NJ discusses payment options in collusion case

  • Options: insurance, balance sheet, fund capital
  • LP prefers balance sheet, insurance payments
  • New Jersey considering more separate accounts

Settlement payments made with fund capital would come at the expense of investors, McDonough said at the PartnerConnect LP GP Summit conference sponsored by Buyouts and Thomson Reuters in New York City on Sept. 19, adding that he believes limited partners would consider insurance or balance sheet payments more palatable.

“We’re hoping they do the right thing,” McDonough told Buyouts after his presentation, adding that it was the firms that opted for settlements, thereby avoiding a trial. Even so, “if you were an LP in the fund, you may have benefitted from this. How bad can you feel about the fund paying this?”

Seven firms opted to settle with the U.S. government in the case, which alleged that the private equity firms had conspired to not outbid each other on eight separate deals. Bain Capital, The Blackstone Group, Goldman Sachs, Kohlberg Kravis Roberts & Co, Silver Lake and TPG Capital have agreed to settle in the case. The Carlyle Group was the last firm to settle after it agreed to pay $115 million, Reuters reported in August.

In total, the firms are to pay $590.5 million to shareholders of the companies that had been targeted for acquisition. The firms did not admit to wrongdoing in their settlements.

McDonough characterized New Jersey Division of Investment as being “proactive” in its engagement with the firms to discuss the settlements. The $81 billion retirement system is an investor in several Carlyle and Silver Lake funds and maintains large separate accounts with Blackstone and TPG.

In addition to commenting on the collusion settlements, McDonough also indicated that New Jersey may pursue another separate account in the future. Managing new relationships likely will require a larger investment staff, he said.

The Division of Investment is in the process of evaluating resumes to fill several new alternative investment positions. McDonough said he expects the division to be fully staffed by the end of the year.