Galleon private portfolio may go on block

As Galleon Management winds down its hedge fund operations, the firm may find itself looking for liquidity for the private companies it invested in as part of a VC strategy launched two years ago.

Galleon moved into venture capital in August 2007, opening an office on storied Sand Hill Road in Menlo Park, Calif., and hiring half a dozen investors as it looked to invest $300 million in late stage private companies that were preparing to go public.

As investment banks crumbled and the markets started to dive last year, investors that had been hired to work on the firm’s crossover fund left the firm and Galleon quit participating in late stage financings, according to public documents.

Early last week, billionaire Raja Rajaratnam, founder of the hedge fund, told employees and investors that the $3.7 billion fund was winding down. That development came as U.S. prosecutors and the FBI charged him and five others in a criminal complaint of running an insider trading network that allegedly made more than $20 million in illegal profits.

Four of those charged lived in the greater New York area and two, Intel Capital executive Rajiv Goel, and McKinsey consultant Anil Kumar, are based in Silicon Valley. Victims of the insider trading include such big-name tech companies as Google Inc. and chipmaker Advanced Micro Devices.

U.S. authorities describe the situation as the biggest hedge fund insider trading case ever. Late last week, Rajaratnam, 52, met the conditions of his $100 million bond and signed a document known as “a confession of judgment” in the Manhattan federal court, putting up his luxurious apartment on the Upper East Side.

Prosecutors say that a hedge fund employee tipped off an informant for Rajaratnam about Google’s disappointing second-quarter earnings before its release in July 2007, leading the hedge fund to net $9 million in profits from illegal trades.

As the investigation continues, the hedge fund has a few private companies in its portfolio for which it will likely be looking to sell on the secondary market. During the short run of its technology crossover fund, Galleon managed to invest in at least six companies, according to public documents, including:

• Reliance Telecom Infrastructure Ltd., a communications company, which Galleon backed in August 2007 as part of a $300 million investment next to Fortress Investment Group, HSBC Capital (USA) Inc., George Soros’ Quantum Fund, New Silk Route, GLG Partners and DA Capital Management, records show;

• Teknovus, a semiconductor company, which Galleon backed in September 2007 as part of a $28 million investment round next to Lightspeed Venture Partners, Vision Venture Capital Corp., Technology Alliance Investment, Itochu Technology Ventures, U.S. Venture Partners, Partech International, Focus Ventures, Samsung America Venture Capital Company and Mitsubishi Corp.;

• ReachLocal, provider of Internet advertising services, which Galleon backed in October 2007 as part of a $55.2 million Series D next to Rho Capital Partners and VantagePoint Ventures. The reported post-money valuation at the time was over $300 million;

• Shriram EPC, a wind turbine maker, which Galleon backed in November 2007 as part of $36.5 million financing next to Argonaut Partners and New Vernon Private Equity, records show;

• ECL Finance, a provider of financial services, which Galleon backed in January 2008 as part of its acquisition by existing Galleon portfolio company Edelweiss Capital;

• and Altierre Corp., a data processing company, which Galleon backed in March 2008 as part of a $30 million Series C next to ATA Ventures, D. E. Shaw Investment Management, DuPont Capital Management Corp., Kinetic Ventures and Labrador Ventures.

Meanwhile, managers of Galleon’s $500 million Asia fund are exploring a possible buyout of the unit, sources told Reuters last week. A “management buyout is the most logical option,” said one of the sources, who declined to be identified because the talks were not public.

The regional management team in Singapore, including Chairman Frank Wong and CEO David Lau, are trying to attract outside investors. Lau told Reuters that the Asia fund had reduced leverage and was staying liquid.

Reuters contributed to this report.