The ever-spinning revolving door between government and private equity churned out a note of harmony earlier this month.
One firm may soon find its days numbered after its star investor decided to move into a life of public service, while another will soon be formed by a public servant looking to enter the private sector. Both kinds of moves have become increasingly common, as general partners leave their potentially lucrative posts to help shape public policy, and as accomplished public servants attempt to convert their hard-won experience and influence into private-sector wealth (see accompanying table).
Lawrence Schloss, co-founder, president and CEO of
Meanwhile, on Jan. 7, peHUB broke the news that former Federal Communications Commission Chairman Kevin Martin will launch a new private equity firm called
Schloss’s his departure from Diamond Castle is sure to dull the buyout shop’s luster. If he leaves to serve the New York City’s new Comptroller John Liu, his exodus would trip a key-person provision with the buyout firm’s first fund, the $1.8 billion
Key-person provisions vary, but often a triggering event is followed by automatic suspension of new platform investments (with the exception of deals already in the process of closing). The moratorium lasts until limited partners hold a vote on whether or not they have confidence in the sponsor to continue making new investments. During the timeout, the GP bears the burden of convincing LPs that it is still a viable franchise. These suspension periods can last 60 days on the low end and half a year on the high end, according to Morri Weinberg, a partner at Ropes & Gray LLP who is focused on fund formation.
Weinberg, who is not familiar with Diamond Castle’s key-person provision, said that if the voting LPs are ultimately not on board with the GP’s plans, they often have the power to permanently shut down the investment period of the fund in question. If this is done, the sponsor group can continue to manage the existing portfolio and make follow-on investments to maintain their viability. But investments in new portfolio companies are theretofore off limits. “Essentially, the firm is in monitoring-and-harvesting mode,” Weinberg said.
Schloss and four senior managing directors—Ari Benacerraf, Michael Ranger, Andrew Rush, and David Wittels—founded Diamond Castle in 2004. Prior to Diamond Castle, Schloss and the rest of that core team all worked together at
As for the formation of Carmichael Partners, Martin, who held his post at the FCC from March 2005 through January 2009, intends to team up with Brian Bailey, who recently left his post as a senior advisor at mid-market buyout shop
In an email to colleagues, Bailey said that Carmichael Partners would keep its investments limited to a small number of companies so it can effectively devote its time to active portfolio management, peHUB reported. This would be attractive to families and founders looking for an equity partner that can provide an engine for growth while preserving the original company culture, Bailey reportedly wrote.
Michael Powell, Martin’s predecessor at the FCC from 2001 to 2005, also took to private equity after leaving his post. Powell, son of former Secretary of State Colin Powell, joined