PEHUB Wire: Friday, February 6, 2009

Yesterday, we shared private equity fund returns from the University of Texas Investment Management Co. (UTIMCO). Now, the man ultimately responsible for overseeing those investments is out of a job.

Robert Rowling, chairman of the UTIMCO board, resigned yesterday morning, in the midst of a Texas state senate hearing about the system’s falling capitalization. The decision did not seem planned out, but instead was a reaction to intense grilling over UTIMCO’s decision to pay performance bonuses to members of its investment staff.

Specifically, UTIMCO last November paid out hefty bonuses based on the year ending June 30, 2008, in which the system had made money and outperformed most of its peers. Those details did not seem to assuage the legislators, however, who argued that the bonuses should have been renegotiated by Rowling, or declined by the recipients.

After a lengthy dressing down by State Sen Steve Ogden (R-Bryan), Rowling said:

“I’ve spent half my life at the University of Texas and UTIMCO. I volunteer, I travel, they never reimburse me for this stuff. It cost me a lot of time and money. The sacrifice of my family. The sacrifice of my friends and you know what? You can have my job, I resign… I’m outta here. You come here and abuse him [UTIMCO CEO Bruce Zimmerman]? We did what we thought was right. We thought we had an obligation. Some people say you can walk away from your contracts, but we had an obligation.”

This is certainly not an isolated incident, and it’s only certain to get worse (as this space predicted in December). After all, UTIMCO actually made money in the time period for which these disputed bonuses were calculated. Imagine what will happen when a system pays out bonuses for a losing year, because that system’s losses were a bit lighter than that of its peer systems? The term “headline risk” doesn’t even begin to cover it.

By the way, Rowling so far seems to be sticking to his resignation guns, according to The Austin American Statesman (which first alerted us to this situation). The only outstanding question is if he’s resigned only his UTIMCO chairmanship, or also his position on the UT board of Regents.

A video of the exchange is available here. Scroll down to the Feb. 5 Senate Committee on Finance (Part II). Then fast forward to around the two hour and thirty minute mark.

*** There are a handful of private equity and VC names on the list of Bernie Madoff customers, although none of the interactions seem to have involved LP monies. Then there’s the curious case of consultancy Cambridge Associates, which says its inclusion was based on the firm’s past requests for info from Madoff, in order to conduct due diligence. A spokeswoman says that CA never recommended that its clients invest with Madoff, and that individual CA staffers did not invest with him.

We’ve got more here, including a downloadable version of the list. If you spot names I missed, please shoot over a note.

*** I’m not quite in crusade mode yet, but we’re nearing the point where some big buyout firms need to justify their decision not to cut bloated fund sizes. Or at least their decision not to reduce fees. LPs are hurting, and too few big general partners seem to care…

*** New Firm Alert: Henshaw Capital Partners is in the midst of raising a fund-of-funds focused on the African continent. It is targeting a total of $300 million, and hopes to hold a first close on around $100 million by June.

I’ll write more about this at peHUB later today, but some of the firm’s offering info claims that there currently are 47 African PE firms targeting a total of $14 billion. Moreover, Henshaw argues that Africa has been relatively unscathed by the global credit crunch (save for South Africa), because most local banks are: (a) Based on deposits, and (b) Don’t do business outside of the African continent. Also, expect a very big (political) name to join the firm’s advisory board in the next few weeks (negotiations are not quite finalized).

*** Just asking: Should Super Return have changed its name for this year’s conference?

*** Have a great weekend!

Top Three

TPG Capital reportedly has reduced the size of a $6 billion fund focused on distressed financial opportunities, by 25 percent. Its explanation, in part, is that U.S. government involvement in troubled industries leaves less opportunity for private equity.

Granite Equity has acquired a majority stake in Geotek Inc., a Stewartville, Minn.-based maker of reinforced fiberglass pultrusion products for the electric utility and animal containment markets. No financial terms were disclosed. Geotek co-founders Conrad Fingerson and Amy Donahoe will retire from daily operations and join the company’s board, while Derek Mazula, who assisted Granite Equity on the deal, will join Geotek as its new president.

Ho Ching has resigned as CEO of Temasek Holdings, an investment arm of the Singapore government. The move is effective October 1, with Ching to be succeeded by Chip Goodyear, former CEO of BHP Billiton.

VC Deals

SynergEyes Inc., a Carlsbad, Calif.-based maker of hybrid contact lenses, has raised $13.3 million in Series C funding. De Novo Ventures led the round, and was joined by fellow return backers Alloy Ventures, Delphi Ventures, InnoCal Venture Capital and Windward Ventures. New investor Bio-Star Private Equity Fund also participated. The company previously raised around $28 million.

Buyout Deals

Bruno’s Supermarkets LLC, a portfolio company of Lone Star Funds, has filed for Chapter 11 bankruptcy protection. The company has 66 total locations in Alabama and Florida, and employs around 4,200 people.

Green Courte Partners has extended its previously-announced cash tender offer for all outstanding shares of American Land Lease Inc. (NYSE: ANL) until 5pm on Tuesday, February 17. Green Courte is offering $14.20 per share.

Right Start, a Calabasas, Calif.-based specialty retailer for the prenatal to preschool years, on Tuesday filed for bankruptcy protection. Right Start is a portfolio company of Hancock Park Associates.

The U.S. government has retained two law firms and investment bank Rothschild to advise on the restructuring of General Motors and Chrysler. The law firms are Cadwalader, Wickersham & Taft LLP and Sonnenschein, Nath & Rosenthal and Rothschild.

PE-Backed M&A

Handmark Inc., a Kansas City-based provider of mobile phone applications, has agreed to acquire FreeRange Communications, a Portland, Ore.-based provider of a mobile publishing platform. No financial terms were disclosed. Handmark has raised around $11.5 million in VC funding, from firms like Apax Partners, Argnor Wireless Ventures, Borealis Vetures, Motorola Ventures and Village Ventures.

Firms & Funds

The Blackstone Group has secured around $113 million for its $1 billion-targeted real estate special situations fund, according to a regulatory filing.

LDC, a UK private equity affiliate of Lloyds, has opened an office in The Netherlands. It will be run by Ronald Verhoef, who previously was CEO of Reggeborgh Group.

Human Resources

Bruce Amlicke, chief investment officer for Blackstone Group’s fund-of-funds business, is leaving the firm for “personal reasons,” according to the WSJ. The firm, whose fund-of-funds group has more than 100 members, is expected to phase out Amlicke’s position.

William “Boots” Del Biaggio, a former partner with VC firm Sand Hill Capital, yesterday pled guilty to securities fraud. He will be sentenced in June.

Larry Zimmerman has joined Piper Jaffray & Co. as a managing director and head of the firm’s industrials and financial sponsor coverage business. He previously was with Deutsche Bank Securities.

Joerg Ueberla is stepping down as a general partner with Munich-based VC firm Wellington Partners, according to VentureWire. No future plans were reported for Ueberla, who will remain associated with Wellington.

Headwaters MB has promoted Peter Nam and Matthew Pangborn to the position of director. Nam works out of Headwaters’ Orange County office, while Pangborn works out of Denver.

Benoit d’Angelin has joined recently-launched UK advisory firm Quattro Partners. He previously was with hedge fund Centaurus Capital and, before that, was co-head of European I-banking for Lehman Brothers.

Stewart Hen, a managing director with Warburg Pincus, has joined the board of WuXi PharmaTech Inc. (NYSE: WX).