Wall Street Goes On Private Equity-Fee Diet

Wall Street’s private equity-fee machine appears to be grinding to a halt.

Indeed, since the credit market seized up last summer, sponsors and banks haven’t
had the best relationship, thanks in part to disputes over broken deals. What
remains now looks to be losing the lubricant of profit.

This year, PE firms have paid $895 million in fees to Wall Street as of March 10,
down 75% from $3.7 billion in fees paid in the same period in 2007, according to
research outfit Dealogic. It’s the lowest year-to-date number since the same 2002
period, during which buyout players paid $685 million in fees amid the last
sustained market downturn.

(This story originally appeared in LBO Wire, a daily email newsletter published
by Dow Jones & Co. that covers news about venture-capital and start-up
companies.)

Financial sponsors also are accounting for a smaller share of investment-banker
fees, contributing 10% of the total fee revenue generated by the banks globally
this year, down from 23% and 18% in the comparable periods in 2007 and 2006
respectively, according to Dealogic.

The slowdown in deal-making is certainly to blame. When it comes to buyout
volume, none of the large U.S. leveraged buyout shops are among the five most
active acquirers, whereas two lesser-known sponsors, Turkven Private Equity of
Turkey and Montagu Private Equity of the U.K., rank third and fourth,
respectively.

Big firms like Apollo Advisors and TPG Capital are among the most active sponsors
of leveraged loans. All told, Apollo and TPG have paid the most fees - on
transactions such as mergers and acquisition advisory services, loan and bond
syndication and equity offerings - to banks this year, doling out $111 million
and $102 million, respectively. Warburg Pincus, Alfa Capital Partners and the
Carlyle Group claim the next three spots.

Banks that received the most fees from financial sponsors are, in descending
order, Credit Suisse Group (CS), Citigroup Inc. (C), J.P. Morgan Chase & Co.
(JPM), Goldman Sachs Group (GS) and Lehman Brothers Holdings Inc. (LEH).

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