terça-feira, 18 de outubro de 2011

Investors Balking at New Ross Fund

Wilbur Ross Jr. is one of the world's richest and best-known investors on Wall Street. But that hasn't been enough to win over some firms that looked at his latest private-equity fund.

As of August, the 73-year-old Mr. Ross's eponymous firm, WL Ross & Co., had raised a little more than one-tenth of the $4 billion it set out to attract last year. The firm has told people it has cut its fund-raising target to between $2 billion and $2.5 billion, according to people familiar with the conversations.

WL Ross's difficulties reflect the fund-raising challenges facing many private-equity firms as the financial markets seesaw and some investors conclude that they already have enough exposure to buyout shops or distressed strategies in their portfolios. Also, some people who decided against investing in Mr. Ross's latest fund said they also were concerned about succession planning at WL Ross.

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Wilbur Ross Jr., chairman and chief executive officer of WL Ross & Co.

Some would-be investors worried that no one else at the firm, owned by Invesco Ltd., could step in and quickly duplicate Mr. Ross's reputation, connections and investment skill if he decides to become less involved or leaves altogether.

"They have highly talented people at WLR, but we think Wilbur holds it all together," said one investor who passed on the new private-equity fund.

Mr. Ross, a well-known figure on Wall Street since the 1970s, said he isn't going anywhere. In an email to The Wall Street Journal, he wrote: "I recently entered into a new 5 year contract with the firm and continue to play four sets of tennis each weekend."

After five years, the contract automatically extends year to year until he or the firm decides not to lengthen it, Mr. Ross added. Mr. Ross declined to comment on fund-raising efforts.

[ROSS] Bloomberg News

Last year, the firm responded to succession concerns among some investors by changing a provision to give investors more protection if Mr. Ross no longer runs the firm, according to people familiar with the situation. WL Ross originally marketed the fund without naming Mr. Ross as a sole "key man" whose departure alone could lead to a suspension of investments.

Mr. Ross made his reputation as a bankruptcy adviser in the 1970s, managing that practice at Rothschild Inc. until about 2000. He then won new fame and fortune as a private-equity investor through turnarounds of troubled steel and coal companies.

One of Mr. Ross's biggest money makers came from acquiring the bankrupt assets of several U.S. steelmakers to form International Steel Group. The 2005 sale of the steel company to Mittal Steel Group resulted in a 13-fold return on WL Ross's original investment.

Mr. Ross sold WL Ross to Invesco in 2006. A 2007 fund raised about $4 billion from investors, a little more than three times bigger than its 2005 fund.

His firm's funds before the sale to Invesco managed to generate returns more than twice or three times investors' money, according to data from public pension-fund clients. Returns on the 2007 fund, which has a relatively short track record, have been less impressive but in line with some industry peers, according to the data.

Succession planning is particularly important to many private-equity investors because they often make multiyear commitments to a fund. KKR & Co. and Blackstone Group LP, where founders are in their 60s, have management committees packed with top executives of the companies.

At Blackstone, Tony James, president, is expected to eventually succeed 64-year-old founder Stephen Schwarzman as head of the firm, according to one person familiar with the matter.

No one at WL Ross is as closely identified with the private-equity firm as Mr. Ross. But he is surrounded by a team of senior partners who have worked together since Rothschild in the 1990s.

About two years ago, James Lockhart III, who headed the Federal Housing Finance Agency during the U.S. government's seizure of mortgage companies Fannie Mae and Freddie Mac, joined Mr. Ross's firm. And it has increased the size of its professional staff to 55 from 35 in the past few years.

Mr. Ross said the entire team works on investment ideas. It is "usually my task to articulate them to our limited partners and other constituents," he wrote in an email to the Journal.

Mr. Ross recently made his fifth business trip to Asia this year, also has been to Europe several times and hopscotched all over the U.S. Meanwhile, his private-equity firm has announced several investments recently. "Does this sound like either I or the firm is pulling back?" he wrote.

WL Ross recently asked investors for nine more months to raise money for its latest private-equity fund, according to a person familiar with the matter. The investors agreed. Since August, the firm has raised more money from some new clients, this person said.

Write to Sabrina Willmer at sabrina.willmer@dowjones.com

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