Crossroads Buys EDS’ Alternatives Portfolio

Taking a major plunge into the secondary market, Crossroads Group acquired the entire private equity portfolio of Electronic Data Systems Corp.’s (EDS) treasury group, which includes 15 buyout partnerships and one venture capital partnership.

To finance the transaction, the Texas fund manager closed last week on approximately $400 million for a secondary fund, The Crossroads Cornerstone XV Fund, said Richard Spencer, president of Crossroads.

Among the portfolio’s holdings are investments in funds managed by Welsh, Carson, Anderson & Stowe, Texas Pacific Group, Kelso & Co., Hicks, Muse, Tate & Furst Inc. and Morgan Stanley Venture Partners. The investments were acquired at a discount, Spencer said, declining to comment further.

Spencer said Crossroads, based in Dallas, first started working with EDS in 1997, coming on board to advise the company on its private equity investments. However, by the end of 1998 EDS had decided to shed itself of all non-core assets, and subsequently sold its portfolio to Crossroads outright.

EDS, based in Plano, Texas, was founded in 1962 by Ross Perot. The company provides technology consulting services and had 1998 revenue of approximately $17 billion.

The new fund is Crossroads’ first dedicated to secondary investing, although the firm’s prior funds have had allocations for secondary investing.

In closing the fund, Crossroads joins an increasingly competitive group of secondary investors, including Landmark Partners, Coller Capital and Pomona Capital, among others.

Because some of the partnerships in the fund are fairly mature, Crossroads will create a new direct investment fund, The Crossroads Direct/Co-Invest Fund V, to invest some of the proceeds from the Cornerstone fund. The direct fund will be in excess of $100 million, said Shawn Terry, a director at Crossroads.

“Our LPs wanted a vehicle to invest these proceeds, which are coming back to us very quickly,” Terry said.