<<National Century Bankruptcy Caps Bad Year for Beacon and Boisi
By Randy Whitestone
New York, Nov. 18 (Bloomberg) -- National Century Financial Enterprises Inc.'s bankruptcy filing today caps a bad year for Geoff Boisi and the private equity investment business he founded, Beacon Group LLC.
The $421 million Beacon Group III - Focus Value Fund LP stands to lose its entire $56 million investment in National Century, whose Dublin, Ohio, offices were raided by the FBI this weekend following charges it defrauded bond investors. Seven of the fund's other 13 investments are worth less than they cost. And Boisi himself was fired in May as co-head of investment banking at J.P. Morgan Chase & Co., which bought Beacon in 2000.
The endowment at the University of Texas and retired employees in Los Angeles County are suffering as well. Fund managers for both invested with Beacon, attracted by prospects of 20 percent returns or better. Instead, they've lost more than half their money.
``They have made some bad investments,'' said Christopher Wagner, investment officer for alternative assets for the $24 billion Los Angeles County Employees' Retirement Association, known as Lacera, which committed $40 million to the fund. ``And they haven't turned it around.''
Of the $40 million, Lacera has gotten back $7 million and Beacon says what's left is worth $9 million -- a $24 million loss. The University of Texas Investment Management Co. invested $25 million in the Beacon III fund. They've gotten back $4.9 million, with the rest worth $6.8 million. The other $13.3 million is lost.
Not Thrilled
``We're not thrilled,'' said Trey Thompson, co-managing director of private markets at UTIMCO. ``This is probably going return less capital than was drawn.''
Beacon Group LLC was started in 1993 by former Goldman Sachs Group Inc. global investment banking chief Boisi, one of dozens of firms that began making private equity investments in the 1990s. Industry fund-raising increased 10 straight years until last year, when capital inflows slowed as investments made in the late 1990s posted losses.
The fund is managed by the 12 partners of the former Beacon Group, an investment banking firm acquired in 2000 by J.P. Morgan Chase & Co. Several of those partners remain at the bank, including two NCFE directors, Thomas Mendell, an executive with J.P. Morgan's private equity business, and Harold Pote, executive vice president in charge of retail branch banking.
Beacon's 16 percent stake in NCFE is not considered to be an investment of the bank's $25 billion private equity business, JPMorgan Partners, said spokeswoman Brooke Harlow.
State Pension Money
The Beacon Fund III, raised in 1996 with commitments from state pension funds in California, Colorado, New York, Ohio, and Kansas, has posted an annual average loss to investors of 20 percent through August, according to records released by UTIMCO, which has $12 billion under management.
The average leveraged buyout raised in 1996 has posted a 5.7 percent average annual return, said Jesse Reyes, vice president of industry research firm Thomson Venture Economics. Beacon's return would place it among the seven worst performing funds of that vintage; those seven funds posted an average annual loss of 3.4 percent, he said.
The losses are surprising because Mendell ran Goldman's profitable private equity business, Thompson said.
``They executed their strategy,'' taking minority stakes in fast-growing health care, financial services, technology and consumer products companies, he said. ``They had great track records coming into this -- they hit the cover off the ball at Goldman.''
Boisi and Mendell didn't return calls seeking comment. Harlow declined comment on the fund's performance.
Hollywood Theaters
The fund's stakes include a $25 million holding in Hollywood Theaters Inc., which missed debt payments and was sold to a rival in 1999, with bondholders receiving 70 cents on the dollar, and more than $21 million into Digital Lighthouse Corp. of Englewood, Colorado, formerly known as Intek Information Inc., which filed for bankruptcy protection in 2001.
In July 1998, Beacon bought Generac Portable Products Inc., a maker of generators and pressure washers sold through Sears, Roebuck & Co. stores, for $305.5 million. The business filed to go public in May 1999, withdrawing the plan two months later. It was acquired in May 2001 for $270 million by engine maker Briggs & Stratton Corp.
Other stakes include Coherent Networks Inc., a maker of data management software for power utilities acquired in June by Buffalo-based engineering services company Osmose Inc.; Doctors Health Systems; OnCare Inc., a manager of a network of practicing oncologists; The Identity Group, a maker of personalized rubber stamps; and EyeWeb Inc., a maker of devices used by eyewear retailers to promote online sales.
At NCFE, Mendell succeeded another former Beacon partner, Eric Wilkinson, on the board about a month ago after Wilkinson transferred to London, said Harlow.
Other NCFE shareholders, according to the company's bankruptcy filing, include Pharos Capital Partners LP, an investor in health care properties with offices in Dallas and Nashville. Others listed include E&D Investments Inc., director Rebecca S. Parrett, Kuld Corp., Task Holdings Ltd., and former chief executive Lance Poulsen and his wife Barbara. >> |
