Deloitte & Touche, traditionally used by private equity firms for accounting and auditing purposes, is now hoping GPs will use them for one more thing – fund placement.
The Big Four accounting firm will use its U.K. operations to begin its first foray into private equity fund placement.
Chris Ward, head of corporate advisory services with Deloitte and the architect behind the new unit, says that while the firm “won’t turn away a good VC fund,” the focal point of Deloitte’s placement efforts will be on middle market LBO funds working on their second or third investment vehicles in the $100 million to $500 million range. The plan also includes recruiting veteran placement agents for the new team.
Deloitte’s plans to enter the placement fray is making many wonder what lines are being crossed when the accounting firm raises money and takes a fee from a private equity firm.
“There are issues at stake here,” says a partner with another Big Four firm. “Given the sensitivity to auditor independence, this could put them in a position that raises some questions.”
Timing is also an issue. Considering the tremendous overhang in the private equity market, this is a tough time to break into, or even be in, the placement business. However, a managing director with a large investment bank argues the opposite.
“This is a tough market, but if you’re going to jump in, now’s the time to do it,” the source says. “There are a lot of orphan funds out there, and the macro trend shows many investment banks have gotten out of covering many of the smaller companies, so opportunities exist.”
Deloitte’s Ward certainly shares that view. He says that there’s been turmoil in the placement market, which his firm can capitalize on. He also says the firm won’t have any problem finding contacts.
“We have a fabulous network of contacts, especially in the LP community,” says Ward, who expects to lock down three clients by the end of the third quarter. “We work for all the insurance companies, and many of them are LPs.”
A rival Big Four partner laughs that off.
“I have a lot of friends in the private equity business, including LPs, and they’ve never mentioned that it would make sense for one of us to start a placement business,” he says. “And if I ever mentioned it to them, they’d probably think it was a joke”
But to Ward, it’s a serious proposition that he’s considered for “a couple of years.” The momentum for it started after a U.K.-based private equity shop, which focused on the entertainment sector, lost its placement agent when the bank exited the placement game.
Ward says in the U.K. private equity market, that his firm has advised many buyout shops, “and we know the market intimately.” Despite Deloitte’s numerous relationships in the private equity community, there’s no reason to expect buyout shops to drop the placement agents that have been successful in the past.
“We’ve always used Deloitte for accounting issues,” says a West Coast buyout pro. “But I don’t see us dumping CSFB just because Deloitte has performed well in other categories.”
This story originally appeared in Buyouts, a related publication.