By Thomas Heath
Monday, October 27, 2008

I met Dwight Bush a few years ago when he was part of a group that tried to buy the Washington Nationals from Major League Baseball. Bush, 51, is a well-known Washington corporate banker. He speaks softly and deliberately, like many bankers.

He also oozes gravitas.

Bush is setting up a new private-equity fund, but I wanted to talk a little baseball first.

Does the current economic implosion make the Nationals a less appealing investment? Bush's baseball group, led by Indianapolis communications executive Jeff Smulyan, lost out to the family of Ted Lerner two years ago.

"I think there's so many things they can do with that franchise that will make it really important to D.C.," said Bush, who shares five Diamond Club season tickets behind home plate. "From that perspective, I wish we had prevailed. On the other hand, it's clear to me the timing of the investment is going to make it more difficult for them to get the returns they are looking for. I think they have a real challenge to get the people in the D.C. community behind them."

Bush's résumé includes stints at J.P. Morgan Chase and Sallie Mae. More recently, he helped BET founder Bob Johnson start the Urban Trust Bank. He resigned from Urban Trust a year ago and is in the process of raising a few hundred million dollars to start a private-equity fund that will invest in the same underperforming assets that U.S. Treasury Secretary Henry M. Paulson Jr. wants to buy from banks.

Bush has experience at this sort of thing. He is on the board of JER Investors Trust, a Northern Virginia real estate investment company founded by Joseph E. Robert, who made his fortune buying and selling properties during the savings and loan crisis in the early 1990s.

I asked Bush why he was starting a private-equity fund and where he was hoping to find money in this cash-strapped environment.

"What we know is that the last time we had a mortgage meltdown, there were great fortunes made," Bush said. "In this type of fragmented environment, those people who can identify good assets that are undervalued . . . people like Joe Robert . . . and that can work with those assets over time to help realize their true value" will make lots of money.

He said the private-equity fund plans to do two things: manage assets that the federal government buys from banks and buy assets that the "Paulson Plan" auctions, then fix them up and sell them -- hopefully at a profit.

Bush also has his eye on assets that desperate hedge funds are unloading at fire-sale prices.

Some $43 billion came out of the hedge fund market in September because investors are demanding their money. Bush said hedge funds are selling off quality assets, from manufacturing companies to farmland to commodities, at low prices so they can give cash to their impatient investors.

But where is Bush going to get the money to buy?

"Remember one thing," he said. "Every month, pension funds take in money and pension funds have an obligation to pay their retirees over time. So new capital is available in the market every month and the money has to be put to work."

Bush then offered similar advice to what Russ Ramsey had a few weeks ago. Ramsey, a co-founder of Friedman, Billings, Ramsey Group who now runs a private investment firm, said to keep investing, even as the market continues its crash.

Bush said: "You could look at this current situation we are in and say it's awful. But if you are a long-term investor, you have to look past this and you continue to invest in things that are going to yield long-term returns."

Given his experience, I asked Bush if the private-equity model based on cheap credit has been blown up. Here's the model: put up a minimal amount of money and borrow the rest for an ailing business. Increase the business's revenues, making it more valuable, and then sell it at a big profit.

"In the short term, private-equity firms will tend to work more with strategic partners, and the assets acquired will be less leveraged," he said. "Over the long term, you've got to remember that banks have to lend to make money and that this too shall pass. My view is that the current situation should reach bottom some time in early to mid-2009, and by 2010 we should have a more robust economy again."

Thomas Heath's "Value Added" column focuses on Washington's entrepreneurial set. It runs on the WashBiz Blog athttp://www.washingtonpost.com/washbizblog.