BlackRock Private Equity Conshohocken, Pa., and the other com- firm include raising capital for private Partners. The recruit would work with- ing on board in London. Morgan equity funds around the world and find- in the operation’s portfolio-manage- Stanley Alternative finished marketing ing marketing assignments from man- ment division in Plainsboro, N.J. His or its first stand-alone secondary fund in agers in North America. Russo most her duties would include investment May with $585 million, beating its $500 recently worked within the placement- monitoring and reporting. BlackRock million goal. agent group at Merrill Lynch, whose two- Private Equity formed in 1999 and dozen personnel broke off last year to manages $6.3 billion. It is led by Russell Alternative-investment specialist Gerard form Mercury Capital Advisors amid the Steenberg. Pilgrim has been caught in a round of bank’s takeover by Bank of America. She layoffs at financial-advisory firm Duff & chose not to move to the new operation. Placement agent Mallory Capital has Phelps. Pilgrim assigned values to pri- Separately, MVision hired Carrie Coulson hired Scott Gregory to raise capital for vate equity and hedge fund portfolios, to pitch real estate funds. She came from private equity funds as a managing working in Duff’s Washington office. JT Partners. director in its Darien, Conn., head- He was among about 30 mid-level quarters. Gregory previously headed staffers let go over the past month as Crosscut Ventures is talking to investors institutional sales and investor rela- the New York shop coped with disap- about a second fund. The firm, formed tions as a partner at energy-focused pointing revenues.

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