Jeff and Andy,
I wanted to make you both aware of a component of Enron Principal Investments' proposed strategy, prior to presenting to you next week.
We are proposing to raise a traditional private equity fund to provide the capital for EPI's investing efforts. I have been researching the pros and cons of a fund (including talking with Bill Brown, Michael Kopper and others who have worked on these at Enron in the past). In this case, I believe the positives sufficiently outweigh the negatives. Of course, if EPI pursues this fund, it would be done in-conjunction with the finance group.
Here are my assumptions:
Total Fund Size $500 million
Enron's Commitment $125 million
Institutional Investors $375 million
Enron's Management fees 1.5% - 2.0%
Enron Carried Interest 20%-25%
LP Preferred Return 6%-8%
Investment Period 3-4 years
Fund Life 8-10 years
* This would be structured as a traditional private equity fund structured using normal market terms.
Manage for IRR not earnings
Reduces Enron's ongoing capital requirements
Greater capital availability to EPI
Secure a dedicated funding source
Generate a leveraged return for Enron and annual management fees
Allow for retention of key personnel over the long term
We can discuss this at length in our presentation, but I wanted to give you advanced notice.