UBS Sticks with Fundraising Group as Rivals Circle

(Reuters) – UBS AG said it plans to stick with its market-leading private equity placement group, which helps raise money for some of the world’s largest private equity firms, despite circling rivals eyeing a chance to pick off the group and its team.

The division’s staff remain loyal to UBS and the bank has no plans to exit the business, which consumes no balance sheet capital, said James Moore, global co-head of the private funds group. “We are absolutely committed to the business,” Moore said.

UBS’s private funds group is viewed as one of the largest and best in the industry, recently helping Swedish private equity firm EQT beat targets to raise 4.75 billion euros ($6.5 billion) for its sixth buyout fund.

The success of the division this year contrasts with the woes of the parent investment bank, rocked by a $2.3 billion trading loss which threatens to eat into staff bonuses.

Rival investment banks, sensing an opportunity and interested in taking on the business and its staff, have been conducting “due diligence” on the division, sounding out clients of the group, a person familiar with the situation said.

UBS’s private funds group employs 55 professionals in the United States, Europe and Asia and its team led by Nigel Dawn, Jake Elmhirst and Moore is regarded highly in the private equity industry.

As well as raising funds for firms, UBS is a broker of private equity “secondaries” — taking 30 to 40 percent of the market for selling of portfolios of private equity assets for investors such as banks, endowments and pension funds.

Since September, speculation has been rife in the industry that the bank might exit the placement business or could attempt to sell it on.

“The option for the bank when you have a business that successful is to sell it on. Because if you start losing people, you destroy value,” said a second person, a former employee of UBS.

DIFFICULT AND COSTLY

There have been previous examples of investment banks acquiring such fundraising groups. Last year, Evercore Partners Inc bought the Neuberger Berman placement group, formerly that of Lehman Brothers, while Jefferies Group Inc bought Helix in 2005.

But keeping such groups of individuals together can be difficult and costly for any buyer of such a business.

“You are going to have to pay a lot of money in handcuffs to keep people around. And I don’t think at this time, paying a lot of money for something that has very volatile earnings appeals to anybody,” the second person said.

An easier option in such situations is to let the group spin off, with executives paying the parent group a share of profits over the next few years, that person said.

Besides the likes of UBS, and rivals Credit Suisse Group AG and Lazard Ltd, most private equity placement and secondaries specialists are independent groups, such as Mercury Capital Advisers, which spun out of Merrill Lynch, or boutiques like Campbell Lutyens and Triago.

“The most logical thing is to leave UBS with its blessing and set up as an independent firm,” said another person familiar with the firm. “You don’t need the backing of a large bank behind you to run a business like this.”

By Simon Meads