Cohen Said to Plan Donating Gains From SAC Spinout as Investors Flag Risk

Steven A. Cohen plans to donate to charity any profits he makes from the former private-equity arm of the SAC Capital Advisors LP hedge fund, according to three investors.
Some limited partners and prospective investors in Siris Capital Group LLC have expressed concern that the New York-based spinout’s ties with Cohen left it vulnerable to “headline risk,” or negative news, the people said. Two former employees of SAC Capital have pleaded guilty to insider trading in the U.S. government’s five-year probe of hedge funds, and last month a technology analyst at one of the $14 billion firm’s units was accused of the crime.
Prior to the close of the first fundraising stage in September, Cohen decided against investing in the Siris fund, whose general partners are seeking $400 million, the people said. Cohen also decided to hand over his cut of future profits to charity, according to the investors. Siris had agreed at the time of the spinout to give Cohen 20 percent of its slice of profits, or carried interest, from the first fund, the investors said.
Frank Baker, co-founder of Siris, declined to comment, as did Jonathan Gasthalter, a spokesman for SAC Capital at Sard Verbinnen & Co. No allegations of wrongdoing have been levied against Cohen or SAC.

Siris Fundraising

Siris, the private-capital group that spun off from SAC Capital early last year, has raised $175 million for its first buyout fund, said two of the investors, who asked not to be identified because the information isn’t public. The fund, Siris Partners II LP, will invest in technology, telecommunications and health-care companies.
Public pension plans have been sensitive to any bad press around investments they make.
“The nightmare scenario for any public pension manager is getting a call from a board member one morning because a negative story involving a fund in their portfolio is on page one,” said Jake Elmhirst, a managing director at UBS Investment Bank in New York.
Cohen’s decision not to invest in the fund has alleviated concerns about potential headline risk, one of the people said. Another possible limited partner said his investment firm wouldn’t be troubled if Cohen’s had participated in the fund because that would represent a “validation” of the Siris team.
At SAC, Cohen acted as the sole backer of deals by the private-capital group and helped Siris get started.
Siris gathered $125 million in the first phase of fundraising, according to one investor. Teachers’ Retirement System of Illinois committed $45 million in August.

Tekelec, Applied Discovery

In January, Siris led a group that bought Internet services company Tekelec (TKLC) in a deal valued at about $780 million. The firm purchased LexisNexis’s Applied Discovery unit, a provider of electronic legal services, in December.
Siris was founded by Baker, Peter Berger and Jeffrey Hendren, who have worked together for more than a decade. They were colleagues at private-equity firm Ripplewood Holdings LLC before joining SAC Capital in 2007.
SAC’s private-capital group invested in Cosmos Bank Taiwan (2837), network infrastructure company Airvana and MedQuist Holdings. The deals have produced an average of about two times invested capital, according to another person familiar with Siris.
To contact the reporter on this story: Sabrina Willmer in New York at swillmer2@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net
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EntreMed Secures $10 Million Financing

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Posted January 23, 2012
ROCKVILLE, Md. — EntreMed, Inc. (Nasdaq: ENMD), a clinical-stage pharmaceutical company developing therapeutics for the treatment of cancer, announced today that it has secured $10 million in financing with strategic accredited investors, including IDG-Accel China Growth Fund II L.P., Emerging Technology Partners, LLC, and Dr. Tak W. Mak, Director of The Campbell Family Institute for Cancer Research.
The Company entered into purchase agreements with the investors, pursuant to which the Company has agreed to issue and sell to the investors convertible notes in the aggregate principal amount of $10 million. The investors also will be issued warrants covering a number of shares of common stock equal to 20% of the principal amount of the notes, divided by $1.15. The warrants are exercisable at $1.40 per share. The closing of the transaction is anticipated to occur on or about January 27, 2012 upon the satisfaction of certain conditions.
At the closing, IDG and ETP have the right to designate in the aggregate two members of the Company’s Board of Directors. In addition, it is expected that the Company will select an interim Chief Executive Officer.
Subject to the approval of the Company’s stockholders at the 2012 stockholder meeting, the notes will automatically and immediately convert into shares of common stock and the warrants will become exercisable. The notes have a maturity date of August 31, 2012, bear an interest rate of 6% and will convert at a conversion price of $1.15 per share. The conversion price reflects the 10-day average closing sale price ending on January 20, 2012. The notes are not convertible, and the warrants are not exercisable, prior to receiving stockholder approval. If stockholder approval is not obtained, the Company will be required to pay liquidated damages to the note purchasers equal to an aggregate of $1.2 million.
“We are very pleased to have the support from a group of knowledgeable investors and the validation of the potential of ENMD-2076. The proceeds from the notes will allow the Company to accelerate and expand its research and development activities, fund additional trials, initiatives and long term strategic plans,” said Michael M. Tarnow, the Company’s Executive Chairman.
After deducting transaction fees and expenses, the net proceeds to the Company will be approximately$9.3 million. The convertible notes, the warrants and the common stock into which the notes and warrants are convertible have not been registered under the Securities Act of 1933, as amended (the “Act”) and applicable state securities laws, but have been offered and sold in the United States pursuant to applicable exemptions from registration requirements under the Act and applicable state securities laws. This press release does not and shall not constitute an offer to sell or the solicitation of an offer to buy any of the securities, nor shall there be any sale of the securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any state.
About ENMD-2076
ENMD-2076 is an orally-active, Aurora A/angiogenic kinase inhibitor with a unique kinase selectivity profile and multiple mechanisms of action. ENMD-2076 has been shown to inhibit a distinct profile of angiogenic tyrosine kinase targets in addition to the Aurora A kinase. Aurora kinases are key regulators of mitosis (cell division), and are often over-expressed in human cancers. ENMD-2076 also targets the VEGFR, Flt-3 and FGFR3 kinases which have been shown to play important roles in the pathology of several cancers. ENMD-2076 has shown promising activity in Phase 1 clinical trials in solid tumor cancers, leukemia, and multiple myeloma. ENMD-2076 is currently in a Phase 2 trial for ovarian cancer, and preclinical and clinical activities are ongoing in assessing the compound’s applicability for other forms of cancer.
About EntreMed
EntreMed, Inc. is a clinical-stage pharmaceutical company committed to developing ENMD-2076, a selective angiogenic kinase inhibitor, for the treatment of cancer. ENMD-2076 is currently in a multi-center Phase 2 study in ovarian cancer and in several Phase 1 studies in solid tumors, multiple myeloma, and leukemia. Additional information about EntreMed is available on the Company’s web site at www.entremed.com and in various filings with the Securities and Exchange Commission (the SEC).
About IDG-Accel Fund
IDG-Accel Fund is a private equity investment fund focused on investment in various sectors and is managed by IDG Capital Partners, a leading investment management team in China with over 18-years of investment experience and industry knowledge.

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Goldman Sachs Is Said to Seek Up to $3.5 Billion for Dedicated Energy Fund

Goldman Sachs Group Inc. headquarters stands in New York. Photographer: Jin Lee/Bloomberg

Goldman Sachs Group Inc. (GS) is seeking $2 billion to $3.5 billion for its first dedicated energy private-equity fund, according to two prospective investors.
The fund, Broad Street Energy Partners, will invest globally in areas such as oil, gas and power, said the investors, who asked not to be named because the information is private.
Goldman Sachs joins a growing lineup of firms raising pools of capital to take advantage of increased demand for energy and commodities. Barclays Natural Resource Investments, a unit of Barclays Capital, is raising its first dedicated private-equity energy fund to make investments globally. Blackstone Group LP (BX), the largest private-equity firm, and Apollo Global Management (APO) are also marketing debut energy funds.
Andrea Raphael, a spokeswoman for Goldman Sachs, declined to comment.
The new fund will be managed by the principal investment team of the bank. Kenneth Pontarelli, head of natural resources and a managing director in the merchant-banking division at Goldman Sachs, is heading the effort, according to the investors.
The Goldman Sachs merchant-banking division has made energy private-equity investments in the past out of its global private-equity funds, and Pontarelli managed those energy deals.
Past energy deals by GS Capital Partners (PEF3383) included the $45 billion buyout of electric utility company TXU (TXU), now called Energy Future Holdings Corp., Cobalt International Energy Inc. (CIE) and Kinder Morgan Inc.
To contact the reporter on this story: Sabrina Willmer in New York at swillmer2@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net
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Goldman Sachs Said to Seek Up to $3.5 Billion for Energy Fund

January 18, 2012, 1:51 PM EST
By Sabrina Willmer
Jan. 18 (Bloomberg) — Goldman Sachs Group Inc. is seeking $2 billion to $3.5 billion for its first dedicated energy private-equity fund, according to two prospective investors.
The fund, Broad Street Energy Partners, will invest globally in areas such as oil, gas and power, said the investors, who asked not to be named because the information is private.
Goldman Sachs joins a growing lineup of firms raising pools of capital to take advantage of increased demand for energy and commodities. Barclays Natural Resource Investments, a unit of Barclays Capital, is raising its first dedicated private-equity energy fund to make investments globally. Blackstone Group LP, the largest private-equity firm, and Apollo Global Management are also marketing debut energy funds.
Andrea Raphael, a spokeswoman for Goldman Sachs, declined to comment.
The new fund will be managed by the principal investment team of the bank. Kenneth Pontarelli, head of natural resources and a managing director in the merchant-banking division at Goldman Sachs, is heading the effort, according to the investors.
The Goldman Sachs merchant-banking division has made energy private-equity investments in the past out of its global private-equity funds, and Pontarelli managed those energy deals.
Past energy deals by GS Capital Partners included the $45 billion buyout of electric utility company TXU, now called Energy Future Holdings Corp., Cobalt International Energy Inc. and Kinder Morgan Inc.
–Editors: Christian Baumgaertel, Steven Crabill
-0- Jan/18/2012 13:55 GMT
-0- Jan/18/2012 14:00 GMT
To contact the reporter on this story: Sabrina Willmer in New York at swillmer2@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net
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Q&A: Private-equity returns and the Carlyle Group

What did you think of the compensation and share of the profits paid to the three founders of the Carlyle Group, and did they deserve it?
Obviously, $400 million — the amount the founders earned — is a large amount of money.
But they earned it because compensation is heavily tied to performance in private equity.
Carlyle returned at least $15 billion to its investors this year. The $15 billion represents the [very successful] performance of Carlyle’s investments in companies over the last five to 10 years.
And $400 million is less than 3 percent of the $15 billion. In years that Carlyle does not return money to its investors, like 2009, the founders earn far, far less.
My guess is that the investors in the Carlyle funds are extremely happy with the returns they have received this year even after paying the fees.
Discuss the private business model by which people can earn that kind of money.
The big investors in private equity are pension funds and endowments. In Carlyle’s case, those investors include the Maryland State Retirement and Pension System, the New York State Teachers’ Retirement System and Calpers [the California Public Employees’ Retirement System]. When private-equity fund returns are strong, a lot of pensioners and workers benefit.
Private-equity funds take this capital and use it to buy companies. When the private-equity funds buy the companies, they often use leverage, hence the common name of leveraged buyouts. These days, the leverage is usually on the order of 60 or 70 percent of the purchase price — less than the leverage in most home purchases.
The private-equity funds then work very hard to increase the value of the company. Usually, this involves looking for ways to increase the growth of the business as well as cutting costs. If the values of the companies increase, the private-equity fund and its investors will make money (when the companies are sold). If the values decrease, the private-equity fund and its investors lose money.
Private-equity funds receive an annual management fee on the money invested. For large funds, this is usually 1.5 percent per year. In addition, private-equity funds typically receive 20 percent of the profit of their investments. The founders earned so much this year because they had an unusually profitable year. (It is worth adding that funds get this share of the profits only if their investors earn at least an 8 percent annual return.)
Overall, the performance of private-equity funds has been very strong over the past 20 years. On average, each dollar invested in one has returned 27 percent more than that same dollar would have earned in the S&P 500 or other public-equity fund.
Please explain carried interest and why it is taxed at a lower rate than income tax.
The carried interest is the 20 percent share of investment profits I mentioned above. It is taxed at capital gains rates rather than ordinary income tax rates. That has been the case for a very long time.
There is a lot of debate about whether this is appropriate. Some argue that carried interest is compensation and should be taxed as ordinary income.
The counterargument is that the carried interest represents an investment return and should be taxed like other equity investments. If the carried interest were taxed as ordinary income, I think it also is likely that private-equity firms would be able to avoid much of the tax increase by restructuring the carried interest into equity investments.
Who invests in private equity and how does it work?
As mentioned above, the big investors in private equity are pension funds and endowments.
Do private-equity firms create jobs, destroy jobs or neither?
The best empirical evidence says the answer is that private equity both creates and eliminates jobs. After a buyout, employment in existing operations tends to decline relative to other companies in the same industry by about 3 percent. (This may mean employment actually grows, but just by less than at other companies). At the same time, employment in new operations tends to increase by more than other companies in the same industry by more than 2 percent. Net job losses were relatively greater in retail buyouts. This is not surprising, given that Wal-mart and Amazon have put a great deal of pressure on retailers over the past 20 years. If retail buyouts are not included, it is likely that net employment growth was positive. In other words, there does not seem to be a large net employment effect. That is not to say, however, that some people do not lose jobs. The overall pattern suggests that private-equity firms make firms more productive. They make cuts or grow more slowly when that makes sense, and they invest and grow more quickly when that makes sense.

GE ordered to defend lawsuit tied to 2008 crisis

(Reuters) – A federal judge refused on Thursday to throw out a lawsuit accusing General Electric Co and its chief executive of misleading investors about the conglomerate’s financial health and exposure to risky debt during the 2008 financial crisis.
The decision by District Judge Richard Holwell in Manhattan keeps alive litigation seeking to hold the company responsible for investor losses during a six-month period when its stock price fell to about $10 from about $26, causing its market value to tumble by more than $150 billion.
Investors claimed that GE withheld information regarding its health and the health of its GE Capital finance arm, including exposures to subprime and other low-quality loans. They also said GE misleadingly touted itself as being safer than rivals, despite the effects of the financial crisis.
Holwell also let stand some claims accusing bank underwriters of omitting statements from offering documents for a $12.2 billion GE stock offering in October 2008. He dismissed several other claims, and did not rule on the case’s merits.
A GE spokesman and lawyers for the investors did not immediately respond to requests for comment. Antonio Yanez, a lawyer for the banks, declined to comment.
Holwell said investors led by the State Universities Retirement System of Illinois adequately alleged that GE made material misrepresentations during the crisis about its access to commercial paper and ability to maintain its dividend.
He also let the investors pursue claims alleging that company officers, including Chief Executive Jeffrey Immelt and Chief Financial Officer Keith Sherin, misled them and had sufficient intent, known as “scienter,” to mislead.
CATEGORICAL STATEMENTS
“Immelt’s categorical statements that investors could ‘count on’ a dividend and that GE was having ‘no difficulties’ issuing commercial paper are not the sort of cautious statements one would expect of a CEO attempting to come to grips with the effects of the economic crisis on his company,” Holwell wrote in a 53-page decision.
“A CEO is allowed to convince the public to invest in his company, but not at the expense of providing it with accurate information about the company’s financial health,” Holwell continued. “Taking the factual allegations in the (complaint) as true, the inference that Immelt acted with scienter is at least as compelling as the inference that he did not.”
Among the banks that were sued were Bank of America Corp, Citigroup Inc, Deutsche Bank AG Goldman Sachs Group Inc, JPMorgan Chase & Co, and Morgan Stanley, court records show.
The lawsuit covered investors who owned GE stock from September 25, 2008 to March 19, 2009.
During that period the Fairfield, Connecticut-based company cut its dividend and lost its “triple-A” credit rating. It also received a $3 billion infusion from Warren Buffett’s Berkshire Hathaway Inc.
GE’s many products include jet engines, turbines and light bulbs. It also owns part of NBC Universal, in which Comcast Corp holds a majority stake.
The case is In re: General Electric Co Securities Litigation, U.S. District Court, Southern District of New York, No. 09-01951.
(Reporting by Jonathan Stempel in New York; editing by Andre Grenon, Phil Berlowitz)

Fisker Gets New Funding; Total Investment Reaches $876 Million

Fisker Automotive Inc., a California maker of plug-in hybrid sports cars, received about $110 million in financing, boosting the company’s total private investment to $876 million.
The company disclosed the investment today in a filing that didn’t identify the investors. It said in December it had received $133 million as part of the same financing round.
Fisker, based in Anaheim, California, is backed by investors including Kleiner Perkins Caufield & Byers, Palo Alto Investors LLC and the lithium-ion battery maker A123 Systems Inc. (AONE)
To contact the reporter on this story: Andrew Herndon in San Francisco at aherndon2@bloomberg.net
To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net
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