PE fund briefs, week of June 23, 2008

Constitution gets its first commitment

Constitution Capital Partners has received a $600 million mandate from the Universities Superannuation Scheme (USS), to invest in North American middle-market private equity funds and direct co-investments. Constitution also has sold a 10% firm equity stake to USS—the U.K.’s second-largest pension fund—and received a $150 million “warehouse line.”

Constitution is made up of the former U.S. team of Standard Life Investments, which quit en masse late last October. It took a few months to get Constitution up and running, but the team made sure to keep itself in front of general partners.

“When we parted ways with SLI, we used our own credit cards to fly out and meet with Windpoint and Sun Capital and other firms we had been investing with,” says Constitution Managing Partner Dan Cahill, who was at Towerbrook Capital’s annual meeting last week in Pebble Beach, Calif. “We didn’t have any money behind us, but we didn’t want that to mean we’d disappear.”

Cahill says that USS reached out to Constitution, and that the first handful of fund commitments and co-investments should occur within weeks. Constitution hopes to secure similar mandates from other institutions, and also is raising a separate fund of funds. Cahill declined to discuss the fund of funds or what the “warehouse line” is being used for. —Dan Primack

Goldman Sachs nears $7B

Goldman Sachs Group Inc.

is close to completing a $7 billion structured investment vehicle (SIV), a source familiar with the matter said, boosting hopes for a revival in the market for mortgage assets in which the SIV invests.

“I can say the FT report is correct,” the source told Thomson Reuters, referring to a story in last week’s Financial Times. Goldman declined to comment.

The SIV invests in asset-backed securities and collateralized debt obligations. SIVs hit trouble last fall when liquidity in the credit markets dried up, preventing them from raising funds and also causing the value of their assets to drop. SIVs, held by banks, hedge funds and private equity firms, issue a mixture of short-term debt and capital to buy longer-term assets, which pay more interest than the amount they pay on their notes. —Thomson Reuters

Cerberus raising distressed debt fund

Cerberus Capital Management is launching a new distressed debt fund, Chairman John Snow said last week. The decision by New York-based Cerberus to wade more heavily into the market for distressed assets follows similar moves by a growing number of its rivals, including Apollo Management and The Blackstone Group.

The Cerberus fund will focus on international assets, with only a small percentage likely to be devoted to the United States, Snow said. The former U.S. Treasury Secretary declined to give a target size for the fund. Snow said in an interview at a financial conference in Beijing that he expected that investors from both sides of the Pacific Ocean would put up money for the new fund.

Snow declined to comment on whether he had met any Chinese officials or firms about investing in the distressed asset fund, but he said that Cerberus saw a role for itself in channeling Chinese cash abroad.

“Our funds are open, and we are prepared to talk to people who want to invest with us. We are not exclusive,” he said.

Chinese state agencies in recent months have invested in two foreign private equity funds—one set up by TPG Capital and the other by J.C Flowers & Co. In addition, China’s sovereign wealth fund last year took a $3 billion stake in Blackstone before the private equity firm’s IPO.

Beijing has also been pushing the development of a domestic private equity industry, but its rule changes, such as promoting funds raised in the yuan currency, have tilted the advantage toward local players and have frustrated foreign firms.

“We’re prepared to take stakes [in China], but you have to play the ball where it lies,” Snow said. —Thomson Reuters

Lehman to invest in hedge funds

Lehman Brothers is moving toward a first close on a fund it will use to buy minority stakes in hedge fund managers, according to Private Equity Insider.

The investment bank aims to raise $3 billion to $5 billion for the vehicle, which it began marketing last month. Lehman has used its own capital to pursue the same investment strategy, typically purchasing 20% stakes in large, established hedge fund operators. Its previous investments have included stakes in D.E. Shaw and GLG Partners.

The bank is expected to hold a first close within the next few months and will likely invest in eight to 12 different hedge fund managers, according to PEI.

Another Romney enters private equity
Tagg Romney, son Bain Capital co-founder and onetime Republican presidential candidate Mitt Romney, has followed his father’s footsteps and entered the world of private equity.

The younger Romney is one of four co-founding principals of Solamere Capital, a Boston-based firm that is looking to raise $200 million for its debut fund. The others co-founders are Spencer Zwick, former national finance director for the Romney presidential bid; John Miller, CEO of National Beef Packing Co.; and Eric Scheuermann, a partner with Jupiter Partners (and son-in-law of former Massachusetts Gov. William Weld).

You might notice that both Miller and Scheuermann still seem to have other full-time jobs, so I’ve put in calls to both for clarification. (Update: Miller says he’ll be fulltime once JBS SA completes its acquisition of National Beef this fall)

The 38-year-old Tagg Romney, who most recently he was chief marketing officer for the Los Angeles Dodgers, says that Solamere has already made a handful of investments, but he declined to give specifics. The investments could be in either companies or other private equity funds, according to a document obtained by PE Week. —Dan Primack

Great Hill raising fund IV

Great Hill Equity Partners is raising up to $1.25 billion for its fourth fund, according to a regulatory filing. The Boston-based firm already has secured about $830 million in commitments. Its third fund closed in 2006 with $750 million.

Edgewater banks on $750M

Chicago-based The Edgewater Funds is raising up to $750 million for its third growth equity fund, according to a regulatory filing. Investors in previous Edgewater funds include the Pennsylvania Public School Employees’ Retirement System.

Waterland shores up fund IV

Waterland Private Equity Investments
has closed its fourth fund with $1.2 billion in capital commitments. The Netherlands-based firm focuses on mid-market buyouts in Europe. The firm raised more than $500 million for its third fund in 2006.