The founders of private equity firm EdgeStone Capital have taken back control of the firm they sold to GMP Capital in 2006, and they are planning to stay in the alternative asset game. How they do that isn't yet clear.
GMP quietly made the decision late last year to finally exit the private equity game, which it got into by purchasing EdgeStone in 2006 for cash and shares worth $152-million at the time.
However, after the financial crisis, private equity was a tough place to be for an investment bank. Investments were underwater. Regulators were nervous. Investors were wary of putting money into the asset class, especially into a fund affiliated with a bank because of conflict concerns.
Sam Duboc, Gilbert Palter and Stephen Marshall, the founders of EdgeStone, stepped down in early 2010 as employees of GMP and began to work as consultants, overseeing investments in EdgeStone funds such as Porter Aviation. GMP wrote down its investment in EdgeStone by $80-million a few months later, and began looking at ways to wind down its involvement in private equity.
The founders of EdgeStone took back control of the firm at the end of 2011. The remaining team moved into new offices a block away from GMP and is now looking at its options, said Mr. Duboc, one of the EdgeStone Partners. (One significant EdgeStone principal, Sandra Bosella, departed for a job at a pension fund.)
The firm plans to remain focused on alternative assets, Mr. Duboc said. One option is to try to raise another buyout fund, using EdgeStone's 34 per cent internal rate of return on previous buyouts as a calling card. However, in current markets, with many traditional private equity investors unable or unwilling to allocate more cash to the asset class, that may be tough. Other options include one-off deals or partnering with a big backer.
As for the assets in EdgeStone's existing funds, there's no rush to sell, says Mr. Duboc.