1968 was notable for many reasons. Among the less heralded events of that tumultuous year was the founding of a group that would eventually become Citigroup Venture Capital.
Over the next several decades, the New York investment firm enjoyed a mutually beneficial relationship with its parent, deploying the bank's balance sheet capital as well as significant chunks of the partners' personal wealth. All the while Citigroup Venture Capital remained remarkably autonomous, at least compared with the many other private equity firms affiliated with bank holding companies. It also was careful to keep its activities out of the public eye, despite being tied to one of the largest financial institutions in the world.
This past summer, Citigroup Venture Capital went the route of many other formerly captive private equity firms – it regrouped as an independent firm called Court Square Capital Partners. The $3.1 billion it raised in the process made it among the most successful spinouts ever.
David Thomas and Michael Delaney, two of the firm's five managing partners, say their firm will continue to operate much as it has over the many years the two men have invested together. This means a generalist approach to mid-market buyouts, a focus on earnings growth opportunities, and access to a vast network of relationships. “We've been around for 30-plus years and we've got a very broad network of ex-partners and ex-managers that we can rely upon to source interesting investment opportunities,” says Delaney.
As part of this continuity, the firm has no plans to communicate much with anyone besides their own LPs and business contacts. A recent visit with Private Equity International, they say, will be their first and last interview with the press. The firm prefers to stick to the low-profile policy it maintained while affiliated with Citigroup. That said, a Court Square website was unveiled just last month – there was never a Citigroup Venture Capital website. “We wanted to see how this whole internet thing worked out,” says Delaney, to laughter.
The new Court Square offices, on East 52nd Street, are long on functionality and short on vainglory. It is decorated somewhat randomly with art and antiques hauled over from the longtime Citigroup Venture Capital headquarters. Visitors are encouraged to take home whatever items of decor they want. A dining facility used by the former tenant was converted into office space. The firm has built up an enormous collection of framed tombstones – these are on proud display in the men's room, taking up an entire wall opposite the sinks.
Clearly the Court Square team is more interested in the business of successful investing than in displays of that success. And Court Square's track record is among the best and longest-running in the business. Between 1980 and 1989 the firm deployed $660 million, earning a 4.7 times return on capital. The next decade saw Citigroup Venture Capital put to work $1.5 billion, which returned 4.1 times equity.
A $2.6 billion fund raised in 2001 is currently showing a 42.3 percent gross IRR. Thomas and Delaney claim the secret to Court Square's success lies largely in the group's longevity as well as its inclusive, consensus-driven investment culture. A professional at Court Square's largest limited partner, AlpInvest Partners, provides a more expansive explanation for Court Square's investment prowess. “We perceive them to be doing unique deals – deals that are often hairier and more complex,” says Saleena Goel, a New York-based principal at the Dutch investment manager, which committed $250 million to the fund. “We did a lot of work on them, and the market told us that these were investors who tended to hang around the hoop longer. What also sets them apart is the length of their experience in the market. It's hard to find anybody in private equity that has been investing together over 20 years.”
Of the firm's five managing partners, none have been with Court Square for fewer than 18 years. Thomas, who joined the firm in 1980, one year after its long-time chief William Comfort came on board, says the many years of working together “gives us a unique base of share experience and shared knowledge of investing successfully across numerous business cycles and financial cycles, and that obviously gives us an advantage.”
COURT SQUARE CAPITAL PARTNERS (FORMERLY CITIGROUP VENTURE CAPITAL)
|Headquarters: New York|
|Managing personnel: David Thomas, managing partner, 29 years at firm|
|Michael Delaney, managing partner, 18 years at firm|
|Joseph Silvestri, managing partner, 18 years at firm|
|No. of investment professionals: 27|
|Recent funds: Court Square Fund II, $3.1bn, 2007|
|Citigroup Venture Capital Equity Partners, $2.6bn, 2001|
LAUNCHING PADOver the years, several prominent private equity professionals have left Citigroup Venture Capital, the predecessor to Court Square, to launch their own private equity firms:
|1970||Ed Glassmeyer leaves to join The Sprout Group, and later to found Oak Investment Partners.|
|1979||Patrick Welsh and Russell Carson leave to form Welsh Carson Anderson & Stowe.|
|1981||Larry Lawrence leaves to form a series of venture capital funds, including Allegra Partners.|
|1988||Béla Szigethy leaves to form The Riverside Company. In 1993 Stewart Kohl leaves to join him.|
|1992||Mark Benham leaves to co-found Celerity Partners.|
|1995||Bruce Bruckmann leaves to found Bruckmann, Rosser, Sherrill & Co.|
|2001||Dick Cashin leaves to form One Equity, now a division of JPMorgan.|