SLI to split private equity arm's profits

STANDARD Life Investments (SLI) is handing 40 per cent control of its £3.4 billion private equity arm to nine of its investment managers, partly to protect clients in the event of its parent group being taken over.

While a spokesman stressed this is not pre-empting a takeover, there has been speculation that Standard Life could be snapped up by a larger group, possibly an international one.

SLI is transferring all of the business currently carried out by SLI (Private Equity), known as SLIPE, to a new limited liability partnership, SL Capital Partners LLP (LLP).

As part of the reorganisation, the nine members of SLIPE's management team, including heavy hitters Peter McKellar, David Currie and Stewart Hay, will resign as employees of SLI and become executive members of the LLP.

The other 28 employees involved in the private equity business, all located in SLI's Edinburgh and Boston offices, will become employees of LLP or one of its subsidiaries.

Private equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies.

Explaining the rationale behind the restructure, SLI said as private equity investors make capital commitments for long periods of time - at around 14 years - they want some guarantee on who will manage their money over the period.

By giving investment managers a stake in the business, they are more likely to stay, it added.

And should Standard Life be bought over by another party, the partners of LLP can increase their share from 40 per cent to a controlling stake of 63 per cent.

SLI spokesman Brian Simmons said: "The genesis goes back to last year when Standard Life was getting ready to demutualise. At the time, some clients were wondering what this would mean for them in the long term, for example if there was a change of ownership. Hopefully, this reorganisation helps reassure them of continuity in who controls their funds.

"Were a new owner to come in somewhere down the line and they decided they weren't interested in private equity or were hostile to it, there's a mechanism in place to allow the partners to purchase the controlling interest in LLP."

The limited liability structure is also intended to provide the flexibility which many other managers in the private equity industry have, as they are often part of a smaller boutique set-up.

It is hoped the new structure will encourage investment managers to write more business, as they will take a 40 per cent share in the profits, as well as help retain existing clients.

SLI will, of course, benefit from LLP being successful as it is the majority owner.

The reorganisation should be effective from 1 October 2007, depending on Financial Services Authority approval and completion of legal requirements.

SLIPE currently provides private equity investment management and ancillary services to a variety of fund of vehicles, structured as limited partnerships, which offer investors access to private equity fund investments. It also manages Standard Life's European Equity Trust, an investment trust listed on the London Stock Exchange.

Of SLIPE's 3.4bn assets, 72 per cent come from more than 140 third-party investors from 24 countries.