FORTUNE — It has been nearly one year since Credit Suisse announced plans to sell off its Customized Fund Investment Group (CFIG), a private equity fund-of-funds unit that is believed to manage more than $25 billion in client assets. What it didn’t say at the time, however, was that it would limit the universe of potential buyers in a manner that may have made CFIG much more difficult to sell.
In its original divestiture announcement, Credit Suisse (CS) cited “uncertainty” around Volcker Rule implementation and that CFIG had “limited synergies” with the rest of the bank’s asset management division. It also said that it would sell off its private equity secondaries business, which had around $9 billion in assets under management.
In April, The Blackstone Group (BX) announced an agreement to buy the secondaries business. CFIG, however, has remained stuck in limbo.
There were reports last week that Grosvenor Capital Management, an alternative asset manager backed by Hellman & Friedman, was in talks to acquire CFIG – reports I’ve been able to confirm, although the process seems to be running both hot and cold. What’s really notable about Grosvenor, however, is that it doesn’t currently have any sort of private equity fund-of-funds business. And that’s exactly how Credit Suisse wants it.
Fortune has learned that several existing private equity fund-of-funds managers initially reached out to Credit Suisse, expressing possible interest in buying CFIG (initial price estimates were in the range of $300 million). But they were immediately rebuffed, told that the process only would include organizations that did not already have existing PE fund-of-funds programs (i.e., Grosvenor).
Credit Suisse isn’t commenting, but a source familiar with its thinking says that allowing negotiations with existing fund-of-funds managers could have caused senior CFIG managers to quit, worried that “rivals” would want the assets more than the personnel. And if senior managers quit, then clients might also leave — thus reducing the unit’s overall value.
It’s an argument, but not a terribly strong one when it comes to maximizing Credit Suisse shareholder value.
For starters, CFIG has lost plenty of senior managers over the years. For example, its original co-head left for The Carlyle Group several years ago, where he has since hired a handful of other top CFIG staffers (including chief investment officer Nadim Barakat). Second, CFIG has lost business anyway since the divestiture announcement – such as new mandates for legacy clients like Texas Permanent Fund and the Indiana Public Retirement System.
Third, most existing clients would be required to sign a change-of-control no matter who the ultimate buyer is – and there certainly is the possibility that some clients might prefer an existing fund-of-funds manager with an existing infrastructure. And if most clients threaten to leave if CFIG staff is gone, wouldn’t the new buyer do everything in their power to get such staff to remain?
More broadly, however, it’s usually a lousy idea to severely shrink your pool of prospective buyers. What if an existing fund-of-funds manager would have offered more than Grosvenor, and several months earlier? After all, those “redundancies” that so worry CFIG staff might have let existing managers pay a bit of a premium, particularly given that they wouldn’t need to recreate back office services CFIG currently gets from its parent bank. Or what if Grosvenor ultimately abandons the process? Wouldn’t it have been good to have a backup plan?
Credit Suisse may still believe in the hypothetical worst-case scenario had it opened the kimono to CFIG rivals. But all we actually know to be true is that the unit remains unsold and plenty of interested parties were told to get lost.
In fact, the only people who seem to have done well for themselves so far in this process are CFIG senior managers, who apparently have more job security than most other people on Wall Street.
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