SAN FRANCISCO – Looking to play to the needs of alternative asset investors that want to diversify their portfolios, placement agent Probitas Partners announced its formation in mid-September.
Michael Hoffmann, Greg Hausler and Craig Marmer, all former executives at Credit Suisse First Boston’s powerhouse private fund group, launched the new firm at the end of May, when the trio left CSFB.
Probitas will concentrate on raising funds in the sub-$1 billion market space, said Hoffmann. “Investors are looking for smaller, more diversified funds to help rebalance their portfolios,” he noted. “LPs have been telling us they are very interested in new funds, but don’t have the teams to do all the diligence on new opportunities. So we can provide that service for them.” This means the new agent will focus on emerging fund managers, rather than existing managers, Hoffmann added.
Probitas plans on raising about six to eight funds per year in a very proactive manner, Hoffmann said. “We want to identify the demand on the part of LPs as to what they’re interested in, then go out and find the best new funds and management teams in that area and go after them,” he said. At the moment, LPs are most interested in sector-related vehicles like energy funds, middle-market vehicles and health-care funds, he added. So far the firm has already been contacted by nearly 45 general partner groups, who only heard of Probitas through word of mouth, he said. The firm will likely be raising three to four funds by the first quarter of next year, he said.
Providing Solutions
In addition to its agenting business, Probitas plans on having an investment management side of the house as well. “We have learned from LPs that there is a tremendous need for services on the LP side. We are now in a period of illiquidity and over-allocation and investors need to rationalize their portfolios. So there is an acute need for a group that can provide LPs with solutions,” he said. It is too early in Probitas’ lifecycle to say just what shape these solutions will take, although it is likely the firm will eventually offer a fund-of-funds product to its investment management clients, among other services, he said.
The two sides of the operation should work together quite well, Hoffmann said. “To the extent that we are looking to bring funds to market, it will be very helpful to get insight from our investment management professionals about a particular fund’s potential,” he said. “It is doubtful we would bring in a fund without at least some of our investment management clients being interested enough to invest in it.”
A Matter of Timing
Given the current state of the private equity world, it would appear to be a strange time to launch an agenting business. Oddly enough, the new firm is trying to take advantage of the current economic climate. “A year ago, it would have been to hard to build this team, because the market was too frothy and compensation levels were too high. Now we are seeing a chance to hook up with the best and brightest talent, as some people are expecting to get displaced from their current positions,” he said. Clearly, there will be demand on the GP side, Hoffmann said, noting the critical question is what happens with investors. Hoffmann remains confident Probitas will succeed. “We heard from LPs, now that they are doing portfolio management, that they will be interested, if we bring them something of value and what they want is middle market type funds. So we are going to try to do that, as well as offer our portfolio management services,” he says.
The firm is currently ramping up its agenting business first and then will turn its attention to building out its investment management side, Hoffmann said. Probitas, which currently has five employees in its San Francisco office, should be up to a staff of 12 fund-raising professionals with additional offices in London and New York by the first quarter of 2001. The firm will then look to find the best available talent to fill out its investment management team, he added.
The firm will charge an upfront fee to raise the funds, as well as take a percentage of GP’s carried interest as payment, Hoffmann noted. Probitas’ fee will be set on a case by case basis, he said. While the firm is still deciding how much carried interest to take, Hoffmann anticipated the figure will be around one to two percentage points.
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