Hello, Berkshire Partners… Is Anybody Home?

Earlier this week, we reported that Berkshire Partners had quietly hired five new associates. The next day, Private Equity Insider wrote the following:

Columbia University’s endowment is calling off a secondary-market offering of nearly $1 billion, after selling a sliver of the portfolio to Adams Street Partners. The Adams Street sale involved stakes in just three or four private equity funds run by Berkshire Partners and TA Associates — vehicles whose characteristics were on a “want list” maintained by the Chicago fund-of-funds specialist.

I don’t use these examples to show how someone else got a better scoop than peHUB (although they did), but rather because the rat-a-tat-tat got me to thinking about how long it had been since I’d heard Berkshire’s name mentioned in any context.

The Boston-based firm raised $3.1 billion for its seventh fund in 2006, but hasn’t announced any new acquisitions since October 2007 (save for one PIPE and a pair of bolt-on acquisitions in February ’08 and January ’09). The only disclosed exit was a partial sale of its Party City retail chain (AMSCAN) to Advent International last fall. I know private equity is slow right now, but this is approaching Comcast turtle territory.

So I rang up Berkshire managing director Kevin Callaghan, to get a better sense of what was going on at Boston’s most understated buyout firm. What he said, essentially, was that looks can be deceiving.

“We’ve obviously slowed down like the rest of the market has, but we’ve also done a lot of deals that we’ve decided not to publicly announce,” he explained. “For example, we’ve committed multiple hundreds of millions of dollars into a wireless infrastructure initiative that right now we’re just calling Tower Development Corporation.”

Callaghan doesn’t really have a great explanation for why the firm hasn’t been more vocal about its deals, except that it can be a bit difficult to explain “non-traditional” deals. “If we had done a traditional leveraged buyout in the past year, we probably would have announced it,” he said.

Back to the issue of investment activity: I pointed out to Callaghan that on of Berkshire’s limited partners, the Pennsylvania State Employees’ Retirement System (PA SERS), reported that the fund had called down just around 20% of its $3.1 billion through the end of 2008. He replied that the percentage of committed capital is actually closer to 50%, with many deals (like the wireless devco) not yet having called down most of their capital. He adds that even though Berkshire Fund VII was raised in 2006, it didn’t begin investing alone until last year. In the interim, it co-invested with Berkshire Fund VI — as is firm custom (a bizarre custom, but custom nonetheless).

Finally, I asked Callaghan the same question I seem to be asking all buyout pros these days (personalized for the particular conversant): “When raising your fund in 2006, you based your return expectations on the availability, and usage, of leverage. Do you need to revisit what you promised LPs? Are those return expectation still operable?”

Callaghan replied: “I think the character of returns will change, in that it will be less from leverage, and more from earnings growth. That’s what we’ve seen in past recessions, which also is where we generated the best returns in Berkshire’s history.”

Not exactly a direct answer (I never expect one to this question), but a decent stab. At the very least, it was good to hear that Callaghan and Berkshire were still alive and dealing.