Report on Organizational Change at Capital Dynamics

CITY OF LOS ANGELES
DEPARTMENT OF WATER AND POWER
INTERDEPARTMENTAL CORRESPONDENCE
Date:
September 1, 2010
To:
Retirement Board Members
From: LjJsangeeta Bhatia, Retirement Plan Manager
Subject:
Board Agenda Item NO.2: Report on Organizational Changes at Capital Dynamics
(September 8, 2010, Regular Retirement Board Meeting)
The Board of Administration (Board) of the Water and Power Employees' Retirement Plan (Plan)
hired HRJ Capital (HRJ'), now owned by Capital Dynamics, Inc. (CD), in March 2008 to manage a
Special Situations private equity mandate. The Board approved a commitment of $20 million from
the Retirement Fund to HRJ's Special Opportunities Fund II (SOF II), which invests in financially
distressed companies through a diversified fund-of-funds approach (Resolution No. 08-73). On
July 15, 2009, CD took over management of HRJ's private equity fund-of-funds and formed a new
affiliate called CDHRJ. As of July 31,2010, CDHRJ SOF II has called a tota~ of $18.7 million with
a market value of approximately $19.4 million.
On August 19, 2010, CD notified Staff that effective September 1, 20110, Janusz Heath will step
down as Head of Asset Management to devote his time to further developing the firm's emerging
markets expertise. Mr. Heath will continue to support CD's projects in Japan, and he will remain
as a Managing Director and continue to commit up to 80% of his time. He will remain as
chairman of all investment committees and will maintain all of his General Partner relationships.
Mr. Heath has over 26 years of experience in private equity and corporate finance.
In conjunction with this change, Katharina Lichtner (Head of Research, and Deputy Chairman of
the Investment Committee) and Andrew Beaton (Co-Head of Co-Investment) will jointly head the
Asset Management team until a replacement for Mr. Heath can be found.
Representatives from Pension Consulting Alliance, Inc. (PCA) stated these changes will have no
material impact on the SOF II. Cynthia Duda has been the Account Manager for SOF II since the
transfer from HRJ. PCA also aaded the portfolio is fully constructed so no new commitment
activity to the fund will take place.
Staff will continue to closely monitor the Plan's SOF II account with CDHRJ and update the Board
as needed.
The following documents are attached:
•
•
•
Capital Dynamics' email, dated August 19, 2010
PCA's Email, dated August 24, 2010
Resolution No. 08-73
SB:JW:SV:GAje
2.1
Pag 1 of 1
Adajar, Grace
From:
Capital Dynamics [[email protected]]
Sent:
Thursday, August 19,201105:25 PM
To:
Adajar, Grace
Subject: Capital Dynamics Asset Management leam Update
Dear Grace AdaJar,
We would like to share with you the details of some important changes taking place in the Asset
Management (AM) department.
Effective from September 1, 2010 Janusz Heath will step aside as Head of Asset Management and
take on a role principally focusing on assisting with developing our emerging markets activities while at
the same time reducing his time commitment to the firm.
Janusz, who will remain a Managing Director, will continue to commit 80% of his time to Capital
Dynamics. In this capacity, he will remain as Chairman of all Investment Management Investment
Committees and will maintain all his GP relationships. Going forward he will focus on the further
development of our emerging markets expertise, as well as continue to support our efforts in Japan,
together with a number of other projects.
In conjunction with these changes, we are reVisiting the structure of the AM department. In the interim,
Katharina Lichtner, head of Research and deputy chair of the Investment Committee, and Andrew
Beaton, Co-Head of Co-Investment, will co-head the 1M team.
We would like to thank Janusz for hiS dedication and outstanding work in leading AM over the last
several years and building it into an industry benchmark team dUring a time of substantial growth for the
firm.
Please do not hesitate to contact your Capital Dynamics representative for further information.
Best regards,
Capital Dynamics
A new document under the category "News and Press Releases" was added to the Capital Dynamics
Portal on 08/19/2010. You are receiving this message in your capacity as proxy for the following
investors:
Water and Power Employees' Retirement, Disability and Death Benefit Plan; Primary Contact Proxy
Document Title: Capital DynamiCs Asset Management Team Update
Please login to https://clientrelations capdyn.com/portall to review and/or download a copy.
8/20/2010
2.2
To:
The Board of the Water & Power Employees' Retirement Plan
(WPERP)
('
From: Pension Consulting Alliance, Inc. (PCA)
RE:
Capital Dynamics
Date:
8/27/2010
\.­
Or~anizational Chan~e Announcement
Summary
On August 19 2010, Capital Dynamics announced a change in its Asset Management
department. Effective September 1, 2010 Janusz Heath will step aside as Head of Asset
Management and take on a role focusing on the development of Capital Dynamics emerging
markets activities while also reducing his time commitment to the firm.
WPERP has a $20 million commitment to the HRJ Special Opportunities II Fund (SOF II) which
Capital Dynamics is now administering. SOF II is fully committed and Mr. Heath's reassignment
should not have any impact on SOF II. Since the transfer of SOF II from HRJ Capital to Capital
Dynamics, Cynthia Duda has been the Account Manager for SOF II and this change is not
expected to affect the oversight of the fund. PCA has been told by Capital Dynamics that 1Mr.
Heath was not involved in the management of SOF 1.1.
Discussion
Janusz Heath is a Managing Director located in Europe and headed the Asset Management
division of Capital Dynamics. He has over 26 years of private equity, corporate finance and
industry experience. Prior to joining Capital Dynamics he was Ihead of Central & Eastern
European Private Equity at Allianz Specialized Investments, having previously been deputy
chairman and managing director of PTP-Kleinwort Benson. He has also been chtef executive of
a UK public company. Janusz is a member of Wilton Park Council, a Fellow of the Chartered
Institute of Marketing and holds an MBA from the University of Aston.
Mr. Heath will remain a Managing Director and will continue to commit 80% of his time to
Capital Dynamics. In this capacity, he will remain as Chairman of all Investment Management
Investment Committees and will maintain all his GP relationships. Going forward he will focus
on the further development of Capital Dynamics emerging markets expertise, as well as
continue to support their efforts in Japan, together with a number of other projects. In
conjunction with these changes, Capital Dynamics is revisiting the structure of the Asset
Management department. In the interim, Katharina Lichtner, head of Research and deputy chair
of the Investment Committee, and Andrew Beaton, Co-Head of Co-Investment, will co-head the
Investment Management team. With Capital Dynamics revisiting the structure of the Asset
Management department, additional changes may occur. PCA will continue to monitor these
activities for potential impact to the oversight of SOF II.
2.3
RESOLUTION NO.08-73
RESOLUTION TO RATIFY THE BOARD'S ACTION TO INVEST WITH HRJ SPECIAL
OPPORTUNITIES FUND II (U.S.), L.P., A PRIVATE EQUITY FUND-OF-FUNDS FIRM
WHEREAS, the Board of Administration ("Board") for the Water and Power Employees'
Retirement Plan ('WPERP") previously adopted a 5% allocation to the private equity
asset class (Board Resolution 08-49); and
WHEREAS, the HRJ Special Opportunities Fund 1'1 (U.S.) L.P. ("HRJ") is a diversified
fund-of-funds portfolio for special situation transactions like distressed investments; and
WHEREAS, at the regular meeting of January 16, 2008, the Plan's consultant Pension
Consulting Alliance ("PCA") presented their due diligence report and recommended an
allocation of funds to HRJ; and
WHEREAS, the Board conducted an interview and heard a presentation from HRJ; and
WHEREAS, the Board discussed and approved a commitment of up to $20 million to
HRJ in accordance with the recommendation of PCA; and
WHEREAS, the WPERP's outside legal counsel reviewed and approved all related
documents to the partnership agreement with the assistance of Staff and the City
Attorney; and
WHEREAS, the subscription for HRJ closed on March 4,2008; and
NOW, THEREFORE, BE IT RESOLVED, the action previously taken by the Board is
hereby ratified and the Retirement Plan Manager is hereby authorized to proceed with
funding of $20 mi'llion to HRJ in accordance with capital call notices received.
I HEREBY CERTIFY, the foregoing is a full, true, and corrected copy of a Resolution
adopted by the Board of Administration (Retirement Board), created by Section 1102 (b)
of the City Charter of the Los Angeles, at its regular meeting held March 19, 2008.
~4£
geeta Bhatia
Retirement Plan Manager
\lE
11.2
2.4