Is Quadrangle Near Shutting Down?

The Quadrangle Group just can’t seem to get a break. The media investment firm, which is being sued by one of its co-founders, is near shutting down in its current incarnation, according to the New York Post.

New York-based Quadrangle, started by Steven Rattner a decade ago, “will cease to exist in its current form as it tries to reinvent itself under a new name in the coming weeks,” the NY Post says.

Joshua Steiner, Quadrangle’s co-founder, will take on a lesser role at the firm, while Andrew Frey, a managing principal, is set to leave by the end of the year, the story says.

Quadrangle isn’t shutting down or liquidating its portfolio, a source says. But the PE firm isn’t raising a new fund. Instead, Quadrangle will focus on managing its current portfolio, the person says (this isn’t news at all but has been reported over and over).

Quadrangle’s first pool raised $1.1 billion in 2000 and all of it is invested.  The firm’s second fund, which raised $2 billion in 2005, is about 80% invested.

To me, a PE firm that can’t raise a new fund and is limited to managing its current portfolio is the definition of “winding down.” But Quadrangle thinks it may still pull it out. The PE firm is looking to ink a deal with a strategic partner who would take a minority position in the firm, the source says. The New York Post says that talks with Carlyle and Oaktree Capital Management have stalled.

Quadrangle is also hiring and is expected to announce some senior additions soon, the source says.

Officials for Quadrangle declined comment.

This has been a tough year for Quadrangle. The PE firm was ensnared in the never-ending New York pension fund scandal and, in April, agreed to pay $12 million to settle corruption allegations. Rattner is now suing his former firm and is seeking damages from Quadrangle and its partners. Quadrangle claims there is no basis for Rattner’s claims and plans to defend itself “vigorously,” according to a Nov. 18 letter to its LPs (Rattner, for his part, is being sued by NYAG Andrew Cuomo, who is seeking $26 million from the exec and is trying to ban Rattner for life from the New York state securities industry. Rattner has agreed to pay $6.2 million to the SEC and has accepted a two-year ban).

Quadrangle was “screwed by Rattner,” one PE exec says. “I cannot imagine in what a minority investor would invest.”

“The stigma of the investigation is making it hard to raise another fund,” a banker adds.

However, another buyout exec says that Quadrangle is part of a group of firms that has been in business for little more than a decade and that has had middling success on investments. These firms were able to raise a fund or two during the bull market “when pension funds and endowments were very deferential to spin-outs from other funds or successful investment bankers,” the buyout source says.

Now, we’re in a tougher market and those same pension funds have less money and they’re closely examining who really created value as investors, the person says. “If Quadrangle’s track record had been great, they could have survived this scandal because the investors might have been willing to look the other way,” the PE source says.