JPMorgan Partners Finds Breaking Up Is Easy To Do

JPMorgan Partners has agreed to split up its venture capital and leveraged buyout activities, after years of criticism that the firm was trying to be all things to all people. The move is expected to be implemented in late 2006, as part of JPMP’s recently announced spinout from parent bank J.P. Morgan Chase & Co.

Many of the details still need to be ironed out, but sources confirm that the spinout will result in a pair of independent firms that will focus on buyouts and venture capital, respectively. The buyout effort will look to raise $4 billion for its inaugural fund, while the venture group is expected to target about $400 million.

J.P. Morgan Chase already has committed up to $1 billion for the buyout fund (or just under 25%, if oversubscribed), but has not yet disclosed its limited partner plans for the venture fund.

“It’s just very early, and a lot of balls are still in the air,” says one source within the firm.

JPMP currently is investing from a $6.5 billion global fund, and will not spin out until that fund is almost entirely committed. The vehicle was launched in late 2000, and represented the first time that the firm had looked to supplement bank capital with third-party LPs. Its problem, however, was too much ambition (a $13 billion target, including a $6.25 billion commitment from J.P. Morgan Chase) and too little focus.

“The No. 1 reason why people didn’t invest in the fund was that it looked like it was trying to do too many things,” says Probitas Partners’ Dale Meyer, who used to serve as managing director and group head of J.P. Morgan’s private fund group. “They were getting so much money from the bank that they probably didn’t feel like they needed to [narrow their focus].”

JPMP spent two years in the fund-raising market, ending up with just $1.7 billion in outside commitments. By the time it finished, however, the group was suffering from a lot of Internet bubble-related red ink, and the parent bank was hot to reduce its private equity exposure.

The first cuts came via some billion-dollar secondary sales of limited partner interests in other venture capital funds, but the bank also would twice reduce the amount of capital committed to the JPMP global fund, thus leading to the final fund size of $6.5 billion.

Talk of a spinout actually began in the middle of last year, but mostly involved the $2 billion One Equity Partners group acquired as part of the Bank One merger.

Earlier this year, however, JPMP managing partner Jeffrey Walker began to shift the conversation toward JPMP, with the formal spinout announcement coming last week.

As part of the agreement, One Equity Partners will remain under the J.P. Morgan Chase umbrella. The spun-out buyout firm (which will not retain the JPMP name), however, will retain management of the $1.2 billion Asian Opportunity Fund II, which currently is being raised.

Other recent bank-affiliated private equity group spinouts include MidOcean Partners (from Deutsche Bank) and MetalMark Capital (from Morgan Stanley), although a similar deal for DLJ Merchant Banking Partners (from CSFB) is said to be on the rocks. Banks that still have multi-billion private equity funds include Goldman Sachs, Bear Stearns and Citigroup.

Email Daniel.Primack@thomson.com