Hot market has private equity execs going back and forth

It's the private equity world's version of a revolving door.

A reviving private equity business and a maturing private equity secondary market are tempting executives who had switched to the investor side back into the money management world.

At the same time, a number of secondary market executives are making the move to work for institutional investors building their in-house capabilities.

The former secondary investment executives began moving to the investor side at a time when an increasing number of investors were using the private equity markets to prune their portfolios. Some of these executives ended up spearheading significant sales in the private equity secondary market.

A recent example is Barry Miller, who in 2011 left Nottingham Capital Management, a now-defunct New York private equity firm he co-founded that invested on the secondary market, to join the New York City Retirement Systems.

He helped the five pension funds that make up the $127.5 billion system sell off $800 million in limited partnership interests. Mr. Miller now is moving back to money management. He left NYCRS at the end of May to take a position at Landmark Partners, a Simsbury, Conn.-based private equity and real estate manager specializing in the secondary markets.

Mr. Miller is not alone. Also in May, Cari B. Lodge departed Tulane University, where she was a director in charge of private equity and private real assets for the New Orleans-based university's $961 million endowment, to join Commonfund Capital, Wilton, Conn. Ms. Lodge is spearheading the firm's expansion into investing on the private equity secondary market. Prior to joining Tulane, Ms. Lodge had been a director in the private equity secondary market business at Credit Suisse Strategic Partners.

The secondary markets have been active in the past two years and industry executives have been taking advantage of the action to make career moves.

“The secondary business is active with deal volumes. ... People on the LP (limited partner) side see that the economics (compensation) are much better on the management side and want to switch back,” said Sanjay R. Mansukhani, senior manager research consultant in the New York office of Towers Watson Investment Services Inc., a subsidiary of Towers Watson & Co.

(Transaction volume on the secondary market was $25 billion in 2012, the same as 2011, which was a record total, according to a report by Cogent Partners, a secondary adviser to institutional investors in private equity.)

“When things were tough in 2008 and 2009, LPs could recruit people; it was a safe harbor for people in volatile times,” Mr. Mansukhani said.

Now private equity is back and, from the executives' point of view, “I've had my safe harbor. The markets are back and I can make more money,” Mr. Mansukhani said.

This is not to say the flow of executives to investors from secondary market firms has stopped. Among the executives who have moved to the investor side in the past 12 months to 18 months are Richard Chow, who earlier this year left secondary specialist Paul Capital to join the Abu Dhabi Investment Authority, and Adam Goldstein, who joined Columbia Investment Management Co., New York, as an associate from a post at Cogent.

For their part, private equity fund-of-funds firms — straddling the roles of both manager and investor — have been scooping up executives with experience investing on the secondary markets to bulk up their secondaries expertise.

Earlier this year, B. Martha Cassidy joined New York-based fund-of-funds firm Abbott Capital's secondary market team from asset manager Capital Dynamics Inc., also of New York, where she developed and managed the firm's secondary market business.

The real transition in investor thinking about using the private equity secondary markets as aportfolio management tool started in the downturn, said Peter McGrath, president at Toronto-based private equity secondaries advisory firm Setter Capital Inc. And they needed talent to head up their investments on the private equity secondary market.

“This (executive movement) is consistent with the private equity secondary market becoming more mature, robust and in need of talent to find, analyze and run transactions,” said John Koeppel, partner and head of law firm Nixon Peabody LLP's private equity funds practice in New York.

What's more, there is a limited universe of executives who have private equity secondary market expertise, Mr. Koeppel noted.

“As active as the secondary market is, there is only a limited number of players who have expertise and talent,” he said. “If you're running a fund-of-funds or secondary-focused firm ... and you find someone with an institutional investor who knows and has done secondaries of their own, it makes complete sense to hire the person.”

Secondary market investors are “very deal driven,” said Towers Watson's Mr. Mansukhani.

Once institutional investors are finished pruning their portfolios by selling limited partnership interests on the private equity secondary market, “what are (the executives) going to do?” he queried.