The Quadrangle Group has temporarily suspended efforts to raise its third private equity fund, according to comments made today by firm co-president Josh Steiner, during the Reuters Private Equity & Hedge Fund Summit. Quadrangle had been seeking $2 billion, but got derailed by both the difficult fundraising environment and the departure of firm co-founder/frontman Steve Rattner (he’s now a counselor to Tim Geithner).
“We’re not raising the fund at this moment, but we will at some point,” said Steiner, adding that all of Quadrangle’s investors had been apprised of the situation. “”Steve’s great, any firm in the investment banking business would rather have him part of the firm than not have him… most financial institutions go through a transition and we were determined when we founded this not to make any individual indisepnsible.”
Quadrangle has called approximately 75% of its $2 billion second fund, which closed in 2005. Steiner says that most of that money will be used to support existing portfolio companies, but that Quadrangle remains open to new investments (particularly PIPEs or debt purchases).
The only hiccup would be if limited partners deny Quadrangle the ability to amend its keyman provisions — a request necessitated by Rattner’s departure — but such a move is highly unlikely. If LPs were to do so, it would need to be by the end of April.
A few other notes from our conversation with Steiner:
* Quadrangle focuses on the media and communications sectors, but almost all of its portfolio companies are subscription-based rather than advertising-based. One notable exception was Alpha (a.k.a. Maxim Magazine), which Quadrangle has already written down to zero.
“Alpha was clearly a mistake… We invested in an ad-based business in the worst ad environment in decades… We take responsibility for the loss, and it’s unlikely we’ll recover any of [the investment]. I assume the company will be owned by its creditors.”
* The Quadrangle portfolio, excluding Alpha, experienced a 12% growth in year-over-year EBITDA from Q4 2007 to Q4 2008.
* Steiner was not on the deal team for either Alpha or MGM, in which Quadrangle holds a 3% slice. In practice, this means that he has not attended any film premiers or Maxim Super Bowl parties.
* Quadrangle will not raise a corporate opportunity fund, TARP fund, TALF fund, etc. If it wants to buy debt, it will do so out of the existing Fund II pool. Quadrangle bought its first debt securities last November.
* Never say never, but don’t expect Quadrangle to participate in newspaper fire sales (i.e., Platinum Equity buying San Diego Union-Trib). Someone asked if the firm could buy a paper and then experiment with new strategies (read: tech), but Steiner said that Quadrangle is not comfortable experimenting with a company’s core business.
* He declined to comment of Quadrangle’s alleged payment of around $250k to Hank Morris, who last week was indicted for a kickback scheme that involved private equity firms and the New York Common Retirement Fund. Didn’t really expect that he would, but we’ve gotta ask the questions…