The entire Boston-based North American private equity team of Standard Life Investments (the in house private equity group of U.K.-based Standard Life) quit earlier this month, after a long-simmering dispute over economics, as first reported by peHUB.com (a PE Week sister publication).
Among those who left are team leader and Managing Director Dan Cahill. PE Week was unable to determine from the firm’s website and cached pages the names of other staff members who left. SLI spokesman Richard England initially declined comment, but confirmed that there were departures.
The origins of the dispute stem from late last year when then-SLI chief Jonny Maxwell was negotiating to buy the PE group from its corporate parent. The proposal was similar to spinouts from such institutions as JPMorgan (which spun out CCMP Capital), Morgan Stanley (Metalmark Capital) and BCE (Summerhill Venture Partners). But the corporate parent balked at the deal, leading to Maxwell’s departure last December. (Maxwell has since resurfaced with Allianz.)
In June, however, Standard Life had partially reversed course. It agreed to sell a 40% SLI ownership stake to nine managers, with the resulting LLP to be called SL Capital Partners. The spinout would become effective in October. The SL Capital team would then invest from two new funds, including a $1.3 billion private equity fund of funds in Europe to be managed by the U.K. team and a $300 million dedicated North American fund of funds to be managed by the Boston team.
About $275 million of the $300 million fund of funds is already committed, with investments going to such firms as Sun Capital Partners, New Mountain Capital, Avista Capital Partners, Eos Partners, The Sterling Group, Sterling Investments Partners, Sterling Partners and Towerbrook Capital Partners.
However, none of the Boston team members was among the nine who received access to the 40% ownership position. They were considered to be employees and would work without certain financial incentives. They also were asked to sign certain employment agreements that they found objectionable, according to sources.
“They tried to transfer us to a new entity with onerous employment terms,” Cahill said. “They would not give us partnership equity. We tried to negotiate for weeks without success, but ultimately declined to become part of the new entity.”
England, the SLI spokesman, told Dow Jones that the Boston team didn’t have any deal-sourcing, fund-raising or marketing functions. Cahill disputes those contentions. “We made over 20 fund investments and 12 co-investments,” Cahill said. “Every one was sourced through us, except for one deal that came through Europe… Some of the fund relationships I had from my previous job. We also brought in a substantial number of clients for our product, and even sourced the largest client for their European product.”
In a follow-up email to PE Week, England wrote: “SL Capital Partners LLP has taken immediate steps to ensure the effective management and monitoring of the U.S. portfolio by experienced members of our private equity team based in Edinburgh. Given that $275 million of the $300 million portfolio has already been committed to funds in the U.S., we believe we have sufficient resources to monitor this small portfolio of investments without this being a distraction from our European private equity activities.”
When England was asked about the possibility of LPs enacting a keyman provision to pull capital commitments, he answered: “We do not anticipate losing any of our existing clients.”
Cahill and his former partners do not yet have future plans, and it is unclear if SLI plans to re-staff the Boston office.