CalPERS, Harvard Money Linked To Caribbean Pay Day Loan Venture

A unique series of events exposed this week a controversial investment made by a handful of institutional investors.

Institutional investors such as Harvard and CalPERS invested a combined $1.2 billion with a private equity fund, Vector Capital IV LP. But Vector soon tried investors’ patience, as it was slow to invest that money.

Eventually, some investors threatened to pull out altogether—which led Vector to make the quick decision to invest in Cane Bay Partners VI LLLP, a company that ran numerous pay day loan sites in the Caribbean and charged up to 600 percent interest for a loan. From Bloomberg:

By 2012, investors including Harvard University were upset that about half the money [invested with Vector] hadn’t been used, according to three people with direct knowledge of the situation.

Three Americans on the Caribbean island of St. Croix presented a solution. They had built a network of payday lending websites, using corporations set up in Belize and the Virgin Islands that obscured their involvement and circumvented U.S. usury laws, according to four former employees of their company, Cane Bay Partners VI. The sites Cane Bay runs make millions of dollars a month in small loans to desperate people, charging more than 600% interest a year, said the ex-employees, who asked not to be identified for fear of retaliation.

Mr. Slusky’s fund, Vector Capital IV, bought into Cane Bay a year and a half ago, according to three people who used to work at Vector Capital and the former Cane Bay employees. One ex-Vector employee said the private equity firm didn’t tell investors the company is in the payday lending business, for which borrowers repay loans out of their next paychecks.

Pay day loans are controversial because they charge high interest rates on loans given to people who are usually in a financial bind to begin with.

Many states in the US have banned the practice, which has forced the businesses to go online.

For now, Cane Bay Partners claims it is only a “management-consulting and analytics company”.

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