TWST: Tell us about Atlantic-Pacific Capital and your responsibilities there.

Mr. Manley: I'm the President of Atlantic-Pacific Capital, which is a boutique investment bank that specifically raises capital in the alternative investment area, meaning private equity funds, hedge funds and direct investments. So you might say we're an investment bank, but we only perform one specific function of an investment bank, which is raising money in the capital markets solely for alternative investment products.

TWST: What is your approach to the placement of private equity and hedge funds?

Mr. Manley: We might do eight projects a year, meaning three hedge funds and five private equity funds. We try to pick the best funds in a sector, which our clients prefer as they are pretty selective and really want to see funds that have performed in the top quartile. So we target funds that our clients would invest with, and we're very discriminating in terms of what we take on. Once we take on a fund that has a very good record, it's obviously easier to market and our clients are happier to see it.

TWST: What is the outlook for venture capital investing and the type of work that you do at this time?

Mr. Manley: It's a mixed blessing. Obviously people are not going to be raising as much money for venture as they did two years ago, because the sector has performed poorly. As a result of that, we're currently not raising any venture capital funds. If a venture fund with a good record came along we would be interested, but unfortunately, there aren't that many of them around. Private equity is also down. It's not as bad as venture, meaning the performance has been better than venture, but the performance is down from where it was, say, three years ago. So it's harder to raise capital in this market. There's been a little bit of a dislocation in the capital markets, and as a result, the better private equity firms which normally would have gone out and raised funds themselves in a good market are using placement agents or boutique investment banks like Atlantic-Pacific. It's a bad market, but our revenue is up due to the fact that we have raised funds that are in demand and got over-subscribed.

TWST: What are your investment screening criteria?

Mr. Manley: Again, we try to find funds that have performed extremely well in their sectors. For example, if we're looking at distressed funds, we to try to find the best distressed fund or one of the top three. We investigate and look very carefully at the management team, including a very thorough screening of their backgrounds. In addition, we analyze the prior track record, compare it to other groups in their sector and perform very thorough due diligence on the accuracy of the internal rates of return. So we do the type of background checks and screenings that a consultant would do before they have their clients invest. Obviously if we find something that is extremely negative, we don't want to bring it to market, as it will be much harder to raise.

TWST: You raise private capital for real estate I believe. Can you talk about that market and how that is going?

Mr. Manley: We're currently not raising a real estate fund, but we've represented three or four real estate funds in the past. Two years ago when venture capital was very strong, it was harder to raise real estate because returns were lower. But again, while returns in real estate might be lower, they're more predictable and safer ' as long as there are blue chip tenants in the buildings. Real estate has now made a little bit of a comeback, because even if you only get a 10% return in real estate, that's much better than investing in a market going down, or going sideways, which it currently is. So right now we're looking for a good real estate fund, because there is demand from our clients for that product.

TWST: What other areas are you finding funds in?

Mr. Manley: Again, real estate is what we're looking for. We're currently raising a German buyout fund and are about to close a German biotech fund. In addition, we are raising a few US mid-market buyout funds and soon will be representing a large cap US fund. Specifically, we like private equity funds that have an operational enhancement strategy, meaning managers are creating value in the companies they invest in through hands-on operations, versus creating value through financial engineering. Financial engineering was buying at one multiple in a rising market and then selling at a greater multiple when the markets were strong. Right now, with the IPO market kind of closed, you really want to pick managers who are operational enhancement specialists, meaning those who look to increase the sales and EBITDA of companies.

TWST: Are there any active deals that you're working on? Can you talk about any of them to show the process?

Mr. Manley: Unfortunately we can't talk about a fund, as it would violate SEC regulations.

TWST: What are some of the closed deals?

Mr. Manley: One of the funds we've recently raised was Matlin Patterson Global Opportunities Partners, a $2.2 billion distressed fund, whose final closing will be in about two weeks. That fund has a control restructuring strategy, meaning that the manager will buy the majority of the distressed bonds of a company, so that he could gain control of that company. In return he would do a restructuring and get equity for debt. It's a form of private equity investing, but instead of buying the company at auction, you simply buy the bonds of a bankrupt or near bankrupt company, and then control the company. That's been a very successful fund. Its original target was $1.5 billion and we raised $2.2 billion.

TWST: How can Atlantic-Pacific Capital influence a company's restructuring?

Mr. Manley: Remember, we're the agent and we would not influence the restructuring, but Matlin Patterson, the firm that is making the investments, could influence the restructuring by controlling or buying up most of the debt. If the equity value has gone to zero because it's bankrupt, all the value is in the bonds, and if you control the bonds, you control the company.

TWST: When you invest in these distressed funds, are there any common problems or issues that you find among them?

Mr. Manley: I guess the toughest job is to buy enough bonds to get control, because you have a lot of vulture investors. When I say distressed, a lot of people call them vulture investors. It's the same thing. There are a lot of people around the world trying to buy the bonds, so to have one person gain control, or own the majority of the bonds, is not easy. That's probably the toughest part. The other problem is once you gain control' Let's assume you buy the debt at $0.30 on the dollar. It also could go to $0.10 on the dollar. I hate to be simplistic, but that's the biggest problem. Have you ever heard the saying, 'Try and catch a falling knife?' It's difficult, right? So in other words, with distressed investing you have to be very, very bright to know where the bottom or near the bottom is.

TWST: So your expertise is essentially a question of timing.

Mr. Manley: Not just timing, but understanding' You could be an excellent timer, but if the company is bad' Remember, it's trading at $0.10. What if it goes to zero? So it's not just timing, it's understanding the company. Is there a real business there, and after the restructuring, will that business still be there? Because if you buy at the right price, you still can get burned if the company falls apart.

TWST: How do you go about researching and evaluating the competition in distressed?

Mr. Manley: In the 1980s, I was a distressed bond salesman on Wall Street, so I've been involved in distressed for a fairly long time. I've also raised a lot of other funds for people who have a distressed or contrarian strategy. So just because I've been in the business, not full-time, but in the business since 1985, I know who most of the good players are.

TWST: How do you judge the strengths or weakness of distressed management teams?

Mr. Manley: I know a lot of the competitors, so I'll call these other distressed managers who are familiar with the team. I'll also call people who deal with the distressed manager, meaning the people on Wall Street who might sell the bonds. Furthermore, I'll ask the team for an audited track record. It's not a huge universe, and the good players are easy to identify. Now, there may be some up and comers that I don't know about, but I tend to look for people who are fairly established in the area of distressed.

TWST: Does your firm have a sales force that works on these funds?

Mr. Manley: Yes, we have a global sales force with offices and salesmen in Hong Kong, San Francisco, Chicago, Dallas, Greenwich, London, and New York.

TWST: In what ways are you in direct, regular contact with the investment community?

Mr. Manley: We cover about 3,000 buyers of alternative investments, and while we don't speak to each one of them every day, we're in regular contact with the largest investors. Since we always have several products that we're marketing, we're in direct contact with them on if not a daily basis, a monthly basis.

TWST: If a distressed player takes over a company and controls it, what is the exit strategy?

Mr. Hanley: Good question. Obviously, if the IPO markets were better, you could take the company public, but in this market, more than likely it's a sale to a strategic buyer. The reason for that is that if there's a distressed asset, a strategic buyer can't buy it when it's in flux, and the debt is trading and falling like a rock because a strategic buyer doesn't know how to go out and buy the bonds in the market. They might be able to do it, but it's difficult for them. A strategic buyer would rather buy the company after it's fixed, meaning after the debt has been restructured and cleaned up and is not in crisis anymore. So, in a case like that, if someone could control the asset in distress, they would fix it up and sell it to a strategic buyer who is more willing to buy something after it's stabilized.

TWST: What would you say are the major challenges that you are grappling with at this time?

Mr. Manley: We've been fortunate. The company is in the best shape it's ever been in, both financially and in terms of the new business we're getting. It used to be very difficult to compete with large investment banks that were our competitors. But many of the large investment banks, because their share prices are down, have had to cut in all departments. One of the areas they've cut is in private equity fundraising. So whereas we were, five years ago, one of the smallest players on the Street, now we're actually one of the largest. I've done a lot of aggressive hiring in this downturn, hiring about 12 people in the past year. In addition, we'll hire probably two to three more. Being a private company I don't have to worry about share price, so I can hire in a downturn. So what's happening to Wall Street, meaning the downturn, is actually helping Atlantic-Pacific, since we're able to hire a lot of those good quality people who have been laid off.

TWST: Could you explain further why it's bad for the Wall Street- influenced investment banking firms, and yet it's good for you as a private company?

Mr. Manley: Again, as a private company, I don't have stockholders who are saying, 'Raise the share price!' Other investment banks, and I don't need to name names, but what has happened to their share prices? They're under fire to do something. What do you do in a down market? You cut personnel. When you cut personnel, sometimes the good goes out with the bad. Sometimes areas that might be a good part of the firm, like private equity fundraising, are cut, and they're cut because the Chairman of the company just says cut 20%. We're a private company. We don't have a share price we have to worry about. Our business is actually growing and our client base is growing, so we can hire people. And it's a perfect time to hire because there have been so many people displaced on Wall Street.

TWST: So what type of clients do you have and what are their concerns at this time?

Mr. Manley: They're, again, private equity firms, real estate firms, hedge funds. And their concerns are, can they get funds raised? Quite frankly, that's their simple concern. And because Atlantic-Pacific has grown so much, in the past year we've added so many sales people and investment bankers that we're increasing our market share. They're hiring us because they're seeing that we're a firm that's growing instead of cutting. So we've gained market share from a lot of the banks because they've cut back while we've grown.

TWST: When the climate changes, will you raise money for a venture capital fund?

Mr. Manley: If the market got better, we would consider raising money for venture capital firms, but right now most of the track records are so poor that it's difficult to raise the funds. But if the market changed and they performed better, we would consider it, yes.

TWST: What else do you want to tell us about Atlantic-Pacific? What differentiates it from other firms like it?

Mr. Manley: We are the largest privately owned placement group in the world. Most of the other private firms that raise capital for hedge funds and private equity funds are smaller. So we're actually, by people and by revenues, the largest in the world that's privately owned. We're certainly not as large as the big investment banks, but in terms of the other private fundraisers, we're the largest.

TWST: Is there anything that you can sum up to tell our readers about the work that you do?

Mr. Manley: In summary, the reasons that we've gotten so many new clients is that last year, which was probably the worst market for raising private equity in some time, all of our funds were oversubscribed, exceeding their initial targets. No other investment bank exceeded the fund sizes on all their funds. In fact, most did not hit the cover on all their funds. Our performance last year was so good, it has resulted in getting more clients this year. The other thing that we provide for our clients is 'Key Man' provisions, meaning we give them a promise that the key people won't leave, and if they do leave, they have the right to fire us. Investment banks won't give that because they want to have the ability to cut personnel if the stock goes down. So I think giving key man protection, the fact that we're growing the firm and the fact that we got all of our funds over-subscribed last year is putting us right now as one of the best placement agents in the world.

TWST: Thank you. (PS)

Note: Opinions and recommendations are as of 7/18/02.

JAMES E. MANLEY Atlantic-Pacific Capital, Inc. 102 Greenwich Avenue 2nd Floor Greenwich, CT 06830 (203) 862-9182

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