Kirchner taking on lagging portfolios giving limited partners a 'third option'
Toronto, Ontario 8 October 2009 – The Mr. Fix-it of the venture capital world has been on a recruitment drive. Over the past year, Kirchner Private Capital Group has been picking up veterans in the VC world and putting them to work overhauling poorly performing funds and portfolio companies. The company built its brand over…
Toronto, Ontario 8 October 2009 – The Mr. Fix-it of the venture capital world has been on a recruitment drive.
Over the past year, Kirchner Private Capital Group has been picking up veterans in the VC world and putting them to work overhauling poorly performing funds and portfolio companies.
The company built its brand over the years turning around bad companies held in private-equity portfolios and then finding buyers. But with more private-equity funds underperforming, Kirchner is beefing up its expertise to take advantage of desperate general partners and investors who are not only looking for company turnaround expertise, but veteran private-equity players who can massage underperforming portfolios.
“We are the guys the limited partners might bring in to turn around the performance of the fund and replace the existing [general partners],” says Les Lyall, managing partner at Kirchner, who left Growth-Works Capital at the beginning of the year and joined Kirchner. Already, Mr. Lyall has taken over the management of two European funds, including one of Coller Capital’s funds, and is in the process of signing five new transactions — two of which are to reshape underperforming funds in Canada.
“Right now, limited partners only have two options, do nothing or sell the portfolio to a secondary fund at a significant discount…. We represent a third option,” Mr. Lyall said.
The private-equity world is seeing some radical changes. Not only are underperforming companies changing management, but fund partners themselves are playing an aggressive game of musical chairs. While some players simply switched funds or left to become entrepreneurs, such as Rick Segal, formerly with JLA Ventures, others are starting new initiatives.
Mark de Groot, co-founder of iNovia Capital in Montreal, is heading a new fund, Virage Capital, which is focused on sourcing capital from outside the country. Toronto-Dominion Bank is spinning out its TD Capital Private Equity Investors division and regrouping it as Northleaf Capital Partners. Northleaf will take with it the government-sponsored $205-million Ontario Venture Capital Fund.
The trend is so common that even Greg Smith, the reelected president of the Canadian Venture and Private Equity Association, left his post as chief executive of Macquarie Power & Infrastructure Income Fund earlier this year.
“These are difficult times and great opportunities,” said Bud Kirchner, president of Kirchner. He has hired six people this year, including Mr. Lyall, who was being groomed to take over GrowthWorks until he jumped, and Barry Gekiere, formerly with Ventures West. Private equity is built on complicated partnerships, and when hard times hit, these relationships get strained, Mr. Kirchner said. Not surprising, “it’s a time when people are rethinking what to do with their careers,” he added.
Mr. Kirchner said the shake-up will lead to a “smaller, tougher and better” private-equity sector. But others are worried that veterans in the industry might just walk away, leaving the younger, less-experienced partners to pick up the pieces.
Take Peter Seeligsohn, former managing partner at Ven-Growth Capital Partners Inc. He exited the fund world and is moving back into the operations side of the business, taking on the chief executive role of a composting-toilet firm.
No real surprises there. VenGrowth, an Ontario-based labour-sponsored fund, has not performed well, with only two of its funds making money over a five-year period. Even its best-performing fund over the long term was down 42.5% over the past year, prompting an exodus of staff, according to industry insiders. Vengrowth representatives did not return calls seeking comment.
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