- Quadrangle reaches agreement with Fund II LPs on extension
- Fund II extended on same economic terms
- Former execs help incentivize remaining GPs
The Quadrangle Group went to market last year to consider various options for its aging second fund, which was set to expire at the end of 2015.
With all the liquidity tools on the table, including a potential restructuring, the firm eventually came to agreement with the Fund II limited partner advisory committee on a “regular way” fund extension, according to a person with knowledge of the deal.
Quadrangle sent letters to its LPs outlining the basics of the transaction recently, sources said. Terms of Fund II included two, one-year extensions at the end of the fund’s life. LPs approved both extensions up front, giving the firm another two years to exit its portfolio, the person said. That portfolio has several remaining investments with combined net asset value of just under $500 million, the person said.
“There’s still some wood to chop,” the person said.
Quadrangle was “looking for a way to get all the constituencies on the same page … and agree on a path forward,” the person said.
As part of the agreement, the fund was extended on the same economic terms as before, meaning the management fee and carried interest rate continue for the next two years, the person said. The commitment to a two-year extension and the opportunity to continue to grow the value of the fund in turn incentivized a group of former Quadrangle executives, including former chief Steve Rattner, to contribute economics to the GP. The contributions from the former GPs helped incentivize remaining executives to continue to manage the fund during the extension period, the person said.
“It was in their interest to continue to extend the fund another couple years in hopes the carry pool will continue to grow,” the person said.
Quadrangle, which has been winding down for several years, is led by Michael Huber, president and managing principal. Other remaining executives include Steven Felsher, senior advisor and Brian Bytof, chief operating officer; along with vice presidents Susan Yee and David Chorney, according to Quadrangle’s website.
Quadrangle closed its second fund on $2 billion in 2005. That fund generated a 5.13 percent internal rate of return and a 1.32x multiple as of June 30, 2015, according to performance information from alternative assets data provider Bison. Fund II has returned 100 percent of LP capital, the person said.
The largest investment in Fund II is publicly traded telecom company West Corporation. The two other large investments in the fund are telecommunications business Hargray Holdings and wireless tower operator Tower Vision of India, according to Quadrangle’s website. The fund also includes smaller investments, including small stakes in public companies the firm has been selling down over time, the person said.
Quadrangle was an up-and-coming firm when it was caught up in a pay-to-play investigation in New York around 2009, along with a host of other private equity firms. Rattner — who was accused of paying political fixers fees in exchange for commitments to Quadrangle funds — settled with the SEC. He agreed to a fine and to not work with New York pension funds for a period of five years.
Action Item: Reach Quadrangle at 212-418-1700.
Photo: Steve Rattner, managing principal, Quadrangle, speaks at the Reuters Global Hedge Fund and Private Equity Summit in New York April 11, 2007. REUTERS/Eric Thayer