The Quadrangle Group has spent an uncomfortable week in the spotlight, following allegations that firm co-founder Steve Rattner may have used improper means to secure a fund commitment from New York’s state pension system. Things have gone a bit better behind the scenes, however, where Quadrangle has been working hard to preserve its own existence.
When Rattner left Quadrangle in February to oversee the nation’s auto industry, it left his remaining partners prone to investment impotence. Specifically, limited partners in the firm’s $2 billion second fund were automatically given the right to prevent Quadrangle from making any new investments — save for follow-ons with existing portfolio companies — because Rattner was termed a “key-man” in fund documents.
Not only would this erase most of the $500 million left in Quadrangle’s second fund (plus associated fees), but it also would quash the firm’s hopes of ever raising a third fund. In other words, it probably would be the end of Quadrangle.
Limited partners have until this Friday to vote, but peHUB has learned that they are likely to let the deadline pass. In exchange, limited partners would be granted various concessions on existing fund terms, plus revised key-man agreements. We have not yet learned details of what those concessions would be, but expect them to be substantial.
As one LP said: “I’d rather get a better deal on the 75% I’ve already put in and on the remaining 25%, than just getting that final 25% back and keeping the first 75% as is.”
It is important to stress that any agreements between Quadrangle and its LPs are still in principle, and subject to change or fall apart. Moreover, LPs would still be required to approve fund amendments via a vote. So, for now, it’s safest to say that both sides are moving toward a deal, rather than that they have one in place.
A spokesman for Quadrangle declined to comment.
Update: Looks like New York pension fund officials are investigating whether or not Quadrangle “misled” the system about placement agent usage. It’s the kind of thing that could possibly put a crimp in the aforementioned agreement, particularly given that New York Common is a major LP.