Tailwind initiates split from Thomas Weisel

The managers of Tailwind Capital have informed limited partners that the group intends to split from Thomas Weisel, ending a sometimes rocky relationship with the San Francisco financial services group.

A letter sent to LPs of Thomas Weisel Capital Partners, dated September 7, 2005, indicated that the Tailwind Capital Partners investment team has set in motion a plan to become an independent private equity firm, apart from the tech-focused investment bank.

Currently, Tailwind’s Web site lists Douglas Karp and Lawrence Sorrel as the group’s co-heads. Karp had been at Warburg Pincus when the Thomas Weisel fund was first launched but joined the group in 2003, while Sorrel had been at Welsh, Carson, Anderson & Stowe before joining the firm at the end of 2002. 

Prior to Karp’s and Sorrel’s arrival at Tailwind, the firm rarely participated in LBOs, despite the original intentions. The firm, according to published reports, ploughed its first $850 million into 34 companies, only two of which were buyout investments. Many were growth financings in telecom and tech companies, such as the firm’s first two transactions, a $15 million investment in IT consultant Alliance Consulting and a $25 million capital infusion in optical switch maker Tellium.

Since Karp and Sorrel took over, however, the fund has participated in the same sectors, but it has started to operate more as a buyout fund, having logged such acquisitions as insurance services outfit Trover Solutions, which has already paid back a dividend to the New York firm.

The spin-out comes as Tailwind has nearly reached the end of its last fund, Thomas Weisel Capital Partners LP, which was raised in 2000, receiving $1.3 billion in limited partner commitments.

 

When Thomas Weisel Capital first launched the fund in 1999, enthusiasm was high for its intended strategy. The bank recruited Hicks, Muse, Tate & Furst veteran Alan Menkes and Derek Lemke-von Ammon, the former head of the NationsBanc Montgomery Securities private equity group. William Bunting was another big name the firm recruited for the effort, and soon after the launch the fund shot by its $500 million target before settling at its ultimate level of $1.3 billion.

 

At the time, the plan for Thomas Weisel’s private equity arm was to work closely with the group’s corporate finance division. The fund’s sector mandate mirrored that of the bank, targeting the technology, media, consumer products, retail, healthcare services and business services industries.

The fund probably stuck a little too close to Thomas Weisel’s tech focus, and like other buyout groups that played in technology, the fund has not been among the top performers from that era. According to CalPERS, as of December 31, 2004, Thomas Weisel Capital Partners LP had generated a net IRR of -18.6 percent.

In 2002, Alan Menkes, Keith Oster and Daniel Dross split to form a new private equity group. Menkes and Oster, however, went on without Dross to launch Emperia Capital, while Dross joined Trinity Hunt Partners. Meanwhile, Lemke-von Ammon, the other former head, left the firm as well, and joined FTVentures in August of 2004.

Last year, in a press release, Thomas Weisel commented on the upheaval, noting that a total of 14 new investment professionals had joined the merchant banking arm, and parallel to the announcement, the firm noted the private equity arm had changed its name to Tailwind Capital Partners.

According to the recent letter to limited partners, the newly independent Tailwind will be headed by Sorrel, Karp and James Hoch, who came on board soon after Sorrel.

The letter stated: “As an independent, focused private equity firm, controlled and owned by its investment professionals, Tailwind has the best prospects for retaining key talent and raising new capital. This transaction will enable the investment team to manage the business for the long-term and provide the limited partners the best possible oversight of their investments.”

The letter goes on to say the Tailwind team intends to establish a new general partnership, TWCP-GP, which would require the consent of current limited partners, while an affiliate of Thomas Weisel would remain as a GP of the fund.

There was no mention of a possible new fund for the Tailwind team, although that would be the likely next step once the general partnership is established.

Calls to Tailwind were not returned by press time.