JPMorgan Chase (NYSE: JPM) is spinning off its Bay Area Equity Fund (BAEF), which invests in socially beneficial startups, as part of JPMorgan’s desire to reduce its exposure to private equity.
San Francisco-based BAEF, led by Managing Directors Nancy Pfund and Michael Dorsey, had planned to raise a second fund of $200 million this year. The team will continue to manage the portfolio of the $75 million inaugural fund it raised in 2003.
It is unknown at this time if JPMorgan will return as a limited partner in a reconstituted BAEF. The first fund counted 10 banks, seven foundations and a handful of retirement plans among its limited partners.
JPMorgan’s move is surprising because BAEF was designed, in part, to fulfill the requirements of the Community Reinvestment Act, a 1977 federal law designed to ensure that banks do not ignore poor people in their areas.
JPMorgan has been casting off private equity divisions since 2006. The firm spawned Panorama Capital from its former venture investment team and CCMP Capital Advisors from its buyout and growth equity team. CCMP Capital Advisors raised $2 billion toward its $4 billion target last year, while Panorama Capital has yet to hold a final close on its proposed $550 million fund.
JPMorgan still retains a team of private equity investors in its One Equity Partners unit, which does mid-sized management buyouts and growth investments. It manages $5 billion in investments, according to its website.
JPMorgan isn’t the only bank spinning off its equity investing divisions. Bank of America (NYSE: BAC) spun out its venture arm, BA Venture Partners, at the beginning of January, retaining only a minority stake of the $400 million VC fund. The fund’s investors reformed as Scale Venture Partners and continue to manage the portfolio. Placement agent Probitas Partners helped manage the sale of the bank’s stake.
To date, BAEF has invested in 14 companies. It backed electric car maker Tesla Motors, based in San Carlos, Calif. It invested in biotech startup FivePrime Therapeutics, based in the Mission Bay area of San Francisco, because the company wanted to help develop the traditionally low-income area around its offices. It also backed InSpa Corp., a startup trying to become the Starbucks of day spas in the Pacific Northwest, because inSpa committed to hiring its employees full time and giving them benefits instead of relying on part-time contractors. It backed retailer Elephant Pharmacy because it liked how the company offered holistic remedies as well as over-the-counter prescriptions and because it employed people from low- and middle-income areas.
The fund scored a significant exit last November when it sold PowerLight, a solar panel producer that employed middle-income residents of Berkeley, Calif., to SunPower (Nasdaq: SPWR) for $330 million. The fund had invested $5 million in PowerLight’s $15 million Series C in August 2005.
Pfund had previously declined to disclose the return on the PowerLight deal, but the exit was expected to help when she and her fellow partners hit up LPs for a second fund. —Alexander Haislip