RREEF Ends Relationship With Aldus

RREEF Alternative Investments, a unit of global investment bank Deutsche Bank, has exercised an option to “terminate” its minority stake in embattled private equity advisor Aldus Equity Partners, a spokesperson told Buyouts. Further details weren’t available. A source with knowledge of the situation said RREEF Alternative paid less than $10 million for the stake when the deal closed in July 2007.

Aldus Equity is embroiled in the pay-to-play scandal involving the New York State Common Retirement Fund. The firm and its founder, Saul Meyer, are the subject of a civil complaint filed by the Securities and Exchange Commission on April 30 that alleges their participation in a kickback scheme. Meyer is also facing a criminal charge of securities fraud in New York related to his alleged role in the scheme.

According to New York’s felony complaint against him, Meyer told an unnamed hedge fund manager in 2006 that he wished to end his relationship with Hank Morris, an adviser to former New York State Comptroller Alan Hevesi, who was allegedly extracting kickbacks from Meyer. At that time Meyer told the hedge fund manager that Deutsche Bank was considering purchasing an interest in Aldus Equity and that he believed Deutsche Bank, in reviewing Aldus Equity’s files, would not approve of the contract with Morris, the complaint says.

The hedge fund manager then spoke to Morris, who, the complaint says, became angry and threatening. “Tell that little peanut of a man that I can take the business away as easily as I provided it,” the complaint quotes Morris as saying. The hedge fund manager then allegedly told Meyer that Morris would not end the contract and that Meyer “would have to sort it out himself.”

In January 2007, RREEF Alternative, which is Deutsche Bank’s vehicle for infrastructure, private equity and real estate investments, announced plans to acquire a minority stake in Aldus Equity, and the deal closed that summer. Although the price paid and the size of the stake were never made public, Deutsche Bank characterized the stake as “significant” in its 2008 annual report. The intention was to form a strategic partnership to develop private equity fund-of-funds products for institutional and high net-worth investors, and to enable Deutsche Bank’s clients to invest in Aldus Equity’s offerings. As of January 2007, Aldus Equity had about $3 billion in assets, including more than $700 million raised since October 2006, according to a Deutsche Bank press release at that time.

Aldus Equity seems to have used its relationship with RREEF Alternative as a selling point. At a board meeting in July 2008, the New Mexico Educational Retirement Board heard presentations from three firms who were competing for a co-investment mandate from the state. According to the meeting minutes, Meyer told the board that Aldus Equity, which was founded in 2003, had “17 investment professionals and 25 employees.” He commented, however, that this number is a bit misleading because they are integrated into RREEF Alternative’s private equity office and work as one team. Meyer also said, according to the minutes, these individuals “participate in all of Aldus Equity’s investment committee calls and numerous other functions within the firm.” A spokesperson for RREEF Alternative declined to comment.

New Mexico Educational Retirement voted at the July 2008 meeting to give Aldus a $75 million commitment for co-investments, but none of it has been called, said Bob Jacksha, New Mexico Educational Retirement’s chief investment officer. “The Aldus [Equity] relationship to RREEF was mentioned in the [board] presentation and thus had some influence on the overall decision [to make the commitment],” Jacksha told Buyouts earlier in April, prior to the news of the charges against Meyer and Aldus Equity.