Several large private equity consulting firms have added significant asset management capabilities and while none left the consulting business entirely, most have fewer relationships. For example:
cAbbott Capital Management LLC, New York, is currently raising its fifth fund of funds. Since its founding in 1986, Abbott Capital has had both discretionary and non-discretionary advisory business, said Charles H. van Horne, managing director. The firm started offering fund of funds in 1995. The firm made a decision in 1997 to not seek new consulting business, but has maintained non-discretionary relationships formed before that time.
cBala Cynwyd, Pa.-based Hamilton Lane was solely a private equity consultant with mostly non-discretionary relationships from 1991 until 1998, when it added separate account and fund-of-funds investment management. In the past three years, Hamilton Lane expanded even further into asset management, adding a hedge fund business, secondary funds of funds and co-investment funds. The advisory business still represents roughly one-third of Hamilton Lane's business, said Mario Giannini, chief executive officer. Most of its consulting is discretionary advisory work.
cPacific Corporate Group LLC, La Jolla, Calif., still has a sizable non-discretionary advisory business, said Mr. DePonte, who was chief operating officer and managing director at PCG before joining Probitas. But it also has a fund-of-funds and direct buyout fund business. Christopher J. Bower, founder and CEO, declined to comment for this story.
Pathway will now concentrate on continuing to build a specialty funds business, in which it manages a specific private equity fund of funds-type arrangement with a single, large institutional investor, said industry sources close to the firm.
Pathway has close to $20 billion in advisory and money management assets, according to industry sources, but that number should fall precipitously with the loss of the MassPRIM and LACERA advisory relationships. MassPRIM is the firm's last significant advisory account, they said.
Pathway has been MassPRIM's private equity consultant for 15 years, said Mike Travaglini, MassPRIM's executive director.
He said the fund is searching for a firm to do non-discretionary advisory work. "My sense is that there are fewer consulting firms," Mr. Travaglini said.
MassPRIM's contract with Pathway expires Dec. 31. Responses to the request for proposals are due Nov. 1, and executives expect to select a new private equity consultant at their Dec. 8 board meeting, Mr. Travaglini said. MassPRIM executives prefer a firm that does only consulting work, but will accept a firm that also manages money.
Some 6.7% of fund assets are committed to private equity; MassPRIM has a 10% private equity allocation target.
At the Los Angeles County fund, Christopher J. Wagner, senior investment analyst, private equity, said Pathway executives told him they were "focusing more on their fund-of-funds business than their advisory business." LACERA has been a Pathway client for more than four years. LACERA has a $2.1 billion private equity portfolio invested with nine managers. LACERA also is seeking a replacement for Pathway.
Mr. Wagner said he has grown accustomed to witnessing a revolving door of private equity consulting firms. There are no fewer firms willing to do the work, but "the names have changed," he said.
"It's the natural progression of advisory firms. After they've done advisory for a few years, they move on to funds of funds, which is more lucrative," Mr. Wagner said.
But insiders say consulting firms that also make investments can lead to some tricky conflict-of-interest issues.
Robert Gish, chief investment officer of the New Mexico Public Employees Retirement Association, Santa Fe, said the $11.9 billion fund would not consider a consultant that was also in the investment management business.
"We thought it was a conflict of interest because, in our case, we would be relying on the consultant's recommendation in various alternative asset classes and so we did not want someone that was also managing those asset classes to make recommendations for us," Mr. Gish said.
The association hired Cliffwater LLC, Marina del Rey, Calif., in October as the consultant and gatekeeper for its new alternative investments portfolio that includes real estate, real assets, hedge funds and private equity.
"We had a fairly small universe of about 19 responses to the RFP," Mr. Gish said. While the RFP did not prohibit responding firms from having an investment management business, he said none of the finalists did.