LPs gear up for Lehman asset sell-off

LPs in Lehman's private equity funds have retained Kirkland & Ellis and private equity advisor StepStone to guide them through the auction of Lehman's venture and private equity funds. The bank hopes to close deals in the first quarter of 2009.

Limited partners in Lehman Brothers' private equity funds have hired law firm Kirkland & Ellis and private equity advisor StepStone Group to give them more of a voice as the failed bank tries to sell off its remaining private equity assets.

“There's a desire on the part of the LPs to get more active on the way this plays out,” a source said.

Lehman has worked with the limited partners throughout the process and has encouraged their active participation. 

A source at Lehman said: “We didn't think that presenting the LPs with one option and one term sheet without giving them a chance to speak up was the way to go.”

Management agreements governing the private equity funds call for the LPs to approve a management change with at least a two-thirds vote.

The collapsed investment bank’s most recent fund, Lehman Brothers Merchant Banking IV, closed on $3.3 billion last year and has remaining unfunded commitments.

The fund’s  investors, all of whom either declined comment or didn't return calls for comment, include American Express, Colorado Public Employees' Retirement Association, AXA Financial, Marsh & McLennan Companies, Pennsylvania Public School Employees Retirement System, TIAA-Cref, Virginia Retirement System, Illinois Teachers' Retirement System and New York City Retirement System.

Lehman is in the process of selling its major private equity groups, including merchant banking, venture capital and real estate. A Lehman management group won a bankruptcy auction earlier this month for the bank's investment management division, including Neuberger Berman, beating out a $2.15 billion bid from private equity firms Bain Capital and Hellman & Friedman.

The investment management division included some private equity assets like secondaries, some funds of funds and co-investments, as well as start-up private equity businesses including Lehman's debut infrastructure fund, which was targeting $1 billion.

Bidders for the remaining private equity assets include The Blackstone Group, Lexington Partners and Pamplona Capital Management, according to sources.

A source at Lehman said the bank hopes to close deals on the venture capital and the merchant banking private equity funds in the first quarter of 2009. The bank is working for a deal on the real estate funds in the first half of next year, the source said.

As the bidding process moves on, Lehman and Lazard, which is managing the asset sales, have been in close contact with limited partners.