Lehman VC to spin-out, RE decision expected soon

A management group from Lehman Brothers Venture Partners will spin-out to become Tenaya Capital. The firm will have $750m in capital and 45 portfolio companies and retain all the third-party limited partners from Lehman’s venture funds. A decision on Lehman's real estate operations is expected in the next month.

A HarbourVest-backed management group will spin out Lehman Brothers Venture Partners and retain the majority of its limited partners.

As part of the deal, fund of funds HarbourVest is buying out a portion of Lehman’s limited partner interests in Lehman Brothers Venture Partners III, IV and V. Fund V, the most recent, closed on $365 million in 2007 and is 30 percent invested.  Financial details of the transaction were not disclosed.

A decision on Lehman's real estate operations is expected within the next month. In January, sources familiar with the situation told PERE that Lehman Brothers Private Equity Real Estate division had received more than 100 expressions of interests with an announcement due in the first quarter of 2009. 

The $9.7 billion private equity real estate shop has $2.7 billion in uncommitted capital from its two latest equity and mezzanine funds.

At the time, the source confirmed Lehman Holdings was close to reaching a deal on its $800 million venture funds group.

Today, it was revealed that the venture spin-out, to be called Tenaya Capital, would be led by Tom Banahan, former managing director and global head of venture capital for Lehman Brothers. He will be joined by four other partners: Ben Boyer, Stewart Gollmer, Brian Melton and Brian Paul.

Lehman, which filed for bankruptcy in September, will receive cash and performance-related payments tied to the ongoing success of the funds.

“This transaction [ensures] that we retain the same management team that has built this business over the last decade,” Banahan said, adding that Tenaya has a strong relationship with the LPs in the funds, based on a philosophy of “like, trust and respect”. There are 13 LPs in Lehman’s fifth venture fund, including the Pennsylvania Public School Employees’ Retirement System and the North Carolina Retirement System.

“Fortunately for us, the LPs were thrilled to stay with us,” Banahan said. “With the economy the way it is, a lot of people have been running for the hills.”

The name Tenaya comes from various areas in the Yosemite Mountains, Banahan said, and was the name of a Native American Chief. “We went through 600 names,” Banahan said. “All five partners are big fans of the Yosemite Mountains.”

Lehman’s venture business was established in 1995 and has invested in more than 95 portfolio companies. The venture arm raised a total of $1.1 billion and invested $717 million during its life. Tenaya will have $750 million under management and 45 portfolio companies.

Lehman is working with restructuring firm Alvarez & Marsal.