LLR Operating Partner Frank Filipps Interviewed by PrivateEquityCentral.net

November 15, 2010

Investing in Financial Services 2.0
November 15, 2010

A greatly chastened U.S. financial system may seem like a risky place to put capital, but
Frank Filipps, an advisor to LLR Partners, says that it is exactly where the smart money
should go. As the various parts of the financial sector rebuild, there is great opportunity,
he says. Filipps talked with PrivateEquityCentral about this as well as what his role will be with the firm.

PrivateEquityCentral.net: What is your role with LLR and what will you be doing with the firm?

Frank Filipps: LLR recently formed an advisory board that is going to help them in their reviews of new investment opportunities targeting the financial services and financial technology asset management sectors. The firm asked me to become a member of the advisory board. I will be adding a different set of eyes to the review of the opportunities.
I will bring a different perspective to the opportunities they are looking at. Hopefully I can bring some hands-on operating judgment to the due diligence.

PrivateEquityCentral.net: Will this lead to you running one of the portfolio companies for the firm?

Frank Filipps: After an investment is made, there may be a role for an operating person to get involved either as a director or in some other capacity as an advisor. This is common for many firms of this size that need that extra set of expertise. The person in that position probably would not need to be present five days a week, 10 hours a day, but they probably need someone available for consultation on a periodic basis and I hope to be able to lend my expertise to them in that way.

PrivateEquityCentral.net: What are you seeing in the financial sector right now as far as investment opportunities for private equity firms?

Frank Filipps: I think we have to go back to one of my theses for the day that we have managed to destroy much of the financial community as we knew it pre-2007. That includes the consumer finance business, the auto lending business, the credit card business and the mortgage finance business. All of them have been greatly impaired in the past three years for a lot of reasons, and I believe a lot of those businesses have to be rebuilt. They provide a
real need in the economic system that we have. For instance, there really needs to be a vibrant mortgage lending industry in the United States. Right now, that industry is not so vibrant. In the past few years that industry has been decimated. I believe there is an opportunity for investment in that area (because it must be rebuilt). I believe there’s an opportunity in the credit card business.

PrivateEquityCentral.net: How will the new Congress affect this sector?

Frank Filipps: I think the interpretation of a lot of the new legislation that has passed could change in the next couple of months. We may have to sit back, hold on and see what develops. I don’t think that changes the opportunity; it just changes the edges of the opportunity. The big opportunities are still there; the regulations will change how you go about it on a daily basis, only.

PrivateEquityCentral.net: Do you think there is going to be a lot of deal-making in this sector in the coming years as limited partners get antsy?

Frank Filipps: I think there is a lot of capital that has been traditionally invested in financial fervices and financial technology that has sat on the sidelines during the last couple of years. So much of the industry has been beat up, pounded on and much of it destroyed. It needs to be rebuilt and the capital on the sideline, I believe, is waiting for a signal. Once that happens, I believe there will be a flood of new capital into the whole financial services sector. We are seeing some activity now, but I think we will see more. I think it will escalate through all of 2011 rapidly.

PrivateEquityCentral.net: What will that signal be?

Frank Filipps: The first will be what comes out of Congress. Second, how the regulations are written out of what is already there. Third, if we see any improvement in employment and fourth, improvement in consumer demand. Those are the things I will be looking out for.

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