peHUB Wire: Wednesday, January 6, 2010

I’ve written a lot in this space about how New York City has mismanaged its $12.4 billion private equity investment portfolio, particularly in terms of perpetual understaffing.

For example, an advertisement for “Director of Private Markets” sat on the NYC Comptroller’s website for more than a year, but was never filled. Moreover, former Comptroller Thompson pledged on CNBC that he would “beef up” the City’s alternative asset investment staff, in order to offset his placement agent ban. Good rhetoric, but those “positions” weren’t even posted.

But there is hope on the horizon. As I first reported yesterday at peHUB, recently-elected NYC Comptroller John Liu has unofficially tapped veteran private equity pro Larry Schloss to be the system’s next chief investment officer. This not only points to active management of private equity, but also an increase in general competence.

For the uninitiated, Schloss is currently chairman and CEO of Diamond Castle Holdings, a New York-based private equity firm currently investing out of its $1.83 billion debut fund (it’s called Diamond Castle IV, but that’s a whole other story). He formed Diamond Castle after stepping down as global head of private equity for CSFB Private Equity, which he took over after the CSFB/DLJ merger (he previously had run DLJ Merchant Banking).

Diamond Castle’s performance has been underwhelming so far – a negative 9.7% IRR, according to Oregon PERS – but Schloss gets universal acclaim from the LPs I spoke with. Since those conversations were on background, he’s an on-the-record quote from Canada Pension Plan’s Mark Wiseman (via a 2006 interview with the NY Times):

“Larry’s incredibly bright, incredibly honest and he knows how to make money… He’s kind of like the Jack Welch of private equity.”

And he’s another thing: Schloss is really, really rich. In this particular time and place, that alone is a major job qualification. Schloss should be nearly impossible to bribe, and would havethe flexibility to quit if he believes that Liu or others have begun to bend to undue influences (think Hank Morris).

What will be more interesting to watch, however, is how Schloss gets used to the organizational cluster$&*$ that he’s about to oversee.

New York City actually has five public pension systems, of which four invest in private equity. Each of those mini-systems has a board of trustees but no independent investment staff. Instead, they rely on recommendations from the Comptroller’s office, which serves in a custodial and chief financialadvisor role for each pension system (it also gets one vote on each board). The Comptroller’s office staffers also work closely with consultant Pacific Corporate Group, even thou! gh PCG reports directly to the different pension system trustees.

For a guy like Schloss who’s been his own boss for a while, his new role could take some getting used to.

Finally, what does all this mean for Diamond Castle? Sources tell me that Schloss is the firm’s godfather, but that he no longer spent much time (if any) in the deal trenches. As such, his departurewill mostly be felt in terms of introductions — particularly if and when Diamond Castle begins trying to raise its next fund (Diamond Castle IV is over 70% called, according to LP documents).

I’ve been unable to learn how Diamond Castle’s keyman provision is written, but it’s unlikely to be triggered by Schloss’ departure alone. The firm ha! s six other senior managing directors. This includes Michael Ranger, w ho was named alongside Schloss on SEC offering documents for Diamond Castle IV.

Schloss has not returned my calls or emails and the NYC Comptroller’s office declined to comment.

Top Three

New Enterprise Associates announced that it has closed its thirteenth venture capital fund with nearly $2.5 billion in capital commitments. A regulatory filing from late last year had shown that the firm had $2.45 billion committed from 189 accredited investors, including around a 1% commitment from the general partner. NEA closed its previous fund with just over $2.5 billion in 2006.

Nordic Windpower, a Berkeley, Calif.-based maker of wind turbines, has raised $38 million in Series C funding. Khosla Ventures led the round, and was joined by New Enterprise Associates, Novus Energy Partners, I2BF Management, Pulsar Energy Capital and return backer Impax Asset Management. The company previously raised an undisclosed amount of funding from Impax, Goldman Sachs and NBT AS.

Hans Morris, former president of Visa Inc., has joined General Atlantic as a special advisor focused on the financial services sector.

VC Deals

CeQur SA, a Swiss developer of insulin delivery systems for the management of Type II diabetes, has raised $29.6 million in Series A funding. Backers include BMC Ventures, Endeavour Vision, Schroder & Co Bank and Venture Incubator.

ValenTx Inc., a Carpentaria, Calif.-based developer of an implantable medical device to address morbid obesity, has raised $22 million in Series B funding. SV Life Sciences led the round, and was joined by Covidient Ventures and return backers Sapient Capital, EDF Ventures, Kaiser Permanente Ventures, Affinity Capital Partners and TGap Ventures.

Innovalight Inc., a Santa Clara, Calif.-based developer of silicon ink-based printed solar cells, has raised $18 million in Series D funding. EDB Investments of Si! ngapore led the round, and was joined by Vertex Venture Holdings (VC subsidiary of Temasek Holdings) and return backers Apax Partners, ARCH Venture Partners, Convexa Capital, Harris & Harris Group, Sevin Rosen Funds and Triton Ventures. The company previously raised over $45 million.

Rally Software, a Boulder, Colo.-based provider of on-demand application life cycle management solutions, has raised $16 million in fourth-round VC funding led by Greylock Partners. The company previously raised over $35 million in VC funding, from firms like Mohr Davidow Ventures, Boulder Ventures, Mobius Venture Capital and Vista Ventures.

Hibernia Atlantic, a provider of trans-Atlantic high bandwidth connectivity, has raised $13.4 million from Constell! ation Growth Capital.

Quench Inc., an Indianapolis-based maker of rentable water purification systems, has raised $13.24 million in new VC funding, according to a regulatory filing. Virgin Green Fund led the deal, according to VentureWire. Quench previously raised around $26 million in VC funding led by Element Partners.

Aggregate Knowledge, a San Mateo, Calif.-based provider of personalization and audience-centric display optimization solutions, has raised $9 million in Series C funding. OVP Venture Partners led ! the round, and was joined by return backers DAG Ventures and Kleiner Perkins Caufield & Byers. Aggregate Knowledge previously raised just under $25 million.

TheraVasc, a Cleveland-based commercializer of a treatment for peripheral artery disease, has raised $500,000 in VC funding from JumpStart Inc. and Portal Capital.

VisualShare, a provider of SaaS solutions for Web-based multi-user image collaboration, has raised an undisclosed amount of VC funding from the Salt Lake Life Science Angels.

Buyouts Deals

BC Partners has completed its purchase of U.S. career training company ATI Enterprises from The Riverside Company and Primus Capital. The deal was valued at approximately $581 million, including around $250 million of assumed debt.

The Blackstone Group reportedly has purchased debt in Highland Hospitality Corp. from Wachovia Corp., and is aiming to control the hotel owner’s restructuring. JER Partners bought Highland for $2.1 billion in 2007.

Bridgepoint has set January 25 as the deadline for second-round bids on UK retailer Pets at Home, according to Dow Jones! . The four remaining suitors are Apax Partners, Bain Capital, KKR and TPG Capital. Bridgepoint is hoping to garner at least £700 million from the sale.

Calera Capital has acquired a majority stake in Rock-It-Cargo LLC, a Philadelphia-based provider of specialty freight forwarding and logistics services. No pricing terms for the all-equity deal were disclosed.

Caravelle has made an offer to acquire the French parcel business of Deutsche Post, which is hoping to offload the unit by the end of March. No financial terms were disclosed, but reports suggest a range of between $200 million and $300 million.

Guardian Capital Partners has acquired Sure Fit Inc., a New York-basedmaker of slipcovers ! and related accessories. Argosy Private Equity and existing Sure Fit s enior lender Wells Fargo Business Credit provided additional financing. No pricing terms were disclosed.

LoanDepot, an Irvine, Calif.-based online provider of consumer direct mortgage origination, has raised an undisclosed amount of growth equity funding from Parthenon Capital Partners. Company CEO Anthony Hsieh co-invested alongside Parthenon.

Simmons Bedding Corp. has received bankruptcy court approval for its takeover by affiliates of Ares Management and Teachers’ Private Capital.

Teachers’ Private Capital has agreed to buy the Canadian mortgage insurance business of AIG, which has a! ssets of C$274 million. No financial terms were disclosed.

PE-Backed IPOs

Century 21 China Real Estate, a Chinese property agent partially owned by Goldman Sachs, reportedly is planning to raise $150 million in a New York IPO.

DynaVox Inc., a Pittsburgh-based maker of software anddevices that assist people in overcoming speech, language or learning disabilities, has filed for a $125 million IPO. It plans to trade on the Nasdaq under ticker symbol DVOX, with Piper Jaffray and Jefferies & Co. serving as co-lead underwriters. The company reports just over $91 million in revenue for the fiscal year ending July 3, 2009 ($1.66m net income). T! his compares to just over $81 million in revenue during the same period one year earlier. Shareholders include Vestar Capital Partners and Park Avenue Equity Partners.

PE-Backed M&A

AdvancedMD Software Inc., a Salt Lake City-based provider of Web-based medical practice management solutions,has acquired PracticeOne, a provider of aelectronic health record software.No financial terms were disclosed. AdvancedMD is owned by Francisco Partners.

Lantiq, a portfolio company of Golden Gate Capital, has acquired the WLAN assets and IP of Israel’s Metalink Ltd. The deal is worth $16.9 million, including an $8.9 million initial payment and up to $8 million in possible earn-outs.

PE Exits

Brookfield Asset Management has agreed to sell Concert Industries Corp., a maker of feminine hygiene products, to PH Glatfelter Co. (NYSE: GLT) for C$246.5 million.

Carousel Capital has sold MedData LLC, a provider of healthcare transaction processing, to TransUnion LLC. No financial terms were disclosed. Harris Williams & Co. advised MedData on the deal.

Firms & Funds

Riverside Partners, a healthcare-focused buyout firm based in Boston, has closed its fourth fund, Riverside Fund IV, with $406 million in commitments, topping its initial target of $250 million. The firm’s prior fund, a 2005 vintage, had $225 million in commitments.

Human Resources

Pappas Ventures has promoted Sean McCarthyfrom principal to transactional partner, and Scott Weiner from senior associate to senior principal.

Mark Young has joined Dallas-based investment bank MHT Partners, as head of the firm’s new Boston office. He previously was a managing director with Capstone Partners.