Reader DO sent us a link on how badly the funds managed by the Governor of Illinois’ private equity firm, GTCR, have done for his state. It’s important to note that the state invested in these two dogs before Rauner became governor in 2014. Golder Thoma Cressy Rauner Fund IV was launched in 1994 and GTCR Fund IX, in 2006 Rauner retired from GTCR in 2012. Keep in mind that private equity fee structures presuppose that a fund will have completed its purchases of companies in five years, although the crisis pushed out that time frame. Nevertheless, even for the later fund, a substantial portion of its investments would have occurred on Rauner’s watch.
So how badly did these funds do? Bear in mind that both funds are mature enough that there is no reason to expect any recovery. If anything, any remaining assets are likely to be valued charitably. In fact, it’s odd that the 1994 fund is still listed on Illinois’ books, since industry sites list it as “liquidated”. If the fund has not been wound up, that means Illinois is still paying its share of the annual legal and audit fees for keeping the entity alive. We’ve seen that at CalPERS with a very few funds, like some 1990s vintage Hellman & Friedman funds in recent years, although they appear to have finally been wound up.
Here are the details from Real GOP Illinois (emphasis original):
In the case of the two Golder Thoma Cressey Rauner (GTCR) funds listed below, the total COST to buy into these funds was $30,112,538. These are private placement private equity deals – not just anyone can buy into them.
They are now worth an abysmal $3,774,696.
So for every $10 put into the deal, it’s now worth around $1. This is not winning….
Fund Name Cost Fair Value
GOLDER THOMA CRESSEY RAUNER FUND IX $ 5,770,466 $3,039,804
GOLDER THOMA CRESSEY RAUNER FUND VI $24,342,072 $ 734,892…
This wasn’t just ‘a bad year.’ The AVERAGE return for a private equity fund was 7.9%.
This was the average return for the private equity funds that were bought with pension money by the Illinois State Board of Investments as reported for FY 2015-2016.
Here’s a listing of ALL the private equity funds and how they are reported in the Illinois Board of Investments 2016 Annual Report. They’re shown here as ranked from the best performing fund to the worst. There were 67 funds total.
GTCR’s biggest fund (Golder Thoma Cressy Rauner Fund IV) was ranked 64th out of 67th or in the bottom 6% of all funds.
If this fund were given a grade it would be an “F” for fail. This fund shows a loss of $23 million dollars. This fund also has the distinction of being the #1 fund in terms of loss of value with $23 million. The next nearest fund was a loss of $13.8 million.
Golder Thoma Cressy Rauner Fund IV also lost almost 97% of it’s initial value. This means that for every $100 put into this investment it would now be worth $3.
The other GTCR fund was ranked 49th out of 67th. This fund ONLY loss $2.7 million dollars or 47% of the value.
The article also points out that Ranuer made $188 million last year from his interests in GTCR. Note he did not set up a blind trust as he promised but instead gave a power of attorney to Roundtable Investment Partners. He’s an investor in Roundtable. He’s also deprived the state of income by availing himself of the carried income loophole.
In addition, GTCR is unusually secretive. Searches by private equity investigators have not found a single company purchased by GTCR since 2006 that has ever been public. In the last decade, it also appears that GTCR has not taken a single company public. While that result may simply be an accident, for a funds as large as GTCR’s (in the $1.875 billion to $3.85 billion range since 2000) to be leaving money on the table by not making the occasional public using the public markets to exit an investment.
Why does this practice raise red flags? One ways whistleblowers have identified misconduct in private equity is by comparing information about private equity companies that were revealed in public company filings to the provisions of the limited partnership agreements, the contracts that govern the fund.
Another odd detail that the GOP Illinois story highlighted is that GTCR appears to be unusually dependent on public pension funds as investors. Rauner told Crain’s Chicago that GTCR got between half and two-thirds of its investments from public pension funds. For private equity funds as a whole, academics have pegged the total that public pension funds provide as roughly 25% to 30%. So it looks like Rauner’s old firm was particularly successful at targeting dumb money.
It’s ironic that Rauner has called the state’s pension system “fundamentally corrupt and broken,” in part as a result of his successful looting. Yet the state investment board plans to come close doubling Illinois’ commitments to private equity. One can only hope that the state has learned from its misadventures with GTCR.