Goldman Sachs Outbid by Pension in Behrman Fund Auction

Canada Pension Plan Investment Board beat Goldman Sachs Group Inc. in an auction to be the lead investor in a $1 billion transaction to take over assets of a 2001 fund managed by private-equity firm Behrman Capital.

Canada Pension, the country’s second-biggest public pension manager, agreed to commit as much as $644.4 million to Behrman Capital PEP LP, a new fund with a six-year life that will buy assets from the original Behrman fund, according to marketing documents. The new fund is seeking $1.07 billion.

The transaction gives investors the option of exiting their stakes in Behrman Capital III LP, a $1.2 billion fund formed 11 years ago. They can also choose to invest in the new pool, which has reserved $100 million for such rollover commitments, according to the documents, copies of which were obtained by Bloomberg News.

Behrman, based in New York, is among a number of private-equity firms seeking to resolve the future of funds that are reaching the end of their designated lives without having sold all their investments. Willis Stein & Partners, a buyout firm that last raised capital more than a decade ago, is trying to divest most of its remaining holdings, two people familiar with the deal said in February.

Five Companies

Linda Sims, a spokeswoman for Toronto-based Canada Pension, declined to comment, as did Bill Murphy, a managing director at Cogent Partners, which handled the auction for Behrman Capital. Grant Behrman, co-founder of the firm, didn’t return a call for comment, while Andrea Raphael, a spokeswoman for Goldman Sachs, didn’t immediately respond to an e-mail.

The new fund will use 75 percent of commitments to purchase existing stakes in five companies primarily held by Behrman Capital III. The companies are Ark Holding Co., ILC Holdings Inc., New ILC Dover Inc., Pelican Products Inc. and Selig Sealing Holdings Inc., the documents show. Other funds have minority stakes in the companies, including Behrman Capital IV LP, which raised $251 million in 2007.

The remaining capital will be used to fund new investments, primarily in the health-care, defense, specialty manufacturing or business-to-business outsourcing industries in the U.S.

The deal will give Behrman Capital III investors net proceeds of $780.6 million after fees, representing 102.4 percent of net asset value as of Dec. 31. The general partner will receive a cut of profits from the transaction and 20 percent of a $40 million exit fee paid by the portfolio companies, according to one of the documents.

Fee Changes

Behrman Capital reduced the proposed management fee on the new fund to 0.75 percent from an originally proposed 1.25 percent in March. It has increased the proposed carried interest fee to 20 percent from 15 percent.

Behrman Capital III is near the end of its life, having already received investor approval for two of three one-year extensions beyond its 10-year term.

The deal has passed muster with the advisory boards of Fund III and Fund IV and is pending approval from Behrman investors, who face a deadline of today, the documents show.

Behrman Capital was founded by brothers Grant Behrman and Darryl Behrman in 1991. Darryl passed away in February 2002.

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