IA: The Known Unknowns and Unknown Unknowns of Private Equity Valuations (WSJ).

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Private Equity Stock Review, Friday 5/15/2009.

Chicago, 54..67F Rainy.
Port Jefferson 56...61F Rainy (200)
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In Alphabetical Order.

1. The Known Unknowns and Unknown Unknowns of Private Equity Valuations (WSJ).
2. Goldman's Favorite Buy Ideas Are Och-Ziff (OZM) and Blackstone (BX). (Reuters)
3. Fortress (FIG) Raises $200 Million.
4. GLG Partners (GLG) Raising $214 Million.
5. Disclaimer.

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1. The Known Unknowns and Unknown Unknowns of Private Equity Valuations (WSJ).

Yesterday we mentioned we were amazed how three independent appraisers were able to look at the 11 non-trading, portfolio companies that MVC Capital (MVC) owned, and determine that their value had fallen an accurately sounding $421.9 to $419.8 million. The .9 and .8 is what gets us !

On further thought we came to the understanding that we'll never really know how accurate those numbers are, unless somehow all the companies went public in one day, which of course will never happen -- as companies are added and removed over the years. But if investors have faith in them, we also understand we can safely say it's a "good idea" to invest in MVC when it is selling for 50% of this net asset portfolio value.

In the WSJ, they report the danger of levered portfolios -- which are being valued by comparing the private company which is held in the portfolio to a similar public company, .

Here's the rub. Let's say the publicly traded "comparison stock" falls 50% from $10 to $5 and then goes back to $10. And lets say the day the comparison valuation was done when the public company was at $5. And let's further say you levered your equity by 2. Your equity could be wiped out, even if the private company grew that year. So did you really get wiped out ? And then what is done when the comparison stock goes back to were is was ($10), but it wasn't during a valuation date ?

Talk about magical accounting !

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By Deal Journal

Laura Kreutzer, of Private Equity Analyst, reports:

Private-equity fund investors were hoping for some clarity on the value of their stakes in the economic downturn once year-end reports from managers came in. But with the majority of year-end valuations in, the picture is murkier than ever.

Fire & Police Pension Association of Colorado Chief Investment Officer Scott Simon says general partners–as fund managers are known in industry lingo–in his institution’s portfolio wrote down the value of their funds an average of 15% from the end of the third quarter to the end of the year, with the range extending from flat to down 45%. A senior investment official at a large West Coast pension system said average markdowns in his portfolio were 10% to 15%.

Some funds’ write-downs have been even steeper.....

http://blogs.wsj.com/deals/2009/05/14/the-known-unknowns-and-unknown-unknowns-of-pe-valuations/#mod=yahoo_hs

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2. Goldman's Favorite Buy Ideas Are Och-Ziff (OZM) and Blackstone (BX). (Reuters)

May 12 (Reuters) - Goldman Sachs downgraded Janus Capital Group (JNS) to "sell" from "neutral" and Invesco Ltd (IVZ) to "neutral" from "buy," but maintained its "neutral" stance on the U.S. asset management sector.

The brokerage said its top buy ideas in the sector were Och-Ziff Capital Management Group LLC (OZM), BlackRock Inc (BLK), Waddell & Reed (WDR.N) and Affiliated Managers Group Inc (AMG.N).

"Our top sell are Federated Investors Inc (FII), Gamco Investors Inc (GBL), Cohen & Steers (CNS) and Janus Capital Group," it said.

Goldman upgraded T. Rowe Price Group Inc (TROW) to "neutral" from "sell" and raised price targets on various companies in the sector by an average 15 percent.

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3. Fortress (FIG) Raises $200 Million.

NEW YORK, May 14 /PRNewswire-FirstCall/ -- Fortress Investment Group LLC (NYSE: FIG - News;"Fortress" or the "Company") today announced the pricing of its follow-on public offering of 40,000,000 Class A shares at a price of $5.00 per share, raising gross proceeds of $200 million. In connection with the offering, the Company has granted the underwriters of the offering a 30-day option to purchase up to 6,000,000 additional Class A shares to cover over-allotments, if any. Citi, J.P. Morgan Securities Inc., Merrill Lynch & Co. and Nomura Securities International, Inc. are serving as Joint Book-Running Managers for the offering.

The Company intends to use the net proceeds from the offering to repay a portion of its outstanding indebtedness under its credit agreement, and the remainder for working capital and other general corporate purposes, which may include investments as the general partner in Fortress Funds.

Subject to customary conditions, the offering is expected to close on May 20, 2009.

The offering is being made pursuant to a shelf registration statement filed with the Securities and Exchange Commission, which became effective on October 3, 2008. A prospectus supplement relating to the offering will be filed with the Securities and Exchange Commission.

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4. GLG Partners (GLG) Raising $214 Million.

NEW YORK (AP) -- Asset manager GLG Partners Inc. said late Tuesday that it increased the size of its offering of notes due 2014 to $214 million.

Originally, the offering of dollar-denominated convertible subordinated notes was expected to total $200 million.

Additionally, GLG determined to eliminate its offering of euro-denominated convertible subordinated notes due 2014, in light of market demand.

GLG has granted purchasers the option to buy up to an additional $15 million of dollar notes. The dollar notes, which have a conversion rate of $3.72 per share, will have an annual interest rate of 5 percent. The sale is expected to close on May 15.

Three GLG executives -- Chairman and co-Chief Executive Noam Gottesman, co-CEO Emmanuel Roman and Senior Managing Director Pierre Lagrange -- have agreed to buy $30 million of the dollar notes from the initial purchasers as part of the offering.

GLG said it plans to use proceeds from the offering repay debt.

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