“You are in a position to make 20 percent to 30 percent on your position in the fund. Why wouldn’t you buy in at Libor-plus to leverage that up?”
That quote is from Tom Bernhardt, a senior vice president at TorreyCove Capital Partners, a San Diego-based private-equity consultant.
Tom is referring to Tim Geithner who just secured a line of credit with JP Morgan to invest in a $12 billion private equity fund launched by Warburg Pincus, the former Treasury Secretary’s current employer.
As Bloomberg reminds us, “when raising a new fund, private-equity principals and their firms often commit their own money, in part to encourage outside investors to sign up.” In other words, “you can trust that this is a good idea because look, I threw my own money at it.”
Bloomberg goes on to note that contributions from PE principals amount to around four-and-a-half percent of the capital the funds raised in 2014. That’s nearly double the figure from 2011.
For this particular fund, Warburg Pincus put up 6.7% of the $12 billion in commitments. Geithner is president at the firm, which puts him just under Joseph Landy and Charles Kaye who are co-CEOs. Warburg manages some $40 billion invested in VC assets and plain vanilla buyouts. Here’s a bit more from The New York Times:
Timothy F. Geithner has joined fellow Warburg Pincus partners in securing financing to make personal investments in the private equity firm’s funds.
Mr. Geithner, the former Treasury secretary who joined Warburg two years ago as its president, has a line of credit with JPMorgan Chase, according to a December filing with New York State.
Warburg’s co-chief executive, Joseph P. Landy, and four managing directors — Christopher C. Gunther, Peter R. Kagan, James W. Wilson and Daniel Zilberman, — also arranged lines of credit with JPMorgan in the last year backed by collateral that includes stakes Warburg funds, according to the filings.
The $12 billion Warburg Pincus Private Equity XII fund would be the first main fund the firm has closed since Mr. Geithner joined it.