* Kirchner Group, Crestline Investors in joint venture
* Team up to buy troubled private equity assets
* W.B. (Bud) Kirchner to lead new business line
By Steve Gelsi
NEW YORK, May 1 (Reuters-BUYOUTS) - Merchant bank Kirchner
Group and Crestline Investors Inc, a hedge fund secondary buyer
with $7.3 billion under management, have teamed up to launch a
joint venture aimed at taking over management of so-called
zombie funds from their original private equity sponsors.
The Crestline-Kirchner Private Equity Group plans to
acquire, manage and invest in underperforming private equity
assets, portfolios and funds. The joint venture has headquarters
in Fort Worth, Texas, the hometown of Crestline Investors, and
will also have offices in New York and Toronto.
The universe of U.S. zombie funds - poor-performing private
equity funds whose managers have little hope of raising more
money - measures about $100 billion in assets, according to
industry estimates cited by the two firms.
W.B. (Bud) Kirchner, who founded Birmingham, Alabama-based
Kirchner Group in 1985, will lead the new business line.
Kirchner will be joined by Dave Philipp, head of asset
management for Kirchner Group, which in recent years has built a
business taking over management of troubled private equity
portfolios on behalf of limited partners. Crestline Investors
will provide most of the staff for the joint effort, but
specific numbers haven't been determined, Philipp said.
Crestline-Kirchner Private Equity Group will tap into $1.9
billion allocated for "opportunistic investments" by Crestline
Investors, a 16-year-old firm that describes itself as a leader
in the secondary hedge fund market, providing liquidity to
investors in exchange for their stakes in funds. Opportunistic
investments include both secondary purchases of LP interests in
hedge funds as well as the zombie fund investments.
The new firm plans to act as a fiduciary to replace or
complement general partners of funds; provide advisory services
for limited partners; create successor funds by consolidating
direct private equity investments into a fund structure; and
shop for investment opportunities such as follow-on capital at
the portfolio level.
In a prepared statement, Kirchner said the partnership
"provides tremendous validation" of his firm's business model.
"Now is the right time for us to scale up to meet rapidly
increasing market demand," he said, adding that the deal with
Crestline Investors will provide "institutional infrastructure
and access to capital."
Douglas Bratton, president and chief investment officer of
Crestline Investors, said in a prepared statement that the new
alliance would add a "powerful new business to our institutional
platform" and tap into Kirchner Group's success "deploying its
model across a series of portfolios ranging from early stage
venture to mid-market buyout since 2004."
Among its zombie fund deals, Kirchner Group has taken over
management of the renamed Emerald Partners V LP fund. LPs such
as HarbourVest Partners had ousted Brantley Partners as general
partner and manager of the former Brantley Partners V LP, a $150
million private equity fund raised in 2007, after a court
Paul Choy, managing director of Kirchner Group, said in an
interview that six investments remain in Emerald Partners V
after two exits since his firm took it over in early 2011.
Kirchner Group remains on track to sell the remaining portfolio
companies in the next two to three years.
"This is for us an ongoing business model," Choy said. "We
replace or complement the GP in underperforming funds, turn them
around on behalf of the LPs, accelerate return of capital, and
recover value within the portfolio. With the joint venture with
the Crestline Investors, we are accelerating and expanding that
Crestline Investors' senior management team started
investing in opportunistic strategies for members of the family
of Texas oil man Perry R. Bass in the mid-1980s. The firm
launched its first dedicated opportunistic fund in 2005.