PhillyDeals: Pennsylvania new equity fund's biggest investor

Pennsylvania's state retirement plans have more than doubled their bets this year on a private-equity investment firm set up by real estate investor

Ira Lubert

, investment banker

Seth Lehr

and accountant

Howard Ross

in 1999.

The state is the biggest investor in LLR Partners Inc.'s new LLR Equity Partners III fund, which has collected $800 million, and is ready to start buying companies in Philadelphia and other Mid-Atlantic markets, fund managers plan to announce this morning.

The new fund includes $187.5 million from the Pennsylvania Public School Employees' Retirement System (PSERS), plus $30 million from

the State Employees' Retirement System, and $20 million from the Philadelphia city workers' pension plan, Ross said in a meeting with his partners at their offices atop Cira Centre in Philadelphia.

The state pension plans want to boost flagging investment returns and avoid the moribund U.S. stock market. The city needs even bigger profits, since there are more retirees collecting checks than there are city workers paying into Philadelphia's pension fund. Mayor Nutter has floated a plan to borrow money, if necessary, to boost the fund's investments.

What did LLR do to merit so much public money? As The Inquirer noted when Lubert was starting out in the fund business, Lubert is a major political donor, laying five- and six-figure campaign contributions on state and city political candidates with real or potential pension fund influence on pension board appointments, including, most recently, Democratic state treasurer candidate Rob McCord.

But LLR's track record justifies high confidence, according to state pension officials.

PSERS invested $61 million in LLR's first fund in 1999. So far it's collected $97 million on that investment, with $27 million remaining in the fund for future returns, according to pension system spokeswoman Evelyn Tatkovsky.

The state has got back $14 million so far on its 2004 investment of $46 million in LLR's second fund, with an additional $40 million still invested.

The state workers' pension system got back almost $2 for every $1 on the $24 million it invested with LLR in 2000, said spokesman Bob Gentzel. So far, it has got back $4.5 million of the $19.9 million it invested four years later.

LLR pockets about 2 percent of its assets under management in fees each year, typical for private-equity firms.

"The first fund made our reputation," Lehr said. "With the second fund, we can pick the optimum time" to sell investments at a profit.

For the third fund, the recent decline in asset values makes it "a great time to build a new portfolio," he added - though, he acknowledged, "it's not a great time to [sell] anything."

LLR makes investments ranging from $10 million to $75 million in mid-size companies, through buyouts of founding owners, expansion investments and recapitalizations.

"We like to be the Jimmy Rollinses of the private-equity world: a lot of trips to the plate, a lot of singles and doubles that we stretch into triples," Ross said.

LLR focuses on the Mid-Atlantic states, where it can keep an eye on the companies it backs, Lehr said. But it has made investments in Florida and out West as well.

LLR has grown, and so has its team. Partners who joined in the firm's first few years also include former Patricof & Co. investor Mitchell L. Hollin; investment banker Scott A. Perricelli; and Ross' former Arthur Andersen L.L.P. colleague David J. Reuter.

LLR investment transactions earlier this year include $29 million for BrightHeart Veterinary Centers, of Armonk, N.Y., and the sale of Gestalt L.L.C., of Camden, to Accenture Ltd., for an undisclosed sum.

Companies backed by LLR also include prison contractor Community Education Centers Inc., of West Caldwell, N.J.; hospital-cleaning contractor Crothall Services Group Inc., of Wayne; prescription-support contractor ExcelleRx Inc., of Philadelphia; dollar-store chain Five Below Inc., of Philadelphia; credit card payment service provider Heartland Payment Systems Inc., of Princeton; construction software vendor Maxwell Systems Inc., of King of Prussia; and legal-settlements purchaser Peachtree Settlement Funding, of Boynton Beach, Fla., among others.

In the 30-plus years he ran

Commerce Bancorp Inc.

, of Cherry Hill,

Vernon Hill II

wasn't much in the habit of letting anyone other than his customers tell him what to do. (Except his wife,

Shirley

, but I'm pretty sure Mrs. Hill was a Commerce customer.)

Hill tells PhillyDeals he's not impressed that Commerce's new owner, Toronto Dominion, has, after a relatively minor legal skirmish, bowed to a small western Massachusetts bank with a similar name and agreed to rename its own 1,000-plus U.S. branches as TD Bank, instead of its earlier plan to use the Commerce name.

"Instead of spending our money, resources and time in litigating this matter, which could take years, we decided to move forward," Bharat Masrani, president and chief executive officer of TD Bank, told my colleague Harold Brubaker.

"They're a $250 billion bank, and they're getting pushed around by a little $1 billion bank in Massachusetts? And they're giving up the name Commerce?" asked Hill.

"You think they really wanted to keep the name?"

WSFS Financial Corp.

, of Wilmington, says it's buying the six northern branches of

Sun Bancorp Inc.

, of Vineland, N.J., for a premium of about $13.2 million, or 12 percent on Sun's $110 million in local deposits.

WSFS will shut two sites and add the other four to its Delaware branch network, second to Wilmington Trust's among branch banks in that state. Keefe, Bruyette & Woods Inc. and Luse, Gorman, Pomerenk & Schick, PC advised WSFS. Both boards have approved the sale.