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FINANCE • LEGAL • COMPLIANCE • OPERATIONS • TAX

Issue 147 • Dec 2016 / Jan 2017 • www.privatefundsmanagement.net

FALSE ALARMDon’t panic! Even the most-feared regulations can have an upside

COMPENSATION CULTUREIt’s not just about the salary. How to recruit and retain talent

CFO EVOLUTIONThe changing role of finance departments

IT’S COMPLICATED REAL ESTATE’S RELATIONSHIP WITH BACK OFFICE CHALLENGES

YOU’RE FIRED! MINIMIZE THE PAIN OF LETTING SOMEONE GO

SEE CHALLENGES BEFORE THEY’RE CHALLENGING.

To make confident decisions about the future, middle market leaders need a different kind of advisor. One who starts by understanding where you want to go and then brings the ideas and insights of an experienced global team to help get you there.

Experience the power of being understood. Experience RSM.

rsm us.com

RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. GR-NT-ALL-PEG-1115

We’re up to speed, so you can go full speed.

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Dec 2016 / Jan 2017 • Issue 147 • private funds management.net 1

SEE CHALLENGES BEFORE THEY’RE CHALLENGING.

To make confident decisions about the future, middle market leaders need a different kind of advisor. One who starts by understanding where you want to go and then brings the ideas and insights of an experienced global team to help get you there.

Experience the power of being understood. Experience RSM.

rsm us.com

RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. GR-NT-ALL-PEG-1115

We’re up to speed, so you can go full speed.

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editor’s letter

EditorClaire WilsonTel: +44 207 566 [email protected]

Senior Editor, Private EquityToby MitchenallTel: +44 207 566 [email protected]

Americas Editor, Private EquityMarine ColeTel: +1 212 633 [email protected]

Staff WriterNicole MiskellyTel: +44 207 167 [email protected]

Production EditorMike SimlettTel: +44 207 566 [email protected]

ContributorsAdam KoppeserRob Kotecki

Design and Production ManagerCarmen GrahamTel: +44 207 167 2039 [email protected]

Head of AdvertisingAlistair RobinsonTel: +44 207 566 [email protected]

Advertising ManagerAnthony HackettTel: +44 207 566 [email protected]

Subscription SalesEMEAAlexis SavvidesTel: +44 207 566 [email protected]

Asia PacificAndrew AdamsonTel: +852 2153 [email protected]

AmericasAndre AndersonTel: +1 646 545 [email protected]

Customer ServicesFran HobsonTel: +44 207 566 [email protected]

An NguyenTel: +1 212 645 [email protected]

For subscription information please visit www.privatefundsmanagement.net

Group Managing EditorAmanda [email protected]

Editorial DirectorPhilip [email protected]

Head of Research & AnalyticsDan [email protected]

Publishing DirectorPaul [email protected]

Chief ExecutiveTim [email protected]

Managing Director – AmericasColm [email protected]

Managing Director – AsiaChris [email protected]

Private fund managers are facing a litany of back office challenges, made all the more complicated by seismic political changes that have unfolded over the past six months. This month’s pfm gathered three private real estate fund managers, a fund administrator and a lawyer to discuss the ongoing challenges of running a private real estate fund, BEPS, Brexit, and, in a last minute addition to the roster, the outcome of the US presidential election. The write up from the roundtable is on p. 14.

Beyond that, we look at how best to manage people within a firm. While there is an awareness there should be more diversity at private fund houses, it seems, on the investment side at least, the industry is very much sticking to type. The drive to increase the number of female staff members is gaining a little momentum, but recruitment of other minority groups appears to be very much lacking. There is little information on ethnic diversity in the industry, and no stats on LGBT or disabled recruitment in the private funds space.

To address this, and to mobilize the benefits of employing candidates from less affluent backgrounds, a number of schemes have been launched by recruiters. The feature on p. 26 looks at the advantages of hiring a more diverse workforce and updates on some of these schemes.

Of course, recruitment is just part of the battle when it comes to staffing a private fund house. Making sure employees are adequately compensated –

be it financially or otherwise – is crucial to attract and retain talent. We look at some of the latest payment stats (p. 33) and what else a firm can offer staff to keep them satisfied (p. 37). We’ve also taken a peek inside some of the industry’s coolest office spaces – check out the gallery on p. 24.

And what to do when things don’t go to plan? Sometimes it’s necessary to let someone go – a tricky situation in any business, but arguably more so in the tight-knit community that is a small private funds house. We spoke to lawyers specializing in employment law, who shared their best practice tips for firing someone (p. 28).

Also this month, we look back on some of the biggest people moves of the year (p. 34), and speak with some lawyers about making the move from a firm to general counsel – the consensus being that patience is a key requirement (p. 36)!

On the news side, we bring you the inside scoop from the recent PEI Funds Compliance Forum in San Francisco. There is also an update on some key European legislation that will impact fund managers with high net worth clients, and details of the lawsuit launched against law firm Goodwin by rival King and Wood Mallesons.

Enjoy the issue,

Claire WilsonEditor, [email protected]

The human touch

2 private funds management • Issue 147 • Dec 2016 / Jan 2017

commentary

contents • DEC 2016 / JAN 2017 • ISSUE 147

14 Real challenges pfm gathered three private real estate fund managers, a fund

administrator and a lawyer to discuss the ongoing challenges of running a private real estate fund, BEPS, Brexit and, in a last-minute addition, the outcome of the US presidential election

New York: 16 West 46th Street, 4th Floor / New York, NY 10036-4503 / +1 212 633 1919 / Fax: +1 212 633 2904 • London: 140 London Wall / London EC2Y 5DN / +44 20 7566 5444 / Fax: +44 20 7566 5455 • Hong Kong: 14/F, Onfem Tower / 29 Wyndham Street / Central, Hong Kong / +852 2153 3240 / Fax: +852 2110 0372 • PFM is published 10 times a year. To find out more about PEI please visit: www.thisisPEI.com • Printed by Hobbs the Printers Ltd / www.hobbs.uk.com • © PEI 2016 • No statement in this magazine is to be construed as a recommendation to buy or sell securities. Neither this publication nor any part of it may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system, without the prior permission of the publisher. Whilst every effort has been made to ensure its accuracy, the publisher and contributors accept no responsibility for the accuracy of the content in this magazine. Readers should also be aware that external contributors may represent firms that may have an interest in companies and/or their securities mentioned in their contributions herein. • Cancellation policy: you can cancel your subscription at any time during the first three months of subscribing and you will receive a refund of 70 per cent of the total annual subscription fee. Thereafter, no refund is available. Any cancellation request needs to be sent in writing (fax, mail or email) to the subscriptions departments in either our London or New York offices.

Paper from responsible sources

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features

4 First Avenue hires CFO

5 Valuations paper trail essential for SEC exams

6 FCA sets out vision for ‘radically different’ future

7 KWM sues Goodwin over PE team defection

8 SEC: CCOs need to enhance their skillsets

11 Pakistan regulator approves first PE fund licence

also in this issue

20 A whole new ball game As firms evolve from private equity shops to multi-alternative asset

managers, KKR’s Bill Janetschek discusses how the role of CFOs and finance departments has changed

Around the table: the real estate sector is learning to expect the unexpected

p. 14

26 Sticking to type The little data available on minority recruitment at alternative

assets firms paints a bleak picture. Is the industry the final frontier when it comes to diversifying staff ?

28 When it’s time to say goodbye GPs faced with the prospect of firing an employee need the right

mix of documentation, counsel and candour to minimize the risk of lawsuits and recrimination

34 Comings and goings From Australia to London, pfm takes a look at some of the key

private equity arrivals – and departures – of the past year

Special report: human capital

12 False alarm? Fund managers panicking about regulation

should remember they can influence what’s made into law, and the most feared rules can have unexpected benefits

13 Get it in writing As compliance and reporting requirements

become more exacting for private fund managers, the importance of paper trails comes to the fore

Dec 2016 / Jan 2017 • Issue 147 • private funds management.net 3

news

The month in numbers

74%Percentage of firms that have a

loose rather than detailed co-investment policy

67%Delegates at the PEI Fund Finance and

Compliance Forum who spend more than 40 hours on valuation tasks each quarter

13%Delegates who said they are

planning to register staff as broker-dealers

£500mAmount Disruptive Capital Finance is seeking to raise for a new primary vehicle $400bn

Value of assets tied up in funds that have reached, or are near, maturity dates, according to Crestline Investors $350,000

Base salary paid to managing directors at distressed funds, according to the same survey

$307,000Annual salary for partners at buyout funds, according to Heidrick and Struggles

£21.5mFines issued to

companies in the UK employing illegal staff,

July and December 2015

£20,000Allegedly owed to recruitment firm Adecco by Gores Group

from an acquisition, according to a lawsuit


xxxxxxnews

PE firms toughen up on T&E expenses

Placement agent and advisory firm First Avenue has hired Caroline Weir as chief financial officer.

Weir will be based in the firm’s London office and lead its financial function across its five offices in San Francisco, New York, London, Hong Kong and Sydney.

Weir has spent 17 years in asset management. She joins First Avenue from NewSmith Asset Management, which provides alternative and traditional asset management services to corporate, institutional and government clients. She takes over from Kate Lyon, who leaves at the end of the year after being with the firm for eight years.

In April, First Avenue appointed Stefan Sarles as its first general counsel. Among First Avenue’s clients

are emerging markets specialist Actis, for which the firm has raised infrastructure and growth funds, and M&G Investments, for which it has raised two private debt funds.

First Avenue hires CFO

Counting coffees: make that a tall, not a venti, please…

Stop, that’s my street: Caroline Weir is joining as CFO

Private equity firms are taking the Securities and Exchange Commission’s crackdown on fees and expenses seriously, with some partners now required to justify outgoings as nominal as a cup of coffee.

Just over a fifth of delegates polled at the PEI Funds Compliance Forum in San Francisco said their firm is reviewing every expenses bill put through by a staff member, while 85 percent said their key priority was to enhance their fees and expenditure policy or revise their disclosures documentation.

The extent to which expenses policies are being reviewed varies, but the consensus was business travel expenses in particular are being scrutinized at a more granular level.

Number of senior women in UK PE firms grows

The number of women taking on senior roles at UK private equity firms between 2014 and 2015 rose 7 percent, according to figures compiled for the Financial Conduct Authority, the UK regulator.

Women accounted for one in eight partners in 2015, up from one in 10 a year earlier, data gathered by DHR International on behalf of the FCA show. In real terms, the number increased from 378 to 405.

A range of schemes aimed at increasing gender diversity within both the private equity industry and wider financial services have launched over the past year.

“We’re encouraging more shared trips, and trying to economize on travel expenses. We need more documentation; we’re tracking more heavily who is paying for what on a trip,” one GP from a US- based lower mid-market private equity firm said.

Policies have also become more explicit, outlining exactly what can be charged.

“Small details such as the time after which you can expense your laundry are now included. And we also outline what cannot be expensed – massages, movies, that kind of thing,” the GP added.

“The SEC can ask you for evidence [of your testing procedures]. It’s important to think about how you will present it.”

Dec 2016 / Jan 2017 • Issue 147 • privatefundsmanagement.net 5

xxxxxxnews

A private equity firm’s ability to justify its valuation process is often of more concern to the Securities and Exchange Commission than the accuracy of the outcome, according to industry sources.

Discussing SEC valuation examinations at the PEI Private Fund Finance and Compliance Forum, GPs and external auditors said the SEC is more likely to take enforcement action over misunderstanding of the valuation process than inaccurate valuations.

While an auditor places importance on the materiality threshold – the point above which missing or incorrect financial information is considered to have an impact on decision-making – the SEC doesn’t really consider this, one auditor said. “Enforcement action was taken against one firm over

the use of a valuation model, created by a major company, which had a mathematical flaw,” the auditor said.

“The action was taken because the firm hadn’t demonstrated why it believed in the output of the model, not

because it used a model which produced a flawed valuation assessment.”

Panelists agreed it is essential that a firm creates a paper trail and a robust valuations practice, and that everyone in the process can justify their actions.

Valuation paper trail essential for SEC exams

Private equity investments made by US pension funds significantly outperform those made in other asset classes, according to the American Investment Council.

Yields from a 10-year private equity investment average 11.4 percent, compared with 7.6 percent from public equities, 6.3 percent from real estate and 5.2 percent from fixed income, its data show.

The report, produced annually, looked at holdings of 155 US public pension funds. It found they invest just under 10 percent of their portfolio in private equity, with the largest proportion,

45 percent, committed to public equity.

In real terms, the California Public Employees’ Retirement System has invested the largest amount of capital in private equity, at $28.8 billion.

PE holdings yield most for US pension funds

CalPERS: top US pension for PE investment level

Myners joins Brexit consultancy

London-headquartered political risk advisor Global Counsel has made a number of strategic changes since the Brexit referendum result, including the appointment of City grandee Paul Myners as vice-chairman.

Myners will be responsible for advising financial services clients on the impact of policy change on their businesses or investment plans, according to Global Counsel.

Myners, who joins the firm’s London office, previously worked as chief executive of investment firm Gartmore Investment Management and served as non-executive director at private equity firm Bridgepoint Capital.

He penned the Myners report to address government concerns institutional investors were not acting in the best interests of their beneficiaries. The report recommended that fund managers’ fees detail the cost of commissions for share trades to pension funds.

The political risk advisor has also moved its Brussels office closer to the headquarters of the EU Commission.

Real priorities: show your work, says the SEC


news

PE industry braced for imminent carry legislation

The European Commission has delayed the introduction of new rules affecting private equity firms with high net worth investors, just seven weeks before they are due to enter into force.

More than 20 EU member states had already called for a one-year postponement to the Packaged Retail and Insurance-based Investment

Products regulation, previously penned for December 31, because there were no official guidelines for compliance.

Proposed guidelines were overwhelmingly rejected by the European Parliament in September. The debate on the delay was planned to take place on November 22, but brought forward two weeks following criticism that it was too close to the regulation’s scheduled entry into force.

Under the regulation, every packaged product providing exposure to an underlying instrument sold to retail investors must have a key information document. Private equity firms whose clients include high net worth individuals will have to prepare KIDs because such investors qualify as retail investors under the Markets in Financial Instruments Directive.

EC postpones PRIIPS launch date

Carry loophole: days are numbered?

European Commission: could delay PRIIP

Legislation to close the carried interest tax loophole in the US will be passed within nine months of Donald Trump being sworn in, private equity insiders predict.

Delegates at the PEI Private Fund

Finance and Compliance Forum in San Francisco agreed action was likely based on current sentiment, and the historical pattern of legislative change post-presidential election.

“Big changes have been made to

FCA sets out vision for ‘radically different’ future

The UK’s Financial Conduct Authority will be more transparent over the action it takes against firms that breach market rules in the future, it said in its new mission statement, but details of how it will do so are sparse.

The regulator said while it takes all enforcement powers seriously, not all breaches currently result in a formal investigation.

“In these cases, we think there is benefit in our working with firms to agree lessons learned and ways forward, even if the problem did not lead to us using our enforcement powers,” it said.

financial policy at the start of the past five administrations. There is a belief the carried interest issue will be dealt with as a priority,” one general counsel said. A second participant predicted the matter would be dealt with in the first six to nine months of the presidency.

The Wall Street carried interest tax loophole allows financial managers at private equity firms, hedge funds and other qualifying firms to pay a capital gains tax rate – as low as 23 percent – on their income, instead of the higher income tax rate of 39 percent. Trump has called for taxing carried interest as ordinary income rate.

Delegates agreed that, should legislation on carry be passed, adjacent legislation to address management fee waivers would be put on the backburner.


news

King and Wood Mallesons is suing its former co-head of corporate Richard Lever and his new firm Goodwin over the departure of a team of Paris-based private equity partners, a spokeswoman for the defendants confirmed.

The claim was filed with the High Court in London on May 16, and relates to the hire by Goodwin, previously known as Goodwin Proctor, of six former KWM lawyers, including its former Paris managing partner Christophe Digoy.

Lever left KWM in 2015 to help establish a London-based private equity presence for Boston-headquartered Goodwin. He was joined a few months later by former colleague Simon Fullbrook, who specializes in leveraged finance transactions.

The Paris team followed the pair in

April this year. The six-strong group was charged with opening the Goodwin Paris office, and reportedly took around £8 million in annual billings when it made the switch.

Since it hired the former KWM

private equity team Goodwin has further expanded its Paris office, poaching the corporate finance team from Shearman and Sterling.

KWM did not respond to a request for information before publication.

KWM sues Goodwin over PE team defection

Maples Fund Services has appointed Robert Wolfe as its inaugural head of private equity solutions, the firm said.

Based in Boston, Wolfe will lead the expansion of the firm’s private equity fund administration service.

His career in the private equity industry spans 25 years. Most recently he was chief operating at Citi private equity services in New York, and he previously held the same position at Bisys private equity services.

He also has more than 10 years’ experience in private equity fund administration.

Wolfe’s appointment follows the announcement sister firm Maples Fiduciary is opening an office in London, led by Sam Ellis, focused on providing corporate and fiduciary services to UK clients.

Maples Fund Services names first head of PE

Service provider: Wolfe will lead the expansion of the firm’s PE fund administration service

Harken Capital appoints two MDs

Harken Capital Securities, a provider of private equity fund placement and secondaries advisory services, has appointed Peter Landauer and Jeffery Moy as managing directors.

Landauer joins the firm from the University of Florida Investment Corporation, where he worked for 12 years. Most recently he served as director of private investments and oversaw a portfolio of 125 funds and $1.2 billion of committed capital across private equity, natural resources and real estate, according to a statement. He was previously UFICO’s director of real assets and as chief operating officer.

Moy joins Harken with over 20 years of investing experience, most recently as head of private equity for alternative investment advisory firm Central Park Group. Before that, he served as head of private equity at financial advisory firm Rockefeller & Company.

The hires bring the number of managing directors at the firm to five, according to Harken’s website.

Court action: the claim relates to the hire of six former KWM lawyers


news

SEC: CCOs need to enhance their skillsets

Data analytics provider eVestment has launched a private equity platform for data collection and reporting.

Private Markets Alliance is a platform that allows general partners to report fund performance data and distribute it to investors and consultants. It should streamline a

GP’s data reporting procedure, and lessen the amount of time required to respond to data requests from limited partners. The platform also allows LPs and consultants to compare funds, supporting their GP selection due diligence.

The Atlanta-based service provider worked with a consortium of 11 industry consultants, who advise on over $8 trillion in assets, to build the system. These consultants include Angeles Investment Advisors, Colonial Consulting and Ellwood Associates.

eVestment primarily provides institutional investment data and analytics, and also has offices in London, Hong Kong, New York, Sydney, Dubai and Edinburgh.

eVestment launches streamlined data reporting platform

Study up: CCOs should have wide knowledge, SEC says

Networking: GPs can share performance data with investors

Chief compliance officers will need to expand their skillset if they are to keep up with the demands of the role in the future, according to Securities and Exchange Commission chief of staff Andrew Donohue.

British Virgin Islands launches AIFMD opt-in

The British Virgin Islands has introduced a new regime that will enable fund managers to opt in to be regulated to an EU-equivalent standard, allowing them to market their funds in the bloc and, in the future, obtain an AIFMD passport.

Amendments to the territory’s Securities and Investment Business Act have been approved, and include an option for new or existing funds to become an EU Qualified BVI AIFM.

It is intended to smooth the transition from marketing of funds under the NPPR, which could expire as early as 2018, to using an AIFMD passport.

“I envision the necessary expertise for compliance will consist of a far broader set of subjects, including expertise in technology, operations, market, risk, and auditing, to name a few,” said Donohue.

“Even now, compliance personnel need to have a solid understanding of these areas, but I envision the role becoming even more demanding such that a CCO will truly need to be a jack of all trades with access to a wide array of skillsets.”

The SEC’s focus on the private funds industry in recent years has placed growing pressure on firms to introduce stronger compliance programs.

To keep up with increasing demands, Donohue advised compliance officers to make it a priority to develop the necessary technical expertise, keep up with changing market dynamics, fully appreciate all of the firm’s businesses and follow regulatory developments and their impact on the firm and its operations.


xxxxxxnews

UK alternative investment fund managers will be less affected by the loss of the right to operate freely across the EU following Brexit than counterparts in other financial services sectors, according to research.

The wording of the Alternative Investment Fund Managers Directive, the key piece of legislation governing the sector, coupled with the way in which many managers structure their business, means passporting is only of

Brexit passport loss not critical for AIFs

The Securities and Exchange Commission of Pakistan has approved the first ever application filed by a non-banking finance company to undertake private equity and venture capital fund management services, the regulator said.

The license will allow the NBFC to launch private equity and venture capital funds as well as alternative funds. The fund will be regulated under new private funds rules implemented in March 2015.

Last year, the commission took a number of measures to aid the development of the mutual and private funds industry in Pakistan, including the establishment of Private Fund Regulations. Under this framework, funds are required to include investment strategies and report valuation procedures and audits periodically to investors.

Pakistan regulator approves first PE fund license

Pakistan: new territory for PE funds

New Crestline team to sniff out niche exit opportunities

Crestline Investors has established a credit and fund restructuring team to assist GPs and LPs exit their investments outside the secondaries markets, it said.

The team will target “niche opportunities,” and work with GPs to help them maximize the value of their assets.

The move was motivated by current market conditions; Texas-based Crestline said there were around $400 billion in private equity assets currently tied up in funds that have reached, or are near, their maturity dates.

“GPs and LPs are looking for alternative financing and liquidity solutions not met by traditional secondaries markets,” Amit Mahajan, co-head of the team, said.

“We want to help fill the current gap in the market by working directly with GPs and LPs to identify an exit strategy that fulfils the needs of all parties

David Philipp, who has been with Crestline since 2013, will co-head the team with new hire Mahajan, who joined from Macquarie Asset Management.

Brexit: not as bad as it looks for AIFMs

“medium importance” to AIFMs, the research from think tank Open Europe suggests. “Many of the larger funds already choose to operate European subsidiaries, rather than relying on a passport,” it said in a report.

The AIFMD envisages the possibility of delegating portfolio management functions outside the EU – meaning UK-based asset managers might be able to keep providing portfolio management services for funds domiciled within the EU/ European Economic Area, it said.

“This would amount to keeping indirect access to the passport, built on existing regulations. Under such a scenario, only around 7 percent of total assets managed in the UK would be under direct threat from the loss of the passports in this sector.”


xxxxxxnews

Revised US debt-equity rules less burdensome for PE

SEC examiners will start prioritizing checks on compliance with whistleblower protection laws, the regulator said.

Examiners will be checking compliance manuals, codes of ethics, employment agreements and severance agreements to see whether provisions in these documents may restrict

people from speaking to the SEC, the commission said in a risk alert.

“This review is included in examinations when staff deem it appropriate,” the alert said.

Private fund managers should ensure whistleblowing activities are carved out from general confidentiality agreements, so staff are not prevented from raising concerns with the commission. “[The] SEC is not trying to dictate the language of these agreements or warnings – that is the company’s responsibility. But a company needs to speak clearly in and about confidentiality provisions, so that employees, most of whom are not lawyers, understand it is always permissible to report possible securities laws violations to the commission,” SEC chairwoman Mary Jo White said last year.

SEC to check on anti-whistleblowing policies

US tax law: revisions to recent legislation mean more exclusions

Safe and sound: compliance must be up to date on whistleblower protection, SEC says

Revisions to recent US debt-equity legislation mean it affects fewer alternative funds than expected.

The regulation, re-characterizes some cross-border intercompany debt instruments as equity for US tax

purposes. The final version excludes non-US issuers of debt and exempts financial institutions.

Corporate debt issued to a partnership shareholder is also exempt, unless issued to a controlled partnership – defined as

Caymen, Bermuda passport decision imminent

The European Securities and Markets Authority expects to advise on whether or not to extend the Alternative Investment Fund Managers Directive passport to Bermuda and the Cayman Islands “in the short term”, but is unable to give a firm deadline for its decision.

ESMA head Steven Maijoor told the European Parliament’s Economic and Monetary Policy committee that the watchdog is continuing to assess the case for extending the passport to the two British overseas territories with a view to reaching a definitive conclusion soon.

ESMA was unable to comment more specifically on the timing of the decision.

a group that owns more than 80 percent of the capital or profits. This means most debt issued to private equity funds by the portfolio companies they own would not be subject to the regulation, lawyers said.

It also excludes real estate investment trusts and their subsidiaries, except where more than 80 percent of the vote or value of the REIT is owned by a corporate entity. Most REITs owned by private equity funds, which generally do not hold 80 percent stakes, are excluded. Funds that operate blocker structures – offshore entities through which foreign investors commit capital to a fund to avoid being liable for US tax – may be affected at a later date. The final regulation does not specifically address blockers, but says the IRS expects to address them in the future.


xxxxxxnews

Private equity firms remain uncertain as to whether or not they should consider registering staff as broker-dealers, according to panelists at the PEI Private Fund Finance and Compliance Forum.

They said regulatory guidance on and action relating to the matter is not considered decisive. A number of GPs said that while broker-dealer registration was clearly on the Securities and Exchange Commission’s agenda, output from the regulator to-date suggests a clampdown is not a top priority.

One GP, whose firm has registered broker-dealers, said the SEC doesn’t seem too concerned about the matter, but it took the decision to register as it “didn’t want to become a case study.”

Echoing this sentiment, a second

GP said for some firms registration was an insurance policy, rather than a necessity.

To date, just one private equity firm, Blackstreet Capital Management, has been fined for not registering its advisors

as broker-dealers. In Blackstreet’s case, the SEC alleged the firm provided brokerage services to its portfolio companies and received transaction-based compensation in connection with acquisitions and dispositions.

SEC broker-dealer views lack conviction: forum

The Commerce Department’s Bureau of Economic Analysis has eased the foreign investment reporting burden for some private funds, with new rules taking effect on November 21.

Under the amendments, financial commitments made to a US private fund by a foreign investor will no longer have to be reported to the BEA if that investor does not own 10 percent or more of the voting interest in any operating companies held by the fund.

Current legislation requires reporting of all holdings, regardless of the percentage a foreign entity may own.

The rules are designed to more clearly distinguish between direct and portfolio investments, with holdings of 10 percent or less to be considered in the latter category in the future.

Commerce Dept reduces foreign investment reporting burden

Less red tape: Foreign investment reporting burden being eased

CRG appoints vice-president of investor relations

Houston-based CRG, a healthcare-focused investment firm, has appointed Adam Whitehead as vice-president of investor relations.

Whitehead brings more than 10 years of experience in asset allocation, manager due diligence and fundraising to the role. He joined CRG’s Colorado office in October from Crestone Capital Advisors, a multi-family office for ultra-high net worth entrepreneurs and executives, where he served as a senior investment analyst for nearly six years.

Prior to this he worked in senior research roles at financial advisory firms Sovereign Wealth Management, Quantitative Equity Systems and the Bornhoft Group. He began his career as a proprietary trader and asset liability modeler at financial institution Branch Banking & Trust.

Whitehead’s hire comes as CRG, formerly known as Capital Royalty, seeks to raise $1 billion for its latest investment vehicle, CRG Partners III. The fund has raised $663 million so far, according to PEI data.

Paperwork: for some firms, registration is an insurance policy, rather than a necessity


commentary • REGULATION

PHO

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by CLAIRE WILSON

Regulation and compliance: two words almost guaranteed to provoke a groan in alternative

asset management circles. A slew of far-reaching new conditions imposed on the sector over the past five years has transformed fund managers’ operations.

But while the rules push firms to increase their headcounts and consultancy costs, in some cases regulation can turn out to be less burdensome than anticipated – either because industry action results in proposals being watered down, or because assumptions about the impact of new rules are overblown.

False alarm?Fund managers panicking about regulation should remember they can influence what’s made into law, and the most-feared rules can have unexpected benefits

Pierettori: [AIFMD] is not as bad as people initially thought it would be

The new US debt-equity law, which threatened to increase tax bills by reclassifying certain debt as equity, falls into the first category. After delivering hard-hitting proposals in April this year, the Treasury retreated on some of them, largely due to lobbying by stakeholders.

The revised version, which became law in October, is much more palatable for private fund managers, as it captures far fewer firms in its scope. Most debt issued to portfolio companies by private equity funds will not be subject to the regulations.

Private fund firms in the UK, meanwhile, have been awaiting guidance on dreaded revisions to the taxation of carried interest. The UK

Many managers have found compliance

with [AIFMD] less of a traumatic experience

than first feared Marc Schubert

tax office recently circulated details of how the rules should be interpreted by alternative investment managers. Private equity lawyers said the advice was positive for private fund executives who are resident in the UK but not domiciled there, who – under certain conditions – remain eligible for tax relief on a high proportion of their carry.

Perhaps the best example of the regulatory bark being worse than its bite is the EU’s Alternative Investment Fund Managers Directive. Initially seen as a burdensome assault on the industry, the AIFMD has, to some, turned out to be advantageous.

“[AIFMD] is not as bad as people initially thought it would be. It helps to have clear rules about marketing, depositories, and internal controls,” Marco Pierettori, general counsel of InvestIndustrial said at a roundtable hosted by pfm in September.

And it turns out compliance with the directive has been easier to achieve than anticipated, as well.

“Although cost and timing implications still remain an area of concern, in particular for smaller or first-time managers seeking access to the marketing passport, many managers have found compliance with the directive less of a traumatic experience than was first feared,” said Marc Schubert, associate at Weil, Gotshal & Manges.


commentary • REGULATION

by CLAIRE WILSON

The need to keep a paper trail was a recurring theme among experts at the PEI Private Fund

Finance and Compliance Forum in San Francisco recently. The nature of the trail – be it physical or virtual – is not important, but having it is deemed essential. Here are three key areas in which industry professionals are advised to document their activities.

Broker-dealer registrationWhile not thought to be a key priority, registration of broker-dealer staff at private fund houses is on the regulator’s agenda. As such, managers should carry out an assessment of whether it needs to list staff as broker-dealers, and document this process. As one GP said: “Being able to provide documents to evidence to the SEC that you have taken the matter into consideration, regardless of your conclusion, could be invaluable in the case that the regulator steps in to investigate your firm.”

ValuationsFirms are now required not only to produce written valuation methodologies, but also document the testing of those methodologies.

“Please take it seriously, and document your processes,” one auditor said.

These documents are considered essential, as it is widely accepted the SEC is more concerned about there being a tried and tested methodology in place than the accuracy of a valuation.

Get it in writingAs compliance and reporting requirements become more exacting for private fund managers, the importance of paper trails comes to the fore

Feet on the ground: if you use private jets, it should be spelled out in documentation

There is also consensus that regulators are demanding an increasing number of such documents. “It’s an ongoing evolution; regulation will remain in place, so robust methodologies and reporting must continue,” said one GP.

Fees and expensesSince the SEC began a crackdown on what it deems “improper expenses and hidden fees” an increasing number of US-based private fund houses are publishing detailed policies on such areas.

“Everything should be put in writing. It should be black and white with no room for interpretation,” one GP said.

And these policies should be explicit. “If you use private jets, this should be spelled out in the document, as should

the time after which you can expense laundry costs, for example,” the GP added.

Another said it was important to ensure expense claims were submitted with hard copies of receipts and invoices for the charges.

Not content with the creation of this document alone, many firms are also testing their policies to ensure they are realistic, and subsequently documenting the results of these tests.

“The SEC can ask for both the written policy itself and documentary evidence that you have checked it. It’s really important to think about how you present this [test] data to the regulator,” the GP warned.

Regulation will remain in place, so

robust methodologies and reporting

must continue


It’s complicatedA new US president, an EU in crisis and an ever-growing list of regulatory changes. For the five real estate industry experts at pfm’s roundtable the challenges facing fund managers in Europe show no sign of easing

by CLAIRE WILSON

photography by MARCUS ROSE

roundtable • REAL ESTATE

From left: Maqbool Mohamed, Castlelake; Alex Amos, MacFarlanes; Rupert Robinson, Mill Group; Stuart Jenkin, Frogmore; Simon Burgess, Ocorian



Europe’s private fund managers have been facing numerous back-office challenges. Juggling

increasingly complex real estate transactions while staying compliant with laws like the Alternative Investment Fund Managers Directive and Solvency II has increased the need for practical guidance best practices.

Brexit has thrown up a litany of questions from an investment point of view, but also – perhaps more importantly – from a back-office perspective. Unresolved staffing issues and passporting dilemmas relating to UK-based managers’ ability to market funds in the EU are just two. But the three private real estate fund managers, fund administrator and lawyer gathered to discuss the challenges of running a private real estate fund also face another unexpected scenario.

Meeting a few days after Donald Trump’s shock election win, the conversation initially gravitates towards the president-elect and the potential impact of his policies on the private funds industry and the wider economy. Most participants agree there are pros and cons to his victory.

“There are known knowns, known unknowns and unknown unknowns – more so than in any other decade. Conflicting indicators created uncertainty. So for example, on the one hand the Dow Jones Industrial Average hit a record high, on the other, the Nasdaq was down on the threat of an immigration crackdown,” says Stuart Jenkin, director of fund management at Frogmore Property Group.

Turning to his potential policies, there is consensus that US-based funds and projects could benefit from proposals to lower corporate tax. This will have a knock-on effect on other jurisdictions likely to see reduced investment. “Potential lower corporation tax in

Sponsored by Ocorian and MacFarlanes



the US under Trump in order to incentivize US companies to onshore cash piles abroad could work well for him, especially given his domestic infrastructure investment plans,” says Maqbool Mohamed, CFO at Castlelake.

This sentiment is shared by Rupert Robinson, COO at Mill Group, who questions the impact of potential reforms on inflows to the UK from both the US and Asia.

“It will be interesting to see how it affects capital flows; will more or less Asian capital come into the UK, will US investments in the UK slow? If taxation in the US is eased, more domestic capital is likely to be repatriated but could have the effect of further US capital inflows. But I see there could be an opportunity for an increase in more global fund flows,” Robinson says.

But there is also a suggestion that Trump’s anti-Europe rhetoric could strain relations between the US and Europe, which will have an impact on free trade. “Trump appears to be very pro-UK, which is encouraging, but he

seems anti-Europe. There’s already some tension between the US and Europe, and Trump could make it worse, which doesn’t help free trade. It puts tax treaties under threat, which could restrict global flows of capital,” says Jenkin.

“The UK has a great relationship with Asia. They’re not particularly focused on Brexit; they just see long-term investment opportunities and the cheaper value of sterling,” he adds.

As well as proposing a number of tax reforms during his election campaign, the president-elect vowed to “reform the entire regulatory code

to ensure that we keep jobs and wealth in America.” He was particularly vocal on his disapproval of Dodd-Frank, a component of which is the Volcker Rule, restricting US banks from making certain kinds of speculative investments that do not benefit their customers. This has a knock-on impact on private investment funds, as it reduces the amount of investment available from these institutions.

“He seems to be interested in loosening regulation. What happens in the US often filters through to the UK, so there’s a chance the UK could become more competitive if it follows the lead,” says Alex Amos, partner of the investment management group at Macfarlanes.

The UK’s vote in June to leave the EU will, of course, also dictate the direction of regulation in the country. The participants agree that while the referendum has created a great deal of uncertainty, the UK isn’t the only country dealing with an unclear future. A number of elections across the continent will take place in the coming months, raising doubts both about who the UK will be negotiating its exit with and the future state of the European Union itself.

“The EU will evolve and could look quite different in the future. There are more elections coming up and other country exits could follow; the prospect of a north-south, two-part state might become reality,” says Simon Burgess, managing director at Ocorian.

Whether Germany wishes to continue as the principle funder of the European Union, and France as its main cheerleader, is in doubt. Germany’s liberal chancellor Angela Merkel’s approval ratings have fallen, while those of France’s far-right Marine Le Pen have grown as sentiment toward the country’s current president Françoise Hollande plummets to an all-time low. Far-right candidates with strong anti-immigrant

Mohamed: established firms may not leave, but others could rethink moving to the UK

If I am a large international corporate

looking to open a new office, why would

I take a chance and invest in the UK

Maqbool Mohamed



policies are also gaining traction in other European countries.

“When we come to the EU exit discussions, after Article 50 has been served, who will we negotiate with? There quite possibly will be a new deck of EU players. The unexpected is to be expected; there is a huge movement against the political establishment,” Jenkin says.

And highlighting the need for politicians to listen to what they are being told, Burgess adds: “The rise in populism is creating a new order, fueled by social media. This development is too big to ignore and politicians will listen and respond in a new way. Instant communications we all have now means people can instantly have a say on policies, voices can be heard that otherwise wouldn’t be.”

Comparing the perceived outcome of Brexit with the reality to-date, the participants agree much of the negative outcome has, as yet at least, failed to materialize. One such prediction is that many companies will relocate to other European cities, taking large teams with them and leaving acres of office space empty. “Relocation of financial

AROUND THE TABLE

Alex Amos is a partner at MacFarlanes, a London-headquartered law firm. He advises asset managers and investors on their investment management arrangements, team incentive schemes and the structuring and establishment of, and investment in, alternative funds.

Simon Burgess is managing director at Ocorian, an independent global financial services business providing outsourced administration, fiduciary and accounting services. The firm offers services across asset classes and jurisdictions.

Stuart Jenkin is director of fund management at Frogmore, a direct investor in UK real estate and manager of private real estate funds. He has been involved in the formation of three value added funds, and other products, and raised close to £1 billion in equity over the past 10 years.

Maqbool Mohamed is chief financial officer, Europe, at Castlelake, a global alternative investment firm focused on deep value, asset rich opportunities in dislocated industries. He heads the finance and operations team in London, supporting deal structuring, execution, and transaction management.

Rupert Robinson is chief operating officer at Mill Group, an independent specialist investment manager focused on long-term income generation. He has over 20 years’ experience within the alternative investment asset class.

Burgess: firms pick fund administrators because of capability, not location



services from the City of London is on the cards, but will it involve large-scale movement of forms and jobs? In terms of numbers of people who will move, there isn’t that much capacity elsewhere in other international financial centers. In addition, you can’t think of the office or financial services market as being static; there are always waves of comings and goings of financial occupiers. As some banks may leave, it’s possible that other international banks will expand or locate to London. It is rumored that many Asian financial institutions want to be in London, so they could replace any that leave,” Jenkin says.

Part of the problem is there is no real alternative, at least at the moment, because of a general lack of real estate in other European cities.

“There’s a lot of space in Frankfurt, as there was a pipeline of building five or so years ago. But I believe there is very little in France’s La Defence. Some people might go, but it’s likely to remain fairly unchanged for now. Plus, you’ve got to consider the cultural shock for

employees moving to another country,” Robinson says.

Pointing to the logistics involved in making such a move, Mohamed says those companies already established are unlikely to take on such a big repositioning, but there is a possibility that those looking to open a new outlet will reconsider doing so in the UK.

“I can’t see big institutions suddenly relocating all operations abroad. It’s a hassle to move offices, especially into a new country. However, if I am a large international corporate looking to open a new office or manufacturing plant, then why would I take a chance and invest in the UK? So I do believe that there will be an impact in terms of new investment,” he says.

Economically, much of the doom-mongering about a severe downturn post-vote to leave, has not materialized, either. The market has remained fairly liquid since the Brexit vote, the participants agree, with little signs yet of distress. There is a chance it will appear in the weeks running up to Christmas, with a clearer picture emerging in January. In the US, meanwhile, the impact of the Trump election is not expected to be felt until March.

“A number of retail funds have been closed for redemptions. This prompted a view that there could be many forced sellers at discounted prices. Unlike in the 2008-09 downturn, the current expected wave of distressed vendors on a ‘leave option’ for the UK has just not materialized yet,” Jenkin says.

The political picture on both sides of the Atlantic is also indicative that the lack of substantial infrastructure – be it transportation, housing or utilities – needs addressing as a priority, the table agree. The difference between the US and the UK approach to doing so, however, lies in treasury plans to tackle deficits; the US expects to reduce

its debt while making investments in infrastructure.

“There is so much political unrest. Brexit and the election of Trump both pointed to the need to improve infrastructure, and money is needed to do that. The top 30 global cities have a shortage of homes. This suggests there are big opportunities for direct investments, joint ventures, and infrastructure fund of funds,” Robinson says.

In the UK, against a backdrop of low interest rates and reduced bank lending, it’s clear the opportunity to invest in alternative assets continues to be attractive, while the lack of sufficient infrastructure points to a

Jenkin: elections in Europe next year mean ‘the unexpected is to be expected’

Robinson: sees an opportunity for an increase in global fund flows

There are known knowns, known unknowns and

unknown unknowns – more so than in any

other decade Stuart Jenkin



need to break new ground. But whether the industry can go on attracting investments is dependent in part on the country offering a favorable tax regime, something it is not doing particularly well at present, the participants agree.

“Many investors, such as US pension funds, are tax exempt and are looking for gross returns back to their pensioners, plus they are looking for the best returns they can achieve internationally. The UK government is introducing more taxes. That is lowering the returns to international investors, so does this make the UK less attractive if their tax burden will be higher? In the future, if this direction continues they have alternatives in having to invest in the UK real estate market,” says Jenkin.

A key tax issue affecting the market at the moment is Base Erosion and Profits Sharing, or BEPS – referring to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under an inclusive framework put forward by the Organisation for Economic Co-operation and Development, over 100 countries and jurisdictions are

collaborating to implement a series of measures to tackle BEPS.

“The industry is lobbying [against BEPS], especially in light of the Brexit vote. We need more tax efficient vehicles; regulation is stifling business and encouraging jurisdictions such as Luxembourg to improve their offerings. The government doesn’t seem to be listening, though,” Amos says.

He adds that fund managers have to make sure an investor in a fund isn’t in a worse position than if they had invested directly in the underlying asset. “It’s possible under BEPS they will be. International investors have got to relay the message about more favorable tax treatment, not domestic fund managers,” he says.

But while tax benefits are of increasing importance to investors, fund managers are becoming less concerned about these matters when choosing where to domicile a fund.

“A lot of decisions relating to where to domicile an investment vehicle are also dependent on other factors, such as asset expertise. Many aviation funds are based in Dublin, for example, because it’s an aviation hotspot,” Mohamed says.

Offshore jurisdictions are also ramping up their efforts to attract mandates in other ways, meaning the benefits of domiciling in a certain place outweigh even the tax benefits of doing so. “Clients are moving away from tax issues being a driver of a decision to appoint an administrator – whether onshore or offshore. Mainstream, well-regulated jurisdictions have positioned themselves as international finance centers. Managers and investors are therefore choosing fund administrators because of their sophisticated capability, not because they are in a particular location,” Burgess says.

Domiciling a fund offshore is a big decision, but once that is done, a fund

manager faces another: whether to outsource its administrative tasks. This is costly in terms of time and money, but there has been a rise in the number of firms taking the decision to do so.

“We are seeing private equity and real estate fund operating models develop how hedge funds developed over the last 10 years with greater presumption that back office services will be outsourced. The trend of private equity and real estate managers outsourcing these functions is continuing, ensuring the managers concentrate on what they do best – managing the assets and interacting with investors,” Burgess says.

Developing technology, and regulatory requirements, are also leading some firms to harness software solutions. “There has been a rise in cloud-based solutions, with people taking a pick and mix approach to using the inland revenue’s guidelines [on reporting]. With some systems you just have to load information in and you can generate quarterly, monthly, even daily reports. It will transition to real estate,” Robinson says.

Jenkin: elections in Europe next year mean ‘the unexpected is to be expected’

Amos: sees a need more tax efficient vehicles. ‘Regulation is stifling business’


features • INTERVIEW

Times used to be simpler for chief financial officers and the finance departments

of large alternative asset managers, recalls Bill Janetschek. He should know; KKR’s main number cruncher is a prime example of how things have changed.

“Twenty years ago, if you were the CFO, you just needed to make sure you provided quarterly valuations, financial statements and tax returns to your PE LPs,” he says from KKR’s offices overlooking Central Park, adding that CFOs typically came from the big four accounting firms and most had tax backgrounds.

Janetschek began his career at Deloitte Touche and quickly became a tax partner focusing solely on KKR for more than a decade. When KKR brought the tax function in-house in 1997 it hired Janetschek, before promoting him to replace the firm’s retiring CFO a year later (while also continuing to oversee the tax department).

Since those early days, much has changed at KKR and in the private equity industry. Janetschek stopped wearing two hats in 2009 when the firm hired a global tax director. His role as CFO had already grown significantly, beginning in 2004 when KKR, planning to diversify its revenue stream and asset base, expanded its platform from being a private equity shop only to a multi-alternative asset manager, adding a credit business, followed by real

‘A whole new ball game’As firms evolve from private equity shops to multi-alternative asset managers, KKR’s Bill Janetschek tells Marine Cole how the role of CFOs and finance departments has changed

estate, energy, infrastructure and capital markets, among others.

This transformation has seen Janetschek’s role become much more strategic as he works regularly in concert with KKR’s co-chief executives, Henry Kravis and George

Roberts, and with the heads of each of KKR’s different businesses, to conduct and plan continued growth at the firm.

This evolution is ref lective of the types of CFOs alternative asset managers are increasingly seeking.

“Nowadays, you’re looking for a CFO with a more well-rounded business background,” he says. “People who now sit in the CFO role are a lot more strategic than they were 20 years ago. They’re helping a firm run its businesses.”

As a result, CFOs coming to alternative asset firms today are more likely to have worked at a bank than an accounting firm and often have a strong operating background.

It’s not only the role of the CFO that has evolved but also the importance of the finance department, thanks to increased regulation following Dodd-Frank, the demands from limited partners for more transparency and to alternative managers being publicly traded. Out of a total of about 1,200 employees, KKR’s finance department counts 175 people spread out around the world in more than 20 offices. Some 40 of them focus just on management company reporting.

Meanwhile, increased transparency requests prompted by the Institutional Limited Partners Association have required greater resources.

Since ILPA issued its fee reporting template, KKR has hired a handful of additional people dedicated to more in-depth requests related to the template.

“Every year, we are providing more information and more granular detail and responding to customized requests. That requires staff to handle the information,” Janetschek says. “This is a whole new ball game.”

Janetschek: CFO role is now more strategic

Twenty years ago, if you were the CFO, you just needed to make sure provided quarterly valuations, financial statements and tax returns to

your PE LPs

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Dr. Alan GreenspanChairman, Federal Reserve System (1987-2006)

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HUMAN CAPITAL24 We want you to feel at home26 Sticking to type28 When it’s time to say goodbye33 You’re hired!34 Comings and goings36 Top tips for going in-house37 Dollars and sense


features • INTERESTING WORKSPACES

‘We want you to feel at home’No self-respecting 21st-century firm would be without an office featuring the latest in cutting-edge design. pfm took a peak behind the reception of a few that stand out

› Atlas Holdings, Greenwich, ConnecticutThe private equity firm says its headquarters exemplifies the core values, workplace culture and investing principles that have guided it since its inception 15 years ago. The main building features an open fireplace, an 18-foot community table for team meetings and a grill area for cookouts. As chairman Andrew Bursky noted: “[We] wanted our employees to feel like they’re working from home.”

‹ SEI, LondonThe institutional and wealth management solutions provider claims its office is a reflection of its brand, built on innovation and lasting client success. It is also designed to showcase The West Collection Artwork, a private, contemporary art collection owned by the firm’s CEO and founder, Al West. “The artwork is a key part of our office environment and an integral feature of both working at and visiting SEI.”

‹ HarbourVest, London“We broke the mould when we moved to our new London offices, which was a risky plan, but the design, layout and execution has worked extremely well,” says the equity firm’s MD George Anson.

› Nixon Peabody, Washington, DCThe firm says its new DC office is where democracy meets innovation. Plus, it has a three-story ‘living’ wall watered from reclaimed heating and AC condensate.

IMA

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Alternative asset management remains, in large part, a white man’s game. A recent study by

the World Bank found private equity funds have fewer women in senior roles than almost any other profession, and over 60 percent of US private equity firms had no senior female professionals at all.

Numbers on other aspects of diversity in the alternatives space are generally lacking. A search for statistics on lesbian, gay, bisexual and transgender recruitment in the industry was fruitless, while no sector-specific recruitment agencies contacted by pfm were able to offer insight into ethnic diversity in alternative asset management.

Some evidence suggests the industry

is becoming more diverse. The number of woman and minority-owned private equity firms in the US grew to 160 in the first half of 2016, from 150 a year earlier, according to Fairview Capital. Women-owned firms now account for more than a third of this group, an increase from 18 percent in 2014, the data show.

There was also an increase in the number of Asian American-owned firms in the market over the past year – up from 30 percent of minority-

owned firms in the market in 2015 to 50 percent by the end of the first half of 2016, according to Fairview.

But the scant statistics available also suggest slow progress. Women currently account for around 10 percent of senior private equity staff in the US, according to the National Association of Investment Companies, and that meager number is double the proportion in Europe, according to women’s advocacy group Level 20.

The issue hasn’t been swept under the rug. Various programs and initiatives geared toward improving diversity have sprung up globally, including Level 20 in 2015, which aims to increase the number of senior females in European private equity to 20 percent by 2020.

Sticking to typeThe little data available on minority recruitment at alternative assets firms paint a bleak picture. Is the industry the final frontier when it comes to diversifying staff, asks Claire Wilson

Bright spots: women and minority-owned PE firms are on the rise

features • HUMAN CAPITAL

10%

Share of senior PE staff in the US who are women



In June, the National Association of Investment Companies and the American Investment Council partnered to form the Private Equity Women’s Initiative. They drew up a list of best practices, detailing how a firm can recruit and retain female employees, and how they can ensure equality between male and female staff.

Elsewhere, the British Venture Capital Association held its inaugural LGBT networking breakfast at the start of November, to gauge demand for a program raising awareness of LGBT issues in private equity.

“An integral part of the BVCA’s mission is to increase participation and representation within our industry. We felt it was important to expand out definition to include the LGBT community because diversity, as well as being good in and of itself, also has wider business implications,” says Tim Hames, director-general of the BVCA.

Diversity of the workforce can also be achieved through recruiting staff from different backgrounds. Social mobility programs have been set up by a number of recruiters, targeting high-achieving high school graduates, college undergraduates, and post-graduates from poorer areas and under-represented groups.

“To date we’ve not had a great deal

of contact with the private equity industry, but that is because firms don’t tend to recruit people at this stage of their career, rather than because of resistance,” Andrew Lilley, commercial director at Rare Recruitment, one such program leader, tells pfm.

“But even that is starting to change, and lately we have had preliminary discussions with a couple of firms.”

Rare Recruitment’s social mobility recruitment program has two prongs. Firstly, it works with 2,000 undergraduates to prepare them for the world of work – making them aware of the companies that support diversity recruitment, and helping them prepare for interviews.

It has also set up a contextual recruitment system, used by the firms it works with, to identify promising candidates that may, under a regular recruitment system, be crossed out before interview as they don’t meet set criteria.

“The system puts grades and achievements into context. For example, if a student got three B-grade A-levels they might be eliminated before interview if the requirement for the job is three A-grades. But if they obtained those grades at a school where the average result was two C-grades, they have clearly outperformed their peers and show potential,” Lilley says.

Targeting those already working in investment banking, a traditional in-road to private equity, US-based SEO Alternative Investments recruits pre-MBA professionals from backgrounds traditionally under-represented in alternative investments for a fellowship program.

It takes applicants in their first or second year of an analyst program at an investment bank, and in a 10-month program educates them on various aspects of alternative investments.

Reaping the benefits

The stats stack up: for every 10 percent increase in diversity in a firm’s senior executive team, EBIT rises 0.8 percent.

Gender diversity• Top quartile firms are

15 percent more likely to have above-average financial returns

• Bottom quartile firms are less likely to achieve above average returns

Racial and ethnic diversity• Top quartile firms are

35 percent more likely to have above-average financial returns

• Bottom quartile firms are less likely to achieve above-average returns

Source: McKinsey

“[Alternative Investment Fellowship Program] preparation has enabled 90 percent of eligible fellows to secure full-time offers to join leading firms, including Blackstone, Brookfield Asset Management, and The Carlyle Group,” the group says.

The scheme is backed by multiple US-based private equity firms, who offer mentoring to fellowship students. Participants are also given interview and recruitment tips, an introduction to the cultures of each partner firm in the program, and are invited to attend a series of breakfast seminars with industry leaders. This is alongside an education program detailing the working of alternative assets.

[The BVCA] felt it was important to include the LGBT community, because diversity … also has wider business implications Tim Hames



Most private equity shops employ small groups of people. The hours and

nature of the work fosters a real sense of camaraderie, which makes the prospect of firing anyone especially unpleasant. But there are ways to limit the potential for lawsuits, nervous LPs, media attention and the inevitable water-cooler gossip.

First, the GP should raise any concerns about performance with the employee, give them a chance to improve and document that effort. Prior to a termination, they should consult legal counsel, check all relevant employment contracts and, if

applicable, draft severance paperwork that addresses any issues not covered in previous agreements. When firing senior executives, a communications plan should also be devised to address all the relevant constituents. And when the termination takes place, it should be done quickly and without debate. In the case of veteran or key investment personnel, it shouldn’t be delegated.

Terminations are particularly awkward for private equity houses because they are so rare at the firm level. “There’s a lot of self-selection, where people end up leaving after receiving, for example, a lower than anticipated bonus,” says Lauren Leyden of the law

firm Akin Gump. “So few firms have extensive experience with terminations and the process.”

And without an established process, there’s room for error and misunderstanding.

As well as a terminations process, a firm should establish a methodology for measuring performance, no matter how difficult a conversation it may create. One lawyer admitted that they have seen the toughest GPs wimp out when gauging the performance of their own administrative staff, since no one wants to be hated by their secretary.

There are real dangers in waiting to address performance concerns. Several

When it’s time to say goodbyeGPs faced with the prospect of firing an employee need the right mix of documentation, counsel and candor to minimize the risk of lawsuits and recrimination, writes Rob Kotecki

Way out: a well-drafted departure needn’t trip anyone up

Dec 2016 / Jan 2017 • Issue 147 privatefundsmanagement.net 29


employment attorneys cite instances of an employee sensing they are about to be let go and lodging a complaint. This can make the termination seem retaliatory in court, and is particularly damaging in the case of any protected class, such as a minority or the disabled. “They have statutory protections that force you to refute that this was due to discrimination,” says partner Jeff London of the law firm Kaye Scholer. But it can happen with senior professionals from unprotected classes as well.

“Private equity executives often aren’t the most sympathetic plaintiffs,” says Andrew Kofsky of the law firm Simpson Thacher & Bartlett. “However, in employment disputes, there’s typically a bias against the employer and in court it can be hard to explain why someone was paid eight figures if they were underperforming.”

For this reason, an employer must document discussions of performance issues. “Documentation is key and can be an employer’s best friend in these situations,” says Leyden.

And timing matters. “By the time I’m alerted to the situation, it’s often too late to effectively document a performance issue,” says Kofsky. “You can’t write them up on Monday and fire them on Friday.”

This documentation doesn’t have to be formal. Most lawyers agree emailing notes about the chat to an office account with a date and time stamp can be sufficient. “If the employee is

being told specific goals that need to be met, it might be helpful to email the individual so that they have something to refer to when trying to improve performance,” says Leyden.

Lawyers agree performance issues should be raised at least once, and ideally a minimum 30 days prior to the termination if it’s strictly performance related and not criminal in nature.

Pay-off lineOnce the termination is inevitable, all the paperwork related to that person’s employment must be examined to understand the legal and contractual implications. In the case of administrative assistants or analysts, it might be merely an offer letter, but further up the ranks, contractual issues get complicated quickly.

“A lot of times there can be so many documents in terms of the various interests that people have, with respect to open funds or closed funds or portfolio companies, that there’s a dizzying array of contractual implications,” says Kofsky.

Lawyers stress portfolio company affiliations are an issue because an executive may sit on several boards, which requires drafting multiple resolutions to disengage all those

existing commitments. The documents will also outline what’s contractually owed to an employee, though often firms improve on those terms, either to avoid disagreement or to end the relationship on a more pleasant note.

But lawyers stress the need to devise the severance terms before terminating the employee. “Look to what the firm gave a similar ranking executive with similar tenure and use that as a guideline in devising the severance terms and package,” says London.

He suggests going back five years or so to find relevant examples or, if there are none, going back to the last relevant firing to ensure the severance agreement is in line with that.

For executives at the VP level or higher, there are often non-compete and non-solicitation terms included in the severance agreement that can influence the package. “With a non-compete clause, you have to ask how much you’re willing to offer that executive to stay ‘on the beach,’” says London.

Younger executives will often ask to waive limitations on working for another private equity firm, and the firm should consider how willing they are to try to enforce that non-compete clause with a lawsuit.

Senior executives often require the

Leyden: PE firms may be underprepared for terminations

Kofsky: when building a case for termination, timing matters

Documentation is key and can be an employer’s best friend in these situations Lauren Leyden

London: use peer precedent as a guide for severance packages



most complex and thoughtful severance agreements.

“In the case of managing directors, they may be contractually obligated to receive carry, they may be an investor in the existing funds, and they may have close ties with major investors,” says London. So lawyers stress the need for a diplomatic and perhaps gradual unraveling of their ties to the firm, if possible. But the consensus is that a broad outline of terms should be worked out prior to any termination meeting.

These agreements can still vary greatly with each employee’s situation. “If an employee rose up through the ranks, the initial employment contract may not include non-compete and non-solicitation terms that firms may have negotiated with executives that were brought aboard at a senior level,” says Leyden. “Ideally, you have increased

protections as someone gets promoted, but, if that hasn’t happened, you may need to address it at termination.”

Lawyers argue one of the most crucial elements to include in severance agreements is a clause that requires arbitration for any disputes, barring legal exceptions that may be required. The clause may relinquish a GP’s ability to file a motion to dismiss, but the privacy of arbitration allows GPs

to discuss any issue with an LP first, rather than risking having an investor read about the situation from a Google search.

Non-disparagement clauses are also key. “It’s a critical mechanism to ensure that investors don’t hear one message from you, and another from the former employee,” says Chuck Dohrenwend of the communications advisory firm Abernathy MacGregor. “And be certain to include language about social media, so that the message is consistent across all public communication channels including an employee’s personal Facebook page.”

Such terms would be better worked out at the time of hiring, but the severance agreement should include them.

For senior investment professionals, the GP should have a communications plan in hand, identifying all relevant audiences and crafting a message for each, even if the termination is unlikely to attract the attention of The Wall Street Journal.

“So many times, a reporter will notice when an executive changes their LinkedIn profile, or when someone is no longer listed on a firm’s website,” says Dohrenwend. Most lawyers recommend tapping a communication advisor to help with the project, though one attorney cautioned it’s important to be discrete in the early stages. Closed door meetings with a PR firm may raise more questions than they answer, especially among internal staff.

The consensus is to make a brief internal announcement as soon as possible after the employee is terminated. There’s value in being discrete about the reasons behind the dismissal, as other employees want to know that senior management wouldn’t bad mouth them should they be fired.

“We find people are less likely to gossip or that gossip ends quickly

Before you fire that employee…

Ask five questions:

Did you bring up the performance issue before? Document any communication with the employee that raised the issue and gave them a way to correct the matter.

What do you owe them? Review all existing employment agreements to discern what, if any, severance or other compensation is required. What do you want to offer them? Decide what monetary or other considerations to offer in exchange for an amicable separation.

Who needs to be informed? Senior executives will most likely require some formal messaging process to current staff, LPs if they have met them, and, in some cases, underlying portfolio companies, which may require more formal disclosures if they are publicly listed.

How do you unplug the employee?IT staff should be notified to end the employees access to firm technology and systems immediately upon termination. If an outside HR firm is employed, they need to address any payroll or benefits matters.

With a non-compete clause, you

have to ask how much you’re willing to offer that executive to stay

‘on the beach’ Jeffrey London



when the message from management is simply that the person is no longer an employee and we wish them the best,” says Leyden.

By far the most important audience is LPs. The more senior the executive, the more important it is to reach out quickly. In the case of an official “key man” as determined in the LPA, they may be required to disclose the termination, but if that person has any profile among investors, lawyers and PR counsel caution it’s a mistake to stay silent.

A partner’s contribution shouldn’t be downplayed following their departure. “I’ve had GPs tell me, ‘They didn’t do that much,’ and then we’ll pull up our notes from the last fund we underwrote and they’ll have attributed a bunch of deals to that person,” says Karen Rode of Aon Hewitt Investment Consulting. “So which is it?”

She recommends the firm admit what the partner contributed, and explain how the firm will move forward. If that individual had sector expertise perhaps the firm will be more conservative or even inactive in that sector, or they can explain how more junior executives may step up.

“Private equity firms would do well to promote the full breadth of talent they have,” says Dohrenwend. “Maybe the younger professionals present at the annual meeting or meet with a few select investors in an informal setting.”

This way, even when senior investment professionals leave the firm, LPs will be aware of the talent that remains.

In the case of termination over issues such as sexual harassment allegations or accounting improprieties, the GP should be as candid as legally possible. “Don’t sugarcoat it,” says Rode. “Explain that there’s a situation and give us regular updates. The very worst thing you can do is fall into an abyss.”

The last audience may be the management of relevant portfolio companies, and if the employee in question sits on the board of a publicly listed portfolio company, there may be a set of disclosure requirements to meet.

Having the conversationOnce it’s time to notify the employee, every lawyer stressed the importance of making it quick. “You want to keep the meeting short,” says Leyden. “It’s not a time to rehash performance issues, but if the employee tries to do so, we find it helpful to let them know the decision is final.”

The sooner management can begin discussing the severance package, the better. “It can act as a turning point in the conversation.”

While the meeting is taking place, IT staff should end the employee’s access to company email or technology. “Have them relinquish any iPhones or company property at that meeting,” says Kofsky. If they have any personal photos or information on a hard drive or laptop, the firm can offer to have any of that forwarded to them. This removes

the temptation for the employee to send a disgruntled email or do anything else they may regret later.

Lastly, there is the desire to skip the meeting altogether. “Many firms delegate it to their HR department, but if it’s a partner, the senior guys need to be involved,” says London. “One of our clients has a partner supervise all HR activities, so there’s senior involvement in all these matters.”

However difficult it may be, the consensus is employees would rather hear the bad news from the same people they worked alongside.

In the case of criminal misconduct or other “bad acts,” GPs don’t have the luxury of more than a day or two to get their ducks in a row. They will have to start with the termination meeting, and work backward to address the communication strategy and other legal matters involved.

Barring those worst-case scenarios, most risks can be mitigated with the right preparation and the willingness to have some frank, if uncomfortable conversations. It sounds simple, but simple isn’t the same as easy.

Pre-pack: when it comes to sacking senior professionals, the GP should have a communications plan in hand

CFOs and COOs Forum 2017January 18-19 | New York Hilton Hotel

Book your place online:www.privateequityinternational.com/cfo-coo-forum

www.privateequityinternational.com/cfo-coo-forum

The annual event designed expressly for the private equity community

This year’s event will feature A Conversation with Dr. Alan Greenspan, Chairman, Federal Reserve System (1987-2006). We’ll sit down for a timely and revealing discussion, in which Dr. Greenspan will provide an in-depth analysis of global economic and financial challenges.

Book your place by email:[email protected]

Book your place by phone:+1 212 633 1073


analysis • COMPENSATION & RECRUITMENT

You’re hired!

The UK is the most highly compensated market in Europe – taking the top spot from Switzerland

Germany is the only country in which juniors are paid more than their London peers

Special situations experts are in demand in Europe, thanks to the changing economic climate, while the recruitment of fundraisers and dealmakers has hit a record high. Here are some key figures on global alternative asset compensation and recruitment in 2016

48%Staff whose bonus

had increased

41%Staff whose base salary

had increased

€307,000Average salary for partners

€180,000

Average salary for principles at buyout firms

Meanwhile in Europe...

Source: Heidrick & Struggles

Total marketing hires, 2015 v 2016

New marketing hires hit a record high in Q3 2016 at global private equity and real estate firms, according to data from recruiter Context Jensen Partners

157

78

2016 YTD

2712

Q3 2015

4437

Q3 2016

160

140

120

100

80

60

40

20

0

Real estate Private equity

Num

ber


features • PEOPLE MOVES

Bain IR exec joins Vista

Vista Equity Partners hired former Bain Capital investor relations executive Christopher Pietersen as senior vice-president of its investor relations team.

Pietersen joined the firm’s Austin office in December 2015 and is responsible for marketing and managing relationships with investors. He has a focus on investments in Europe, the Middle East and Africa. Pietersen previously worked as a director of investor relations at Bain Capital where he was responsible for Middle East investor coverage.

He joined Bain from First Reserve’s London office after spending four years there.

Comings and goingsFrom Australia to London, pfm takes a look at some of the key private equity arrivals – and departures – of the past year

KKR names Asia COO head of Australia

KKR appointed Scott Bookmyer, chief operating officer of KKR Asia, as head of KKR Australia.

He started his new position in July and remains COO of Asia-Pacific. As part of the appointment, he relocated to Sydney from Hong Kong. In his current role, Bookmyer oversees core elements of KKR’s business operations and various strategic initiatives.

Coller poaches Doughty Hanson ESG head

Adam Black joined Coller Capital in March as head of ESG and sustainability.

Black had worked at Doughty Hanson since 2008 and focused on responsible investment and sustainability for ESG risks across the firm’s portfolio companies. Coller implemented its ESG policy in 2011 and became a signatory to the United Nations-supported Principles for Responsible Investment in 2014.

Schloss departs Angelo Gordon

Larry Schloss, president at Angelo, Gordon & Co, left the alternative investment manager.

The firm said his responsibilities, which included marketing, management and strategic planning, were being assumed by other executives. Scholss’s departure came two months after the death of John Angelo, the firm’s chief executive and one of its two co-founders.

Sard hires Blackstone’s Peter Rose

Communications firm Sard Verbinnen & Company hired Peter Rose in the new position of vice-chairman.

Rose was a senior managing director and global head of public affairs for Blackstone from 2007 until retirement this year, where he oversaw global media relations, in addition to responsibilities in government relations, internal communications and branding. Prior to Blackstone, Rose worked at Goldman Sachs for 20 years in a variety of senior positions in government and media relations in Washington DC, New York and Hong Kong.

Sprung moves to Blackstone

The Blackstone Group appointed Marshall Sprung as global head of compliance.

Sprung joined the private equity firm from the Securities and Exchange Commission, where he worked for 13 years. Most recently he co-headed the SEC’s Division of Enforcement’s Asset Management Unit and succeeded Julie Riewe when she left the agency in February. During his tenure he oversaw investigations of investment advisors for various forms of misconduct involving valuation, disclosure, conflicts of interest, fund governance and compliance and controls.

Blackstone’s website lists 15 people in its legal and compliance teams.


features • PEOPLE MOVES

PGGM promotes infra head to private markets CIO

PGGM promoted its head of infrastructure, Frank Roeters van Lennep, to private markets chief

investment officer in September.Roeters van Lennep took over the

role from former CIO for private markets Ruulke Bagijn, pictured, who left the Dutch pension fund manager to become global head of real assets private equity at AXA Investment Managers – Real Assets.

Sister publication Private Equity International named Bagijn Private Equity Game Changer of the Year 2015 for her contribution to the private equity industry.

Blackstone’s Murphy takes helm at Invest Europe

Gerry Murphy, senior managing director and chairman of Blackstone Europe, has been named

the new chairman of industry association Invest Europe. Murphy takes over from Quadriga Capital founding partner Max Römer. Invest Europe’s membership is divided across four platforms – venture capital, mid-market, large buy-out and limited partners – and the chairmanship rotates between each platform. Murphy told pfm that continuing to work with regulators on the Alternative Investment Fund Managers Directive will remain a priority.

Electra Private Equity appoints CFO

London-listed Electra Private Equity hired Thomas Cook executive Gavin Manson as its first

ever chief financial officer.Manson’s hire followed the

appointment of non-executive director Edward Bramson, pictured, to the newly-created role of interim chief executive officer in May. Manson, who joined in August, was finance director for Thomas Cook’s Tour Operations and Hotels and Resorts division.

IdInvest hires first head of marketing

IdInvest boosted its back office with the hire of marketer Stéphanie Courtadon, responsible for the firm’s marketing and RFP processes.

Courtadon spent the last four years leading the marketing efforts at Siparex, a mid-market firm with offices throughout France, and the previous four years as head of investor relations and marketing at Crédit Agricole Private Equity.

She feeds into ambitious fundraising plans for IdInvest, which is seeking to raise more than €1.5 billion across its various strategies in 2016 by tapping into more Middle Eastern and Asian sovereign wealth funds.

Silverfleet loses IR head

Investor relations professional Annette Wilson left Silverfleet Capital, the mid-market European firm. Wilson joined the firm’s London office in December 2013 to set up a dedicated investor relations function, having spent 14 years with European growth investor Palamon Capital Partners.

Hamilton Lane appoints deputy GC

Private markets investor Hamilton Lane appointed Lydia Gavalis as deputy general counsel. Gavalis, who joins the firm having held a number of senior legal positions at SEI, is being lined up to take over from the firm’s current general counsel, Robert Cleveland, who is due to retire in 2017 after 16 years at the firm.

Gavalis has spent the last 10 years as general counsel of SEI’s “institutional investors” business and previously filled the GC role for a number of the firm’s different businesses, including SEI Private Trust Company and London-based SEI Investments (Europe).

Pollen Street names partner

UK-based Pollen Street Capital appointed Magnus Christensson, former Europe fundraising head at TPG Capital, as partner and head of fundraising and investor relations. It is understood Christensson will take over fundraising for PSC Fund III, which held a first close in March, having raised £120 million ($144 million; €134 million).


xxxxxxxx • XXXXXXXXXXXfeatures • LEGAL MOVES

Top tips for going in-houseAs more private practice lawyers make the move into internal legal functions at private equity firms, pfm asks five general counsel for advice on a smooth transition

It is a very steep learning curve in private equity because everyone

is very smart and sophisticated, and on

top of that you have to cover the whole range of services that a law firm

would usually provide

For any questions that you are asked, always

ask more back before answering to make sure

that you really understand what is going on. This is especially important in

formal settings where you may feel under pressure to speed things up to get

the deal done, but it is important to get things done right and to make

people think

You need to be exceptionally organized

as there are so many different work streams that you are required to manage in addition

to those that you would have managed in private

practice

You also need to allocate and leverage

your resources effectively. Being the sole legal counsel at

Duke Street, leveraging my resources has been

very helpful. I have found that speaking to

a lawyer that I know and bouncing ideas off someone else has been

very beneficial

3. Ask questions

Marco Pierettori general counsel, InvestIndustrial

Andrew Panayides general counsel, Duke Street

4. Leverage your resources

It is essential to take the time to understand the business fully, and

to get to know and understand what people’s

jobs are in every other department because it’s unlikely you’ll have this understanding coming directly from private

practice

Do not be afraid to make suggestions to the business team about how you have seen things done

elsewhere or what you think can be worked on and improved upon. The

reason that the firm has hired you is because you have a

different set of skills and you should be bringing new things to the table that will be of value to

the business

John Atherton general counsel, private investment structures, Adveq

2. Have patience

To have an impact you need to have some time to think about the

way in which you can have that impact. This usually means not making snap

decisions in the first three months, taking some

time to learn the business back to front and to win the respect of your peers,

which can take some time, therefore patience

is key

Geoffrey Bailhache managing director and head of EMEA legal & compliance, Blackstone

It’s a different job from being a private practice lawyer. A lot

the skills that you used previously will be used

differently in an in-house role, for example, you

will be required to review contracts rather than drafting them. Also

how you communicate with internal clients will be different to the way

that you would have communicated with clients previously

1. Utilize your skills

One of the top 20 questions we were asked following the Brexit vote from in-house lawyers was, ‘What are my peers asking?’ Private practice lawyers deal with numerous clients, whereas in-house lawyers just deal with their

one business. Therefore, for in-house lawyers to stay up-to-date with market and legal developments, I’d suggest it is important for them to establish and maintain a network of both in-house lawyers and private practice lawyers

Ted Craig, partner, MJ Hudson

5. Maintain a network



It seems every year another survey attempts to capture millennial attitudes towards their careers.

A recent study from SAP and Oxford Economics suggests those in their 20s and early 30s are more cash-focused than often perceived: 41 percent of those surveyed said higher compensation would motivate them to stay in a job, compared with 38 percent of non-millennials.

But while compensation is important it’s clear millennials have a more nuanced view of professional success. According to a survey by Deloitte, six out of 10 of them gauge the performance of their business for non-balance sheet issues, such as employee satisfaction. So what does that mean for firms looking to woo the next generation of talent?

Room for professional growth, the

Dollars and senseFinancial compensation is only part of what drives the next generation of private equity professionals, writes Rob Kotecki

Culture shift: candidates are increasingly looking beyond the salary

long-term viability of the investment strategy and a culture reflecting the candidate’s values often trumps simple compensation.

“As an industry, private equity would probably get a C or D grade as far as leadership and succession planning; junior and mid-tier talent may get good deal training but they don’t get much broader leadership training or exposure,” says Jeff Warren of the executive search firm Russell Reynolds Associates. “Many young and mid-level PE professionals want great deal and leadership training; they want senior partners willing to invest in their success since they won’t see real significant carry until subsequent funds.”

More often than not, young talent fends for itself in career development,

which can lead to frustration and exits to another firm. But that new opportunity needs more than a willing mentor. “A lot of GPs are struggling to raise that second fund these days, so you find candidates asking really tough questions about how sustainable a particular investment strategy may be,” says Bernard Layton of the search firm Stanton Chase.

“A PE candidate’s first screen when considering a new opportunity is typically through the lens of an LP,” adds Joseph Healey of the executive search firm Korn Ferry. “If I invest X number of years in this place, what’s my return going to be compared to the alternatives?”

And that idea of “return” is derived from a formula where a bank balance is only one variable, and the firm’s culture is a significant factor.

“For executives in their 30s and 40s, culture is a higher priority,” says Joanna Chang of the executive search firm The Lancer Group. “Like attracts like, so it’s a matter of finding co-workers who have similar priorities.”

In some cases, that can be a mid-market firm revitalizing underperforming Rust Belt manufacturers, or a family office that’s making social responsibility investing a priority.

But impact investing is still in its infancy and only a handful of firms, such as Bridges Ventures and LeapFrog, have a material track record. The jury is still out on the ability of the sector to generate long-term financial performance on a par with traditional funds, so candidates have to be willing to prioritize the firm’s mission over the potential compensation at traditional shops. Even if they aren’t out to save the world, they believe their long-term success involves factors beyond the number of zeroes on that offer letter.


xxxxxxxx • XXXXXXXXXXX index

Firms in this issue

Abernathy MacGregor 30-31

Actis 4

Adveq 36

Akin Gump 28-31

American Investment Council 5, 27

Angeles Investment Advisors 8

Angelo, Gordon & Co 34

Aon Hewitt Investment Consulting 31

Atlas Holdings 24

Bain Capital 34

Blackstone 34

Blackstreet Capital Management 11

Bridgepoint Capital 5

Bridges Ventures 37

Castlelake 14-19

Central Park Group 7

Coller Capital 34

Colonial Consulting 8

Context Jensen Partners 33

Crédit Agricole Private Equity 35

Crestline Investors 9

Crestone Capital Advisors 11

CRG 11

Deloitte 37

Doughty Hanson 34

Duke Street 36

Electra Private Equity 35

Ellwood Associates 8

eVestment 8

Fairview Capital 26

First Avenue 4

First Reserve 34

Frogmore 14-19

Gartmore Investment Management 5

Global Counsel 5

Goldman Sachs 34

Goodwin 7

Hamilton Lane 35

HarbourVest 24

Harken Capital Securities 7

IdInvest 35

Invest Europe 35

InvestIndustrial 12, 36

Kaye Scholer 28-31

King and Wood Mallesons 7

KKR 20, 34

Korn Ferry 37

LeapFrog 37

M&G Investments 4

Macfarlanes 14-19

Macquarie Asset Management 9

Maples Fiduciary 7

Maples Fund Services 7

Mill Group 14-19

National Association of Investment Companies 26-27

NewSmith Asset Management 4

Nixon Peabody 24

Ocorian 14-19

Palamon Capital Partners 35

PGGM 35

Pollen Street Capital 35

Quadriga Capital 35

Rockefeller & Company 7

Russell Reynolds Associates 37

Sard Verbinnen & Company 34

SEI 24

Silverfleet Capital 35

Simpson Thacher & Bartlett 28-31

Siparex 35

Stanton Chase 37

The Blackstone Group 34, 35, 36

The Lancer Group 37

TPG Capital 35

University of Florida Investment Corporation 7

Vista Equity Partners 34

Weil, Gotshal & Manges 12

People in this issue

Amos, Alex 14-19

Atherton, John 36

Bagijn, Ruulke 35

Bailhache, Geoffrey 36

Black, Adam 34

Bookmyer, Scott 34

Bramson, Edward 35

Burgess, Simon 14-19

Bursky, Andrew 24

Chang, Joanna 37

Christensson, Magnus 35

Courtadon, Stéphanie 35

Digoy, Christophe 7

Dohrenwend, Chuck 30-31

Donohue, Andrew 8

Ellis, Sam 7

Fullbrook, Simon 7

Gavalis, Lydia 35

Healey, Joseph 37

Janetschek, Bill 20

Jenkin, Stuart 14-19

Kofsky, Andrew 28-31

Kravis, Henry 20

Landauer, Peter 7

Layton, Bernard 37

Lever, Richard 4

Leyden, Lauren 28-31

London, Jeff 28-31

Lyon, Kate 4

Mahajan, Amit 9

Maijoor, Steven 10

Manson, Gavin 35

Mohamed, Maqbool 14-19

Moy, Jeffery 7

Murphy, Gerry 35

Myners, Paul 4

Panayides, Andrew 36

Philipp, David 9

Pierettori, Marco 12

Pierettori, Marco 36

Pietersen, Christopher 34

Roberts, George 20

Robinson, Rupert 14-19

Rode, Karen 31

Roeters van Lennep, Frank 35

Römer, Max 35

Rose, Peter 34

Sarles, Stefan 4

Schloss, Larry 34

Schubert, Marc 12

Sprung, Marshall 34

Warren, Jeff 37

Weir, Caroline 4

West, Al 24

White, Mary Jo 10

Whitehead, Adam 11

Wilson, Annette 35

Wolfe, Robert 7


The pfm team was amused to learn that the 100th episode of Devin Mathews and Jim Milbery’s private equity funcast (podcast) was dedicated to the seven deadly sins of private equity.

Mathews and Milbery, both private equity partners at ParkerGale Capital, discussed the sins that they believe have the potential to turn a good deal into a bad one.

See any that you agree with?

1 Pride: Not admitting that you don’t know something and letting pride get in the way of a good decision.

2 Envy: Making a bad acquisition just to take an asset away from a competitor.

3 Lust: Overpaying for a deal or a “rock star” new hire that the team has fallen in love with.

4 Greed: Trying to do too much, too fast with a deal, leading to its demise.

5 Wrath: Having nowhere to hide when the market turns on you, as it did during the financial crisis.

6 Gluttony: Taking on too much debt when you did the deal.

7 Sloth: Failing to move fast enough on management problems.

and finally...

More than 500 budding athletes from across private equity and associated industries battled it out over five different races at the Impetus Private Equity Foundation’s third Private Equity Triathlon near Windsor, about 20 miles west of London, at the end of September.

Blackstone, CVC Capital Partners, KKR, TPG Europe, Warburg Pincus International, Livingbridge, PwC, Alvarez and Marsal, Nomura, and Mergermarket Group were among the firms who entered teams.

Winners on the day included: Kate Davies, investor relations principal at Coller Capital, who took part in the Mergermarket Group Sprint Individual Triathlon (a 400m swim, 21.2km cycle and 5km run) with a time of one hour, 15 minutes; and Kirkland & Ellis corporate lawyer Matthew Elliott and Patricia Hamel, a fund accountant at Livingbridge, who both took part in the Super Sprint

[We will] reform the entire regulatory code to ensure that we keep jobs and wealth in America President-elect Donald Trump promises a busy 2017 for pfm readers

The more we can help fund managers and investors identify the potential issues and opportunities in the investment process, the more we can promote high ESG standards across the board

Marta Jankovic, senior sustainability and governance specialist and head of ESG integration alternatives at APG Asset Management, on Invest Europe’s Due Diligence Questionnaire

Seven deadly sins

Race to the finish line

Vintage year: more than 500 competitors took part in the triathlon

Triathlon (a 400m swim, 10.6km cycle and 2.5km run) and won with times of 39 minutes, 26 seconds, and one hour, eight minutes, respectively.

Impetus-PEF aims to help transform the lives of disadvantaged 11-24 year olds by ensuring they get the support they need to succeed in education, training and employment. The foundation is still open and receiving donations for the triathlon.

It’s not a game of chicken

CalPERS’ CIO Theodore Eliopoulos tells Pensions & Investments the pension is not trying to threaten GPs as it considers how to commit to private equity

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