(Bloomberg) -- Jana Partners LLC, the activist fund founded by Barry Rosenstein, failed in overseeing its day-to-day operations, the Dyal unit of Neuberger Berman said in a lawsuit that highlights a risk of investing in private equity and hedge fund managers.
Dyal Capital Partners, the largest investor of its kind to take interests in these firms, took a 20% stake in Jana in 2015. The Neuberger unit generally expects fund managers to stay actively involved for the duration of its investment.
But David DiDomenico, a Jana co-portfolio manager for the past decade, is now also chief executive officer of Osprey Technology Acquisition Corp. Osprey, which recently raised $275 million in an initial public offering, said it would rely on DiDomenico as it sought takeovers in the enterprise software industry.
The of Dyal’s investment in Jana was redacted from the lawsuit, but Dyal implied it had paid a large sum for the stake and said it “did not want them to take that money and run.” DiDomenico’s departure from the hedge fund firm would “spell disaster for Jana’s future,” according to the lawsuit. Yet DiDomenico admitted to Dyal that his new venture had taken him “‘outside the Jana box,’” Dyal claims.
Jana said there’s nothing to it.
“We believe this claim is without merit and that the contract dispute will be resolved in our favor,” said Jennifer Fanjiang, Jana’s chief legal officer. “We will continue to focus on our business.” She said Osprey “is a venture which Jana co-sponsored and holds approximately 50% of the founders’ economic interest” and that DiDomenico remains a partner at Jana.
The Jana case underscores the risky bet of such investing -- that a few important people will stick around and not get distracted. The money can help founders plan for succession, but there’s no guarantee these businesses will thrive under new leadership.
Jana said last year it would shut two flagship funds. Dyal said in the lawsuit, filed Thursday in New York State Supreme Court, that it was “startled by this decision” and wanted Jana to grow, with DiDomenico a key player.
The hedge fund firm had $11 billion in assets when Dyal invested in 2015. By the end of 2019, Jana was overseeing less than a quarter of that. Dyal eventually agreed to the liquidation of the funds last year, according to the lawsuit.
Dyal, which was founded in 2011, has led the charge in taking minority stakes in alternative asset managers, including Vista Equity Partners, H.I.G. Capital and Platinum Equity. The deals have helped the firms grow and in some cases led their founders to unlock riches. This is the first time Dyal has sued the founders and key investors of any firm it has invested in.
Other firms heavily invested in the space include Blackstone Group Inc. and Goldman Sachs Group Inc.’s Petershill unit, which have each raised multibillion-dollar funds.
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