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Friday Letter: When I'm 61

Much of the discussion surrounding succession planning at private equity firms has assumed that company founders are typically loathe to step aside.  

But consider this – while Henry Kravis and George Roberts, 61 and 62, respectively, are fired up about leading KKR through a global expansion campaign and an expected gigantic follow-on fund, another 61-year-old at a competing buyout behemoth is equally excited about projects beyond the firm he founded.

F. Scott Fitzgerald’s assertion that “there are no second acts in American lives” did not anticipate one of the most hyperactive deal guys of all time, Thomas H. Lee. The chairman of the eponymous Boston buyout firm has “15 balls in the air” as he plans his next act, according to someone who knows him.

There will certainly be a next Thomas H. Lee Partners buyout mega-fund, and Lee will certainly play a role. But, as is his proclivity, Lee is keeping his options wide open on what to do in addition to his duties with Fund VI.

At a November 17 limited partner meeting, much was discussed with regard to the portfolio companies in the firm’s most recent $6.1 billion Fund V, especially Refco, the busted futures brokerage that brought both embarrassment and IRR depression to Thomas H. Lee Partners. But according to people who attended the meeting, the role of the founder in the next fund was not specified. This was not a disingenuous omission – Lee is still negotiating with the firms’ three co-presidents, Scott Sperling, Scott Schoen and Anthony DiNovi, as to what exactly he will do for Fund VI.

In the meantime, Lee is being mercurial about what his primary investment activity or activities will be beyond the mega-fund. He has a substantial family office as well as relationships with numerous other dealmakers with whom Lee is pondering formal ties, so long as the activity is not competitive with his big buyout namesake. Famed for his short attention span but nearly uncanny investment judgment, Lee’s dizzying array of potential second investment acts might be described by him as a state of perfect happiness.

Contrast this with Kravis and Roberts, cousins at the same stage of life as Lee who want nothing more than to continue growing the firm that bears their names. In the wake of the recent departures from KKR of presumed heirs apparent Edward Gilhuly and Scott Stuart, it is not lost on limited partners that Kravis and Roberts will, in their late 60s and early 70s, in all likelihood be overseeing the exit of investments made by the upcoming mega-mega-fund. The cousins no doubt view this as their own version of perfect happiness.