Deutsche Bank has resumed investment in private equity after a four-year absence with a vehicle to provide short-term financing on leveraged buyouts.
Deutsche Bank Investment Partners, created in the US under Michael Paasche, global head of leveraged finance, made its first investment last week. The new venture was part of a seven-bank syndicate investing $3.5bn worth of short-term equity bridge financing for a $29bn bid by Kohlberg Kravis Roberts for US-listed payments services company First Data.
The transaction was the first in which Deutsche Bank used its balance sheet to support a leveraged buyout. Banking sources said the new venture is not raising a third-party private equity fund but has the capacity to make selective investments from the bank's balance sheet when asked to do so by its financial sponsor clients.
In 2003, Deutsche Bank chief executive Josef Ackermann spun off the bank's third party private equity funds, Morgan Grenfell private equity and MidOcean Partners. Since then executives have expressed concern that the bank is missing out on big leveraged finance and advisory mandates because private equity clients want it to provide extra equity on big buyouts.
Deutsche Bank's facility was available to support last year's agreed buyout of Spanish-language radio operator Univision but demand from other investors meant it was not needed, the bank said. Equity bridge financing is a big and controversial development in the US. The record size of the First Data funding surprised bankers because it indicated the speed at which the equity bridge market had developed in the six months since it re-emerged after running into trouble in the 1980s.