In November 2000, JPMorgan Partners (then known as Chase Capital Partners) launched a $13 billion-targeted private equity fund that promised to be all things to all people. The problem was that only some of the people were interested.
More than two years later, the New York-based firm has closed the offering with $1.7 billion from outside investors and at least a $3-to-$1 matching pledge from parent bank J.P. Morgan Chase & Co. The $7.1 billion-plus total makes JPMorgan Partners Global Investors LP the largest private equity fund ever raised, but it falls far short of both its original target and a revised target of $9 billion.
“The biggest strategic reason for why this fund didn’t go as well as expected was that they were offering a global strategy that included early stage and late stage and buyouts of technology, life sciences and industrial companies,” says a private equity professional familiar with the JPMP fund-raising process. “They met with everyone possible, but a lot of investors, especially fund-of-funds and advisors, wanted something far more specific.”
Specifically, the new fund is allocating 50% of its capital to buyouts, 30% to growth equity and 20% to venture capital. This is a return to the firm’s 1990-1995 strategy, which was partially ignored in favor of increased early-stage investing during the Internet boom of the late 1990s. According to the group’s Web site, JPMP has done about three venture deals for every buyout transaction, but those figures include hundreds of investments made by other groups that were later integrated into JPMP, such as Chase H&Q.
Adding to JPMP’s fund-raising difficulties was the fact that some potential limited partners viewed the JPMorgan Partners offering as a first-time fund, since the group’s previous investments have been almost exclusively backed by bank capital. Whereas a firm like Warburg Pincus is able to market a broad-based strategy thanks to many longstanding LP relationships, JPMP could only count on a handful of previous backers like the state treasuries of New York and Michigan. It also tapped into J.P. Morgan Chase’s private banking roster, with such high-net-worth individuals contributing about $500 million of the third-party commitments.
On a slightly more positive note, the firm was able to secure some major investors like CalPERS despite having recorded losses in every one of the eight quarters it was fund-raising. “Most funds get to show potential LPs long-term rates of return, but [JPMP] was talking to people who were reading about hundreds of millions of dollars in losses every 12 weeks,” the source explains. “This was very tough for them, especially since they were being forced [by regulations] to announce unrealized losses.”
The fund has already completed 39 deals, and seems to be on target for its expected $1 billion annual disbursement pace. Most of its new portfolio companies, like US Filter and Teksid Automotive, have come via buyout, although the firm was close to closing an early-stage nanotechnology deal as PE Week went to press.
No More Fund Commitments
In related news, sources at JPMP have confirmed that J.P. Morgan Chase will no longer make new investments in other private equity funds. Historically, the bank has made billions of dollars of investments in funds like Blackstone Group and Kohlberg Kravis Roberts & Co. (KKR), which were then monitored by JPMP.
The move is part of a gradual effort to reduce the bank’s percentage of private equity commitments as part of common equity from 15% to 10%. Other steps include exiting certain businesses and portfolio companies deemed non-central to the JPMP mission.
A story in last week’s Wall Street Journal said that the bank would lower its amount of direct private equity investment dollars and raise more outside capital, but PE Week has been told that direct investing will not be touched and the report about outside fund-raising referred to the already-closed Global Investors fund.
Contact Dan Primack