* Majority of Apax partners have left in last 5 years -
* One former partner said was asked to keep quiet about
* Apax raising new 9 bln euro private equity fund
* Apax says operates to highest standards of integrity,
By Greg Roumeliotis and Simon Meads
NEW YORK/LONDON, June 6 Apax Partners LLP has
lost or terminated more than half of its senior dealmakers over
the past five years, a high level of turnover. Some investors
say this is a concern as they decide whether to invest in a new
fund that Apax, one of the world's largest private equity firms,
is hoping will raise 9 billion euros ($11.2 billion).
Since 2007, when it raised an 11.2 billion euro fund, 31 out
of Apax's 50 partners have departed, according to company
documents shared with investors that were reviewed by Reuters,
and publicly available data. Over the same period, the firm has
cut the number of partners to 35 and has replaced the heads of
all five of its sector teams, according to the documents and the
Apax, which is headquartered in London, has disclosed the
departures to investors, and it has promoted from within and
made new hires to fill some vacancies created by the turnover.
But in at least one case, Apax asked a dealmaker to "keep
silent" about plans to leave until a more opportune time in its
fundraising, a former partner who requested anonymity said. The
former partner added that Apax alerted investors only after news
of the planned departure leaked.
Private equity executives and experts said that while there
is no reliable industry average for turnover at the partner
level, Apax's numbers were high. Turnover is an important
consideration for private equity fund investors, who are asked
to tie up their money for an average of 10 years.
"This is a lot of turnover," said Steven Kaplan, a
University of Chicago finance professor whose research focuses
on private equity. "When investors give them money, they do so
because they are investing in the team and certainly at the
senior partner level they don't expect to see a lot of
Apax declined several requests to comment on specific
questions for this article. In a statement, the firm said: "Apax
operates to the highest standards of integrity and transparency.
Our investors are sophisticated institutions, which conduct
detailed due diligence on all aspects of the firm, including our
team, performance, strategy and governance. We maintain an
excellent team and strong relationships with our investors,
which have been integral to the success of our business over the
past 30 years."
Apax oversees more than 27 billion euros in assets in a
series of private equity funds and competes with Blackstone
Group, Carlyle Group and other big private equity
firms for multibillion-dollar deals to buy companies. Its
investors, called limited partners, or LPs, include pension
funds, sovereign wealth funds and university endowments, which
have varying degrees of sophistication and resources.
Even though Apax is privately held, the firm invests money
that ultimately belongs to hundreds of millions of people around
the world, from retired fire and police officers in California
to university lecturers in Australia.
Apax Europe VI and Apax Europe VII, which were launched in
2005 and 2007, respectively, were ranked in the second quartile
as of the end of September, putting them among the top 25
percent to 50 percent of performers across the private equity
industry, according to market research firm Preqin.
The Apax documents reviewed by Reuters provide a rare look
at the inner workings of the secretive private equity industry.
They show that as of the end of last year, Apax Europe VII was
valued at 1.23 times its cost. The firm has told investors it
expects to see that eventually increase to between two and 2.2
times. Apax Europe VI, similarly, was valued at 1.44 times its
cost. Apax sees that increasing to up to two times by the time
all investments from the fund are realized.
These returns are lower than those from the fund Apax raised
in 2001. Apax Europe V has returned 2.3 times, and Apax has said
it would reach 2.5 times by completion in April 2013, the
documents show. Apax Europe V's performance puts it among the
top 25 percent of all private equity funds, according to
Preqin's ranking of buyout funds across the industry.
MORE TURNOVER MAY BE AHEAD
Apax has told investors that it replaces underperformers,
people familiar with the matter said, raising the possibility
that more turnover may be ahead for the firm.
To be sure, Apax has experienced some of the same challenges
that others in the private equity industry faced after the
financial crisis of 2008, as it became expensive to borrow money
to do deals, markets see-sawed and valuations of companies fell.
The European debt crisis has added to the industry's problems.
The information about turnover and performance comes at a
sensitive time for Apax. One hundred thirty-three potential
investors have been combing through Apax's books and another 280
were planning to do so as of the end of March, as they decide
whether to invest in Apax Europe VIII, the firm's latest buyout
fund, the documents show. The fund, which has already raised 4.3
billion euros out of its 9 billion euro target, is the
third-largest buyout fund currently raising money, ranking
behind ones sponsored by Blackstone and Warburg Pincus.
"LPs care a lot about the turnover of the firm because the
past does not tell you how you are going to do in the future if
you lose a lot of partners," an Apax investor said.
One reason behind Apax's high turnover is its aggressive
career management policy. Martin Halusa, the firm's Austrian
chief executive, who took over the reins in 2004, has argued
that vacancies allow for younger talent to rise through the
ranks, investors said.
In a sign of how much some investors care about stability,
they have asked 57-year-old Halusa to stay with the firm for
much of the 10-year investment period of Apax Europe VIII, even
though it would mean his staying beyond the age of 60, when most
partners retire, people briefed on the matter said. Halusa has
agreed to stay on, they said. Halusa did not respond to an email
Apax has also gone through a major transformation, which
typically increases turnover. Over the years, the firm has moved
away from venture capital investments to focus on buyouts. And
in 2005, it merged with New York-based private equity firm
Saunders Karp & Megrue. Also six of its partners have retired in
the last five years, the documents show.
In addition, some former partners told Reuters they left
because they did not make equity partners, which would have
given them a share of profits and management fees potentially
running into millions of dollars.
In Apax Europe VII, for example, 14 equity partners get
between 1.65 percent and 5.89 percent of the carried interest,
or the firm's profit from deals, while 24 non-equity partners
get between 0.63 percent and 1.38 percent of the carried
A Reuters analysis of Apax data of how its various deals
have performed shows that seven of the 10 partners who took over
as co-heads of Apax's sector teams have better investment
records than the people they replaced.
Based on the investment multiple, the top three performers
are John Megrue, Andrew Sillitoe and Michael Phillips. They did
not respond to emails seeking comment.
Three of the new sector co-heads have performed worse, based
on both the number of euros returned and investment multiples.
The three - Khawar Mann and Buddy Gumina of healthcare and
Oriol Pinya of the retail and consumer group - have achieved
lower investment returns on the deals they led as partners than
the people they replaced. Mann and Pinya have accumulated
losses, although some are unrealized, the analysis shows.
The analysis uses Apax valuations as of the end of December
and the firm's own attribution of deals to partners as
communicated to investors. It focuses on two criteria - the
absolute number of euros the partners returned from deals they
worked on and the multiple of invested capital generated as
proceeds, based both on realized and unrealized gains.
Independent industry experts said there is no standard
metric used in the sector to measure performance but the method
used in the Reuters analysis was a good proxy for performance.
Apax did not comment on the relative role of the partners in
deals or disclose the methodology it uses to evaluate partners.
The calculations shows Pinya had realized and unrealized
proceeds of 1.26 billion euros on an initial total investment of
1.35 billion euros, representing an investment multiple of about
0.9 times. His predecessor, Alex Fortescue, had achieved a
multiple of about 1.5 times by earning proceeds of 1.20 billion
euros on a total initial investment of 798 million euros.
In the healthcare team, Mann, one of the co-heads to replace
Ian Jones, had 740 million euros of realized and unrealized
proceeds on an initial investment of 1.22 billion euros,
representing an investment multiple of about 0.6 times, making
him the worst-performing sector head based on those metrics.
Jones, who is still with Apax heading an unofficial energy
group looking for energy investments, returned proceeds of 1.92
billion euros on an initial investment of 548 million euros, an
investment multiple of 3.5 times, the analysis shows. Gumina,
the other co-head in healthcare, has also fared worse than Jones
on this basis, achieving proceeds of 2.27 billion euros on an
initial investment of 1.53 billion euros for an overall multiple
of about 1.5 times.
Mann, Gumina, Jones, Pinya and Fortescue did not respond to
requests for comment.
Apax's healthcare team, which used to be one of the largest
in the private equity industry, lost another partner in March,
when Bill Sullivan in New York left. Sullivan declined to
The healthcare team had returned 4.1 times the money it
invested on realized buyouts as of the end of June 2011. But
Apax has told investors that its current healthcare portfolio
will not deliver such returns.
The healthcare portfolio is marked at its original
investment value as of the end of December and Apax projects a
1.6 times total return under its base case and 2.2 times return
under its upside scenario, the Apax documents show.