Pine Brook Road Closes $1.4B Fund
Pine Brook plans to typically invest $100 million to $200 million of equity in newly-formed companies that operate energy or financial service businesses.
April 7, 2009
Pine Brook Road Partners said Tuesday that it has raised more than $1.4 billion for its first private equity fund, completing nine investments in the last two years.
Investors in the New York-based Pine Brook Capital Partners limited partnership included the Kansas Public Employee Retirement System and New York State Teachers Retirement Systems.
Pine Brook plans to typically invest $100 million to $200 million of equity in newly-formed companies that operate energy or financial service businesses. Its portfolio of energy companies are concentrated largely on exploration and development, while its financial businesses include insurers and reinsurance.
Unlike the typical leveraged buyout firm Pine Brook takes a somewhat unique approach to dealmaking, seeking to fund new platform companies with a "line of equity" commitment, rather than using a significant amount of debt to acquire companies in traditional leveraged buyouts.
"We are a little different than the buy-and-build firms. Our business is about taking risk out of the company," says Howard Newman, chief executive of Pine Brook Road Partners.
Newman launched Pine Brook in 2006 with two other private equity veterans. A former Warburg Pincus partner well known in the private equity community for backing successful energy companies, Newman is joined by ex-Cypress Group financial services investor William Spiegel, former Arch Capital Group professional Robert Glanville as well as Michael McMahon, a former Harvard Management Co. executive, and three other managing directors.
The firm launched its fundraising effort in 2007, though some investors didn't immediately take to its equity-oriented deal model, according to Newman. "It was initially hard for us to get traction, but over time people began to understand," he says. "Our business model is not disadvantaged by today’s capital markets."
Talk of growth equity investments and all-equity buyouts, or deals funded without debt, has increased in M&A circles over the last several months as leverage has become harder to obtain.
However, Pine Brook isn't the only financial sponsor that has taken an equity-centric approach to transactions. Chicago private equity firm GTCR Golder Rauner has used a similar approach for years by making a $100 million commitment, for example, to launch a new business with a team of executives. But, rather than fund an entire equity check up front, GTCR will allow a portfolio company to draw down capital as needed over time.
Pine Brook is a bit different than many buyout shops, though, when it comes to the harvesting of its investments. The firm may wait five-to-seven years before bringing a company public or selling it, compared with the two-to-five year realization period that many private equity firms often employ.
"When we start a company it may take three years before we invest all the equity," Newman explains.
Covington & Burling served as fund formation counsel for Pine Brook, which relied on Lazard as placement agent for the fundraising.
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