They probably got one that paid an excellent rate of interest, offered a free credit card and maybe even some air miles. Still, US$12 million seems like a lot even for that arduous task.
Over in Connecticut they are little happier with their adventure into the private equity business. In late February, the Connecticut state pension plan said it was suing Forstmann Little & Co to recover more than $100 million in what it claimed were unauthorized investments in two money-losing telecommunications companies.
The nub of its complaint is that the fund they invested in shouldn't have taken stakes in those companies, and that write-offs involved in the investments gave an advantage to partners in later funds. "They double-crossed us, pretending to be our partners and selling us out," said the state's Attorney General Richard Blumenthal. Forstmann is fighting the action.
In both of these cases there is no doubt right and wrong on both sides. MeVC and Forstmann may well be completely blameless, and their opponents just sore losers who start calling their lawyers every time they lose money on an investment. The judges will decide in due course.
The outcome of those cases does not matter much to anyone except the litigants. What does matter is the glimpse it gives us into the way the private equity business works.
Tens of billions have been invested in buy-out funds in both the US and Europe. But those funds remain private, disclose very little information, and remain largely free of scrutiny.
Their doors are usually closed. What happens behind them, few people ever find out.
While again stressing that meVC and Forstmann are most likely as innocent as new-born lambs, there is obviously scope for abuse. Fees can be levied for money sitting in cash accounts.
Net asset values can be manipulated to keep fees buoyant.
Investments can be shunted between funds managed by the same house (or between houses -- it's odd how regularly businesses are sold from one buy-out fund to another), either to salvage poor investments or to make sure performance targets are met. Private equity firms probably don't need more regulation -- few industries ever do -- but they certainly need more disclosure.
Still, it is good to know that even in these straightened, post-bubble times it is still possible for clever young financiers to make lots of money for not doing very much. That, after all, is what the capital markets are mostly about.
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