Investment firm of Harris Barton, Montana and Lott is in trouble

An investment fund of the three former 49er superstars committed to $250 mil in investments last year, but only raised $130 million in capital. They took out a loan with Silicon Valley Bank to make up the difference and that loan has defaulted.


From PE Week Wire:

HRJ invests in buyout, distressed and venture capital funds, but sources say that most of the “uncommitted commitments” in question came out of the buyout bucket. Specifically, HRJ last year began raising a new buyout fund-of-funds with a $250 million target, but was only able to get about halfway there. At the same time, however, it committed nearly the entire target — leaving it between $120 million and $140 million short.

“The strategy from the beginning of fund-raising was to make commitments ahead of securing investor capital, in order to give LPs more transparency into the portfolio,” says a source close to HRJ. “It’s what the firm has traditionally done, but fund-raising slowed down and then came to a halt… which no one had expected.”

Yes, that’s just as dumb as it sounds. Even if you accept that HRJ didn’t “expect” fundraising to fail, was it unable to even conceive of the possibility? Or just unwilling? By last August, it was clear that markets had sea shifted – including private equity fund-raising markets. Moreover, it was clear that a large percentage of 2007-vintage buyout funds were underwater, which means that HRJ’s capital gap was being exacerbated. And whatever happened to vintage-year diversification?

I’ve heard of funds-of-funds making pre-commitments, but almost all such examples have been for corporate investment arms that had in-house institutional backing. Or perhaps soft commitments, with hard commitments only coming once the fund-of-funds has its own capital in hand. If HRJ’s limited partners required transparency, they should have been investing in secondary funds.

We’ve also has learned that HRJ has initiated talks with secondaries firms about buying part, or all, of its existing portfolio. Under such a scenario, the secondary firm would pay HRJ a discounted price for its existing portfolios, and HRJ would use the money to pay back SVB. It is unclear, however, if any secondaries firm would be willing to step up without first having its own agreement in place with SVB. It’s also unclear why HRJ waited so long to begin such talks, given that the writing has been on the wall for quite some time.

“They just kept driving toward the cliff, hoping that someone would build a bridge,” says a source familiar with the situation. “It was incredibly risky, and now they’re paying for it.”

Uh oh.

 

These pro athletes and their posses. When will they learn?

 

I was just reading the boilerplate.