Big changes coming at GM Asset

Nancy Everett, chief investment officer of the $40 billion Virginia Retirement System, Richmond, will be named CIO of General Motors Asset Management Corp., Pensions & Investments has learned.

In another big development, GMAM is selling a majority interest in its $6 billion private equity business — one of its best-performing internally managed asset classes — to the group's management team. W. Allen Reed, president and chief executive officer of GMAM, New York, said the private markets team, led by Managing Director Charles Froland, will own 51% of the new firm. GMAM will own 49%.

Mr. Reed is expected to announce Ms. Everett's hiring on March 21. She will begin work June 1. Although Ms. Everett's position is new, sources say her job will include some of the duties handled by Myra Drucker, but will entail broader investment responsibilities. Ms. Drucker, managing director for marketing and business development and CIO of GM Trust Bank, left last year.

Jerry Dubrowski, a spokesman for GMAM, declined to comment on Ms. Everett's hiring. "We have nothing to announce, and as a matter of course, we don't comment on speculation," he said. GMAM has $141.3 billion under management, according to its most recent filing with the federal government.

Ms. Everett confirmed she is moving to GMAM, but declined to discuss what her new job might entail. She has been with VRS since 1979, and was CIO since 1998. Officials there have not yet determined how to replace her.

"She's running an organization with $40 billion under management and she's done an outstanding job. She's widely regarded and highly respected for her investment performance," said Henry Higdon, partner in the New York executive search firm Higdon Barrett LLC, who said he worked on placing Ms. Everett at GMAM.

Mr. Higdon said that Ms. Everett's lack of experience in a corporate investment management job did not matter.

"She's a leader in the investment world, period."

He declined to comment on what Ms. Everett would be paid in her new position. "She'll be nicely rewarded for carrying out such a senior role," he said.

Meanwhile, the sale of the private equity business was done primarily to retain the current investment team and to expand the business' client base, Mr. Reed said

The deal had been in the works for about a year; terms were not disclosed.

Private equity is a long-term, relationship-based asset class, Mr. Reed said; keeping Mr. Froland and his five senior portfolio managers was important.

The move will also allow the private equity team to expand beyond GM-related investors. And it enables the business to earn more money because it can charge non-GM investors more than it can charge GM.

"Going forward, they will build their business to include investors that are not related to GM," Mr. Reed said.

General Motors Corp.'s $91 billion pension fund is a huge chunk of GMAM's assets under management, Mr. Reed said. GMAM also manages the pension plans of Xerox Corp., as well as two former GM subsidiaries, Delphi Corp. and DirectTV, formerly Hughes Electronics.

One of the advantages of spinning off into a separate firm is the "ability to diversify the client base to assure long-term stability in investment practice," Mr. Froland said.

"The company expects to add clients on a measured pace to take advantage of a wide variety of global private market opportunities from venture capital, buyout, distressed and turnaround opportunities and other strategies.

"The company will focus exclusively on private market investing and will be able to expand its resources to support a larger investment practice that can independently serve a variety of clients," he said.

The new firm — Performance Capital Management LLC — will be based in Greenwich, Conn., and will open in May.

GMAM will be an investor in the new company's funds, and GM will have three seats on the firm's seven-member board, Mr. Reed said.

Executives of the new firm expect to pursue both pooled and separate client investment opportunities, Mr. Froland said. The team currently manages a fund that invests directly in companies on a co-investment basis with other buyout or venture capital funds, as well as a private equity fund of funds.

Mr. Reed said GMAM executives consider the sale a positive move because private equity is different from other asset classes. Investors commit capital for each fund for about 10 years, he said. Other asset classes do not require such a long-term investment

"Our team has done an outstanding job. Retention is an important part of the business in private equity, and we want the same people around at the end that were there at the beginning."

GMAM has been investing in private equity for about 10 years, and with the same team for the past six years, but it didn't accept outside investors until 2001.

He said GMAM executives are not considering spinning off the firm's hedge fund or real estate businesses.

Moving beyond GM-related investors will also increase the private equity business' fee-earning power, Mr. Reed said. The private equity group will be able to charge non-GM investors a market-based fee, Mr. Reed said. Under the Employee Retirement Income Security Act, an affiliate cannot charge an ERISA plan more than cost. Because about 90% of GMAM assets are from the GM pension plan, he said, fees for private equity and other classes have been below market.

Another factor motivating the split is staffers' desire to participate financially in the success of the business they've been growing.

While at GMAM, the private equity group participated in some of the profits of the funds they managed, but as a separate firm, the team will be owners.

"The company will provide greater economic alignment for the management team and an opportunity to participate in the success of the business," Mr. Froland said.

The private equity business has been one of GMAM's best-performing asset classes, Mr. Reed said. In 2004, the GM pension fund earned an overall return of 14%; the private equity investments returned more than 20%, and the hedge fund earned 7%. (GMAM doesn't release its returns but does use the General Motors Corp. pension fund return as a public proxy.)

"It was one of the best years we ever had" for the private equity," he said.

GMAM's existing co-investment fund, the $700 million GM Capital Partners I LP, is 85% invested. It drew $100 million commitments from each of three large outside pension investors: the C$75.2 billion (US$62.6 billion) CPP Investment Board, Toronto; the C$35.7 billion Ontario Municipal Employees Retirement Board, Toronto; and the $117 billion New York State Common Retirement Fund, Albany. GM's pension fund committed $300 million.

Its newest fund, the $150 million GM Capital Partners Fund of Funds I LP, is just getting started, Mr. Froland said. So far, none of the three outside investors in the first fund has invested in the new one.

Calls to the officials at the three pension funds were not returned by press time.

The new private equity firm will also be managing the illiquid portion of GMAM's distressed debt business, Mr. Reed said.

"We have illiquid distressed debt in the form of limited partnerships, which will be managed by the joint venture," he said. "Other distressed debt is more liquid and is managed by the global fixed-income group in separate accounts."