Standard Life’s U.S. Team Walks Out The Door

With partnership economics front-and-center, the pros who ran the North American fund-of-funds business of Standard Life Investments have broken off from the Scottish investment manager.The entire Boston-based private equity team, led by Dan Cahill, quit earlier this month after a long-simmering ownership dispute boiled over. A spokesman for Standard Life, Richard England, initially declined to comment except to confirm the departures. However, he later told Dow Jones that the Boston team played no role in deal-sourcing, fundraising or marketing functions, saying that those were conducted out of Standard Life’s headquarters in Edinburgh.

England slightly backed off his original comments in subsequent communication with Buyouts, giving some credit to Cahill’s team while also maintaining that the “great bulk” of the work was done from Edinburgh. He added: “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.”

Cahill takes issue with the Standard Life spokesman’s downplayed description of the Boston team’s role in deal-sourcing, fundraising and marketing. “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.” Cahill added: “Some of the fund relationships I had [developed in] 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.”

The Standard Life meltdown can be traced to late last year, when then-chief of Standard Life Investments Jonny Maxwell was negotiating to buy the group out from corporate parent Standard Life. The move would have followed earlier private equity team spinouts from such institutions as JPMorgan (CCMP Capital), Morgan Stanley (Metalmark Capital) and BCE (Summerhill Venture Partners). But Standard Life didn’t follow suit, leading to Maxwell’s surprise departure last December. (He’s since resurfaced with Allianz.)

By this past June, however, Standard Life had partially reversed course. It agreed to sell a 40 percent share of Standard Life Investments to nine managers, with the resulting entity to be called SL Capital Partners. The semi-spinout would become effective in October, and the pros were slated to invest out of two new funds: a €900 million ($1.3 billion) European private equity fund of funds to be managed by the UK team, and a $300 million dedicated North American fund of funds to be managed by the Boston team.

From the outside, it looked like the Boston-based team had what it wanted. On the inside, however, it was missing something very important: partnership economics. None of the Boston team was among the nine who received access to the 40 percent ownership position, Cahill told Buyouts. The pros on his team were to be employees, and the difference between them and their “executive director” colleagues was stark. Not only did they work without similar financial incentives, but they also were asked to sign certain employment agreements that they found objectionable, according to Cahill.

“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 [and] ultimately declined to become part of the new entity.”

Approximately $275 million of the $300 million North American fund of funds is already allocated, with commitments going to such firms as Avista Capital Partners, Eos Partners, New Mountain Capital, The Sterling Group, Sterling Investments Partners, Sterling Partners, Sun Capital Partners and Towerbrook Capital Partners.

Cahill and his colleagues have not yet determined their plans. It is unclear if Standard Life plans to restock the Boston office.