How important was the Volcker rule in your decision to go independent from Bank of America?
We’ve been talking to the bank for at least three years about re-positioning the business for third-party capital. As we came to a consensus with the bank three years ago, the markets really contracted, so clearly that wasn’t the time go pursue something like this. As the sun came back out earlier this year, and we were able to re-establish our strategies, that was when we started having more enthusiastic discussions with the bank about what the future of the firm should look like. Clearly, the Volcker Rule among other issues in financial reform were part of the backdrop, but it wasn’t a driving force.
What is your relationship with B of A going forward?
We’ll be using B of A’s capital for our seed fund, while we’re expecting to begin fundraising sometime in the next 12 months and wrap up in 2012. The bank was originally going to be an investor, but it is unable to under the Volcker Rule.
Why would you want to be independent?
We have always thought that it’s a good idea to have a diversified LP base. For 18 years it’s had one, sole institutional LP, which is great, but it’s also a little risky. Further, we saw this as an opportunity to focus on our core strategy of middle-market buyout investing, whereas with the bank we were charged with a broader set of mandates. We ran a co-investing book for the bank over the years, we ran a mezzanine book, but we really consider ourselves buyout and growth investors at heart.
It’s difficult to raise a fund as a new manager these days. What’s your advantage?
We’re different than a typical emerging manager: We’ve been together for 18 years, we’ve made 140 investments, we’ve invested over $3 billion of capital. So we have a track record that is clearly diligenceable. Plus, we have the use of a seed fund, so we can make investments that will go into our new fund that all potential LPs can review and decide if they want to be a part of.
How do you feel about having to register with the SEC?
Look, it’s part of business. We’ve been in a regulated environment for two decades. I actually think we have a leg up in terms of processes and disciplines and routines that others may not have. Just take something as basic as policies and procedures. We’ve got a policies and procedures manual that very few other firms will have. There are a lot of aspects of being in a regulated institution that give us a lot of background for being in what is going to be an increasingly regulated industry. There will be an incremental cost, and nobody likes to incur cost, but in terms of the processes and so forth, we’ll manage that fine.
Edited for clarity