Private Equity Fund Group To Spin Out From KeyCorp

   By Sabrina Willmer 
   Of DOW JONES PRIVATE EQUITY ANALYST 
 

Funds-of-funds group Key Capital Corp. is planning a spinout from parent bank KeyCorp (KEY), according to people familiar with the situation.

Key Capital is headed up by Bart Shirley, who joined KCC in 2002 to manage the private equity fund portfolio. Shirley couldn't be reached for comment.

Although it is unclear what will happen to Key Principal Partners Corp., one limited partner told LBO Wire that the direct-investing arm is engaging in a separate spinout. The limited partner said KPP is deciding on a new name. A KPP spokesman declined to comment.

Key Capital invests primarily in information technology and health-care venture-capital funds as well as middle-market buyout vehicles. It also makes secondary purchases in venture capital, buyout and mezzanine funds as well as funds of funds. It manages a pool focused on emerging buyout managers with less than $400 million and marketing a first or second institutional fund.

Key Principal, which is led by John Sinnenberg, makes mezzanine and equity investments in middle-market businesses, with a focus on the manufacturing, distribution and service sectors. Key Principal's investments include bottled-water company Ice River Springs Water Co., plumbing contractor AMPAM Parks Mechanical and radiator supplier Trantech Radiator Products Inc.

The KPP LP described the as a name change, considering the business unit has been acting as if it were independent for a while.

For example, when the firm raised its third direct investing fund in 2006, it raised a parallel vehicle for the bank's commitment, this limited partner said. KPP Investors III LP raised $500 million with KeyCorp, providing a $300 million anchor commitment, LBO Wire reported in 2006. It couldn't be determined what will happen to the bank's investments.

People familiar with the deals say the moves to spin out the two groups come from regulatory pressures to offload riskier assets such as private equity. New regulations that cap investments in private equity, hedge funds, real estate and other private-fund businesses have banks thinking about what to do with their private equity holdings. Even without regulatory pressures, some banks that invested in buyout funds to win lending business have moved away from that practice.

(Dow Jones Private Equity Analyst covers fund-raising and other news of interest to the private-equity community.)

-By Sabrina Willmer, Dow Jones Private Equity Analyst; [e-mail]

(Laura Kreutzer contributed to this article.)