Alex Slusky was under pressure to put the money in his private equity fund to work.
The San Francisco technology financier had raised $1.2 billion in 2007 to buy and turn around struggling software companies. By 2012, investors including Harvard University were upset that about half the money hadn't been used, according to three people with direct knowledge of the situation.
Three Americans on the Caribbean island of St. Croix presented a solution. They had built a network of payday lending websites, using corporations set up in Belize and the Virgin Islands that obscured their involvement and circumvented U.S. usury laws, according to four former employees of their company, Cane Bay Partners VI. The sites Cane Bay runs make millions of dollars a month in small loans to desperate people, charging more than 600% interest a year, said the ex-employees, who asked not to be identified for fear of retaliation.
Mr. Slusky's fund, Vector Capital IV, bought into Cane Bay a year and a half ago, according to three people who used to work at Vector Capital and the former Cane Bay employees. One ex-Vector employee said the private equity firm didn't tell investors the company is in the payday lending business, for which borrowers repay loans out of their next paychecks.
Vector closed fund IV in July 2007 at $1.2 billion, and investors included Harvard Management Co., which runs the $32.7 billion Harvard University endowment, Cambridge, Mass.
Harvard, which was cited in a 2007 Vector news release as a “significant new investor” in the fund, declined to comment, as did other investors including the Massachusetts Institute of Technology, the John D. and Catherine T. MacArthur Foundation and pension funds in California, Oregon and Maryland.
The Vector Capital IV fund that eventually bought into Cane Bay was raised in 2007 to invest in established technology companies, according to a news release. The $302 billion California Public Employees' Retirement System, Sacramento, committed $25 million to the fund, its website shows. It joined Harvard's endowment, MIT's pension fund and other foundations, according to tax returns and Vector's news release.