Friday, March 04, 2011

Present at the Creation: The Bluest of Blues

I'm enjoying Sebastian Mallaby's fascinating and sometimes hilarious account of the career of A.W. Jones, the man who, so they say, invented the hedge fund.  I'm prompted to wonder--so far, so good, but who invented private equity?  Some would argue for Steve Schwarzman of Blackstone but he didn't invent it so much as just make it big (and bad).   Josh Kosman plumps for Jerome Kohlberg Jr., the marquee name at the legendary Kohlberg, Kravis Roberts, but he comes too late; somebody must have come before him. 

In this morning's New York Times, William Grimes offers up a more promising candidate:  
Carl B. Hess, who died last month at 98.  Unlike his more exotic or fearsome competitors, Hess sounds like he belongs in a good-natured comedy alongside Dan Aykroyd and Eddie Murphy (but cf. update infra). Hess founded AEA Investors "whose goal," per Grimes, "was to acquire struggling companies whose fortunes could  be revived with an infusion of capital and stronger management."  That was in 1968, while Kohlberg's and Schwartzman's great futures were still just a gleam in the eye.

AEA was the very epitome of establishment, with, as Grimes recounts "start-up capital form the Rockefellers, Mellons and Harrimans and S.G. Warburg & Company, Siegmund Warburg's London-based investment bank."    Hess' own background was respectable, but hardly awe-inspiring.  No Skull and Bones: he attended Dartmouth and then started work with a manufacturer of metal storefronts.  Just out of idle curiosity, I wonder what country leads the world in the manufacture of metal storefronts today.

Update: I went back and pulled down my old paperback copy of Ron Chernow's The Warburgs where he tells the story of the founding of AEA in more edifying detail. Evidently it was the brain child of Siegmund Warburg who put Hess in charge but Warburg fell out with Hess and tried to fire him. "We have the power to destroy Carl Hess in the financial community," Chernow quotes Warburg as saying. "Everybody has to die someday, Siegmund," Hess is said to have responded. True enough, but it took him another 40 years to do it.


dilbert dogbert said...

Ming the Merciless (Sandy Sigalof (SP?)) also died this year.
The BIL worked for him at Republic Corp.

Buce said...

Indeed. I knew Sandy Sigoloff, though not at all well. I worked at the Stutman law firm in LA while they were representing Daylin, Sigoloff's second (I think) big turnaround. I also watched from the peanut gallery as he did Wickes, the chaotically financed home supply chain. At Stutman I worked with (for) Jeff Chanin, who went on to create a distress investing fund of his own--and also died. I'd certainly put Sigoloff at the head of the table but in a slightly different league--the highly focused hands-on emergency room doctor who slaps on the jumper cables to keep the patient alive. Here's an interesting rememberance of Sigoloff:

dilbert dogbert said...

Your link is where I got the news of Sandy's death. I passed it on to the BIL. The BIL was a young MBA freshout (after two tours in the Navy). He said he was pretty naive about Sandy and what he was up to. The BIL eventually got into commercial property and now makes the big bucks.
He is now old enough to retire but has to keep working to keep the yacht up.