Pacific Corporate Group stays in restructuring mood

LA JOLLA, Calif. — Less than a month after Pacific Corporate Group formed a new international subsidiary, the private equity consulting firm is restructuring into two divisions.

PCG reorganized into two units — a partnership investment group and a direct investment business — on April 28. The partnership business will be conducted through a new operating group, PCG Asset Management, which will manage PCG's $20 billion in private equity discretionary management and advisory arrangements. The direct investment group will be operated through another new group, PCG Capital Partners, which will manage the PCG Corporate Partners Fund and PCG's co-investment funds, which make investments in operating companies.

Monte Brem was named president of PCG, overseeing the asset management division; he was managing director and will not be replaced. Christopher Bower, founder of the 26-year-old company, remains CEO, but now heads PCG Capital Partners.

The restructuring is the latest in a series of changes at the 26-year-old consulting and investment manager. Last month, the firm created a new global group, PCG International to be based in Washington. The new group will be part of PCG Asset Management; Michael Russell, managing director from PCG's La Jolla. Headquarters, is moving to the new European office in Geneva.So far this year, five executives have left the firm: Craig White, managing director; Eric Becker, vice president; Rick Fratus, associate; Scott Vollmer, managing director; and Peter Martenson, director. (Though no longer an employee, Mr. Vollmer is still a partner on PCG's distressed debt fund, the PCG Special Situations Fund.)

PCG "recognizes that employee retention is an issue," and while the reorganization is not designed to specifically address the problem, "employees responded positively to the announcement and were excited that the firm will be more focused in terms of employee roles and strategic direction," according to a statement from the firm.

In the meantime, the firm added one director, Michelle Davidson; a senior associate, Brandon S. Park; and two associates: Andrea Chen and Boris Eykher. PCG officials expect to add more senior executives in the coming months, said Mr. Brem.

PCG executives believe the turnover has stabilized, and are focusing on working through the reorganization, which has been in the works for a year.

Mr. Brem said the move came in response to developments in the asset class. "We watched private equity become a more mature asset class and more sophisticated and more global," he added.

So far, PCG clients are keeping their reactions to the reorganization to themselves.

Liz Mendizabal, public affairs director at the Olympia-based Washington State Investment Board, which oversees $61.2 billion in state pension assets, declined to comment on the reorganization or the executive departures. "It is customary not to comment on those kinds of things. It's up to PCG to do that," she said.

The Washington board is searching for a private equity consultant for its $6 billion private equity portfolio. Its contract with PCG expires at the end of June, Ms. Mendizabal said, adding PCG was invited to rebid.

Officials at the $64.5 billion Ohio Public Employees Retirement System, Columbus, also declined to comment. "We really don't have a comment or reaction at this time," said Rich Baker, senior media relations manager. The fund's consulting contract with PCG expires in February.

The move separates the money management activities of the firm from its consulting side, Mr. Brem said. While the impetus of the split was not to reduce conflict, the firm's lawyers felt that reducing the perception of a conflict is a side benefit, he added.

The asset management business will run PCG's partnership business, which manages more than $20 billion in advisory, fund of funds or single limited partner arrangements, he said.

Mr. Bower will head PCG Capital Partners, the direct investment division, which will manage the $500 million PCG Corporate Partners Fund and PCG's $150 million co-investment fund.

"The separation allows Chris to grow the direct investment business," Mr. Brem said.

Both divisions report to a board of directors.

PCG's new international business, PCG International, will be under the PCG Asset Management division. Although PCG has had European clients and has invested in European funds for 10 years, this latest global expansion is a further reflection of how the asset class has matured, Mr. Brem said.

"We're seeing increasing (European) institutions allocating to private equity, and institutions that had small allocations to private equity in the past increasing their allocations as well," Mr. Brem said. "The asset class is more mature. It's becoming more global."

But private equity is still an illiquid asset class in which choosing the right fund manager can make a difference in returns, he asserted.

PCG is working to create more efficient benchmarks, methods of increasing the accuracy of valuations of portfolio companies in between the usual times for adjusting the values (such as new financing) and more sophisticated analytical techniques to assist decision-making, he said. Currently in the works are benchmarks for different subasset classes of private equity returns Executives are also working on analytical techniques to determine the correlation between past results and future success to create more objectivity in benchmarking, Mr. Brem added.