The pay-to-play scandal gripping the placement industry has had many far-reaching implications for fundraisers in the US – not least decisions by several large public pensions to ban contact with agents of investment firms looking for commitments.
Even the Securities and Exchange Commission has called for an overarching ban on contact between third party fundraisers and public pensions, a move that could spell “demise” for many placement agents who work on that basis, according to placement agent CP Eaton founder Charles Eaton.
The ripple effect of the scandal will no doubt be felt for years to come, however one consequence that has already emerged is the increasing demand by even smaller, boutique groups to hire their own in-house capital raiser.
Cathy Ebert, a former managing director in charge of BlackRock’s West Coast real estate account management group, joined the Emmes Group, a New York-based investment management firm, in July this year for precisely that reason.
In December last year, BlackRock cut staff numbers in its effort to deal with the credit crisis. Ebert was part of that round of lay-offs, having spent almost three years raising more than $1 billion for its real estate debt and equity platform.
During the first quarter of 2009, after a short spell travelling around the world, Ebert was involved in the recruitment process for a number of large investment managers. By mid-March firms previously looking to hire professionals started to call off their employment searches in light of the continuing economic problems and the tougher fundraising landscape. However, at the same time news of the New York State Common Retirement Fund pay-to-play scandal also broke.
In the wake of the scandal, Ebert started to see smaller, emerging firms turn to potential in-house fundraisers rather than employing a third party. “These firms would have used a placement agent had it not been for the scandal that we’ve seen,” she said. “For some firms it certainly has impacted their thinking today. Whether it will continue to play such a role in the future, no-one can be sure. This issue could blow over in time – it depends on how plan sponsors tackle it in the coming months.”
For now, it’s Ebert’s job to raise Emmes’ profile in the eyes of the global institutional investment community. The firm has been well known in New York circles for its ability to deal with complex, distressed situations in the city, particularly New York City and the East coast. Ebert admits the firm is “relatively unknown to pension investors”, currently with just two pension fund separate account clients and $900 million of assets under management. But as a 17-year-old distressed player, Emmes is an “unknown gem”, said Ebert, who will be based in the firm’s Newport Beach office.
“For me this really is the ideal convergence between the firm’s core competency of distress and today’s market environment. Emmes hired me to help introduce them to the institutional investor community, to help them tell their story and grow. That’s what I love about this opportunity.”
Emmes currently owns property in 19 states, across all four property sectors, including 40 shopping centres. The firm hopes to raise capital through separate accounts and club structures.
“LPs today want managers who are closer to the assets, in a form where they have greater investor control, reasonable fees, a greater alignment of interests, with greater transparency and the ability – if it has to come to it – to terminate the relationship with reasonable ease,” Ebert said. “LPs want managers they can trust to be nimble but thorough and underwrite the fundamentals before anything else.”
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