With J.P. Morgan & Chase buying Bear Stearns Cos. for a song, the beleaguered investment bank's network of private capital affiliates is likely wondering where they stand in the midst of all the turmoil. Many of the company's private capital units already fall under the auspices of Bear Stearns Asset Management Inc., which manages $19.7 billion in private equity, venture capital, fixed income and hedge fund assets.
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Among those to be affected are private equity affiliates such as Bear Stearns Merchant Banking, Bear Growth Capital Partners, Bear Stearns Private Equity Ltd. and Eagle China Retail and Consumer Fund, as well venture capital firms such as Bear Stearns Health Innoventures and Constellation Ventures.
The timing couldn't be worse for Bear Stearns Private Equity, a London-listed arm of the New York bank which is in the midst of raising $250 million to $350 million for its private equity fund-of-funds. The London company also has yet to close on its $104.9 million acquisition of Australian private equity fund of funds Macquarie Private Capital Group.
Eagle China Retail and Consumer Fund, a Bear Stearns effort to push into China, may also be in limbo. Formed last year, the vehicle is a partnership with billionaire Wong Kwong Yu, reportedly the richest man in China, to invest $250 million each in a fund that focuses on China's retail sector. In December, Bear brought in Steven Kwok to take charge of the fund as senior managing director and assume the position as head of private equity for Bear Stearns Asia Ltd. The move followed Bear's deal with Chinese investment bank Citic Securities Co. Ltd. to each take a $1 billion stake in other, an investment Citic surely regrets at the moment.
Bear Stearns Merchant Banking will be shielded somewhat from the fallout, as Bear Stearns & Co. is only one of the private equity firm's limited partners. The Wall Street company has a commitment to provide 18% of the capital for BSMB's latest $2.7 billion fund. The same holds true for Constellation Ventures, where Bear Stearns is one of approximately 85 outside limited partners. But middle market buyout shop Bear Growth Capital Partners may not be so lucky, as the unit is financed by The Bear Stearns Companies, Inc., according to the BSMB website.
BSMB is reportedly in talks with JP Morgan, as Bear, Stearns & Co. also owns a minority stake in the general partnership. The private equity firm has been having its own troubles with debt markets as its $105 million investment in portfolio company ACA Capital Holdings Inc., a bond insurer that was taken over by Maryland insurance regulators in December, whittled down to less than $8 million. -- George White
