There's More Than Baseball in Jeffrey Zients's Days
Jeffrey D. Zients may work full time on his bid to buy the Washington Nationals, but in the past year he has taken some swings at the private equity business.
Zients's Portfolio Logic LLC has operated well below the radar, but it has been his primary non-baseball business since 2004, when he left his post as chairman of Advisory Board Co., the consulting and research firm that made him wealthy.
Portfolio Logic has invested in private health care firms and other companies, according to Securities and Exchange Commission filings and other public documents. In addition to its private-company holdings, Portfolio Logic has a number of investments in small publicly traded companies.
The firm's investment philosophy is rooted in the principle that made Zients rich: solid research. It "searches for investments in any area in which it has the capacity to thoroughly assess investment merits and risks using both internal and external research resources," according to a description that the firm briefly posted in an online help-wanted ad last year.
Advisory Board built a sizable business selling best-practices research to health care organizations. Its spin-off, Corporate Executive Board, does the same for business clients. Both companies, founded by former Zients partner David G. Bradley, went public and made both men multimillionaires in the process.
Nearly all of Portfolio Logic's investment fund is Zients's money, so its performance is private. Zients, though cordial as ever, declined to discuss the business.
Portfolio Logic's one disclosed investment in a public company is its 10.8 percent stake in Georgia-based Pediatric Services of America Inc., which provides home health services to sick children. The stake is worth about $9.6 million. Portfolio Logic first bought into Pediatric Services in the summer of 2004 for about $7.50 a share; the stock closed Friday at $13.31 a share.
Other public companies in which Portfolio Logic has invested in the past include Amedisys Inc., a Louisiana home health nursing company; Valentis Inc., a California drug development company; and Forbes Medi-Tech Inc., a Canadian company developing cardiovascular treatments. Portfolio Logic also bought a small stake in Motient Corp., an Illinois wireless communications company, in a private placement last year.
On the private company side, the only disclosed investment by Portfolio Logic was its 2004 participation in a $6.5 million investment in BestPractices Inc., a McLean company that runs emergency medical departments for hospitals. In that deal, Portfolio Logic joined with Capital Crossover Partners, a fund run by Zients friend and baseball-bid partner W. Russell Ramsey. Ramsey became chairman of BestPractices, and Zients joined the board.
Zients's latest venture involves another friend, John K. Delaney, chief executive and founder of CapitalSource Inc., a Bethesda business finance company. Portfolio Logic and CapitalSource each contributed $10 million to a fund called Capital Logic Partners, according to an SEC filing.
Delaney said last week that the fund will invest in buyouts of private companies, but he wouldn't venture much beyond that because the fund is still in its early stages. The idea, Delaney said, is to identify investment opportunities through one of CapitalSource's main businesses: leveraged buyout lending for private equity funds.
"CapitalSource is not formally in the private equity business," Delaney said. "But we see opportunities that flow through the network that we have." Delaney emphasized that Capital Logic will not invest in deals where it would compete with CapitalSource's private equity fund clients for a deal.
Capital Logic, formed in September, has made only one deal so far. In October, it invested in the buyout of Timbuk2 Designs Inc., a San Francisco-based maker of backpacks and similar gear. If you're a bike messenger, you've heard of Timbuk2. The company made a name for itself selling customized messenger bags, but has since branched out into hand and shoulder bags.
The Timbuk2 deal was led by VMG Equity Partners, a newly formed San Francisco buyout fund specializing in consumer product companies. Delaney said CapitalSource had done business with VMG's founders, which was how Capital Logic got involved in the deal. CapitalSource helped finance the buyout.
Another Fund With FBR Ties
A group of former Friedman, Billings, Ramsey Group Inc. executives formed a new fund to invest in real estate companies, according to SEC documents filed this month.
Kodiak Funding LP was formed by N. David Doyle, who was head of real estate investment banking at Arlington-based FBR until his resignation in March. Doyle, who had been with FBR for 10 years, was one of the bankers most responsible for building up the firm's hugely profitable investment banking business for real estate investment trusts and mortgage banks.
Doyle's fellow Kodiak executives include Jeffrey M. McClure, a former FBR real estate banker who left the firm in 2002, and Harry Devens, a former Goldman Sachs & Co. real estate banker who once was McClure's partner in the defunct Arlington boutique investment bank Velasco Group. Directors include Bharat B. Bhatt, former chief executive of New York banking company Greenpoint Financial Corp., and Neal J. Wilson, a hedge fund manager at FBR until he left last year.
Kodiak will invest in debt and trust-preferred securities of real estate operating companies, according to its SEC filing. Real estate investment trusts and other real estate companies recently have been issuing trust-preferred securities -- a type of long-term debt that has features of stock -- to raise capital relatively cheaply without diluting shares by issuing new common stock.
Kodiak has raised about $98 million, with plans to raise up to $125 million. As of Jan. 1, 61 investors had kicked in to the fund.
Wilson's appearance as a director is the first hint that FBR co-founder and former co-chief executive Emanuel J. Friedman may be at least partly behind Kodiak's formation. Wilson left FBR to join Friedman's hedge fund effort, EJF Capital LLC, last year. The second hint is more overt: Kodiak shares the office listed for EJF Capital on EJF's Virginia state incorporation documents.
Kodiak officials did not return phone calls requesting comment, and Friedman could not be reached last week.
Friedman resigned from FBR last spring. The SEC has told him that it is considering filing a civil action against him for insider trading as part of FBR's role in a private stock placement in 2001. FBR has offered to settle with the SEC for $7.5 million for the firm's role in the deal, which resulted in the resignations of Freidman, the firm's trading chief and its senior compliance officer.
Terence O'Hara's e-mail address firstname.lastname@example.org.