Updated Standard Life seemed to be a corporation that did right by its in-house private equity group, Standard Life Investments. But it didn’t, and now is paying the price. So are its investors.
peHUB has learned that SLI’s entire Boston-based North American private equity team has quit, after a long-simmering dispute over economics (Reuters is also reporting the news). That includes team leader Dan Cahill, and leaves many open questions about the viability of a $300 million North American fund-of-funds raised just months ago.
SLI’s Boston office yesterday pretended like Cahill and company were still with the firm (“He’s out right now, why don’t you leave a message with me or send him an email…”), while the UK headquarters would only issue the following statement: “We can confirm that certain members of our private equity team in Boston are no longer with the company. We cannot comment further at this time.”
This is a bunker mentality, and it’s just as misguided as the decisions which led to this mess in the first place.
The origins of the SLI debacle can be found late last year, when then-SLI chief Jonny Maxwell was negotiating to buy the group out from corporate parent Standard Life. This was hardly a revolutionary idea, as we’ve seen spinouts from such institutions as JPMorgan (CCMP Capital), Morgan Stanley (Metalmark Capital) and BCE (Summerhill Venture Partners). But Standard Life demured, leading to Maxwell’s surprise departure last December (he’s since resurfaced with Allianz).
By this past June, however, Standard Life had partially reversed course. It agreed to sell a 40% SLI ownership stake to nine managers, with the resulting LLP to be called SL Capital Partners. The semi-spinout also would invest out of two new funds: A €900 million European private equity fund-of-funds to be managed by the UK team, and a $300 million dedicated North American fund-of-funds to be managed by the Boston team. SLI’s Boston team previously had made plenty of fund commitments in North America, but this would be the team’s first dedicated vehicle. Its existing North American fund commitment portfolio – and, in some cases, co-investment partners – included Sun Capital Partners, New Mountain Capital, Avista Capital Partners, Eos Partners, The Sterling Group, Sterling Investments Partners, Sterling Partners and Towerbrook Capital Partners.
From the outside, it looked like the Boston-based team had what it wanted. On the inside, however, it was missing something very important: Partnership economics. None of the Boston team members were among the nine who received access to the 40% ownership position. They were just employees, and the difference between them and their “executive director” colleagues was stark. Not only did they work without similar financial incentives, but they also were asked to sign certain employment agreements that they found objectionable. This culminated in the mass exodus, which has left SLI with a North American fund-of-funds, but no one in North America to invest it.
I have been unable to reach Dan Cahill, although I dutifully sent an email to his SLI address. It is unclear what he and his team will do next, or if that move has even been determined. What we do know, however, is what we already knew: Unequal partnerships will lead to dissention and, ultimately, destruction. No idea how Standard Life didn’t see this coming…
Update: The original version of this story said that the SLI website still included the Boston team members. They have since been removed.