Silver Lake Quiet On Expert Network Connection

Silver Lake, the venerable technology-focused buyout shop that manages more than $14 billion, is grappling with unfavorable press related to its investment in Gerson Lehrman Group, a New York-based expert network firm.

Gerson Lehrman, one of Silver Lake’s smaller portfolio companies, has been in the news lately thanks to insider trading investigations implicating expert network firms, which match hedge fund and other sophisticated investors with industry experts.

Often, prosecutors allege, these experts provide non-public information to the investors, which could be a violation of insider trading rules if the expert is breaching a duty owed to another party. In May, a former account manager at Taiwan Semiconductor Manufacturing Company pleaded guilty to insider trading, admitting to providing sales and shipping order details to clients of Primary Global Research, another expert network firm. In Massachusetts, an executive at the firm Risk Reward Capital Management has been accused of insider trading based on tips received from another expert network firm, Guidepoint Global.

Gerson Lehrman, a company founded in 1998, has not been implicated in anything, and it has a full-time compliance staff of about 20. It is considered the industry’s biggest player, with a roughly 60 percent market share, according to The New York Times. As such, it is frequently mentioned in articles describing the insider trading scandals and heightened scrutiny of expert network firms.

Back in 2007, Silver Lake invested $200 million for a 25 percent stake in the company, drawn to its “sophisticated and proprietary technology platform,” according to a press release at the time. The firm typically invests at least $150 million in its deals, though it often invests much more than that. Its portfolio has also included internet voice communication provider Skype, which it recently agreed to sell to Microsoft Corp. for $8.5 billion; communications systems provider Avaya; and MultiPlan, a company that helps insurers, health plan administrators and other payers of health care services control costs. “Gerson Lehrman Group is an industry pioneer and clear leader in the rapidly growing global market for primary expertise,” Silver Lake Managing Director Michael Bingle said in the same press release.

These days, executives at Silver Lake are staying mum on the company, if not outright distancing themselves from it. Through a spokesperson, the firm declined to comment.

A source close to the firm emphasized that Silver Lake has a small stake in the company, and no managerial oversight. The company is reputable and has invested millions in compliance procedures, while the firms implicated in the insider trading scandals are tainting the whole industry, this source said.

It’s unclear how Gerson Lehrman is performing, but it’s safe to say it’s taking a hit as hedge funds, banks and other financial firms reduce their use of expert network firms. Revenue at expert network firms dropped by 20 percent to 30 percent last year, according to consultant Michael Lynch, in a May 13 commentary on the industry’s situation on Gerson Lehrman’s web site.

In that analysis, Lynch argues that the industry needs a re-branding. “For people like myself, if we are to continue with offering knowledge that can be useful to people contemplating investments, a distinction must be made between us and those that sell information for a large capital gains profit. If this cannot be done, I for one, will exit this business and return to writing fiction,” he wrote.