Capital Z Partners' slick, gracefully photographed brochure reads more like religious doctrine than investment strategy.
"Respect context ... eliminate the extraneous ... bring life and work together ... have fun ... money, as it turns out, is only a part of a much larger picture," it says.
The warm, new age image does not jibe with the string of intricately crafted, hard-nosed deals the New York-based firm's $1.85 billion private equity fund has cut since it started investing in December.
The fund, which bills itself as the "largest of its kind investing in the financial services industry," first earned recognition when it said in December that it would invest up to $100 million in Aames Financial Corp.
Aames, an old-school subprime lender that had been searching for cash for several months, had seemed headed for bankruptcy as investors fled the subprime mortgage industry.
Instead of running from the group, Capital Z "took a road trip," visiting 10 distressed subprime companies, said Steven Gluckstern, one of eight partners in Capital Z. Aames, he said, had the best platform among three or four final contenders for a boost from Capital Z.
The deal offers Capital Z a potential majority on the company's board of directors and options to buy up to 76% of Aames' shares at a fraction of their December trading value. The price added up to an amount that analysts said Aames normally burns through in three months.
So far, however, the investment has not paid off.
The infusion of $67 million to date by Capital Z, and participation by the fund's management, "has yet to produce any stability" at Aames, Standard & Poor's analysts said in a May 21 downgrading of the finance company's debt.
Aames reported a $36 million loss for the first quarter of 1999, which, the rating agency noted, "eliminated ... more than half the new equity provided by Capital Z."
The company's stock has fallen to about $1.50 a share, from $4 the week after the deal was announced.
Capital Z partners Robert Spass and Mr. Gluckstern appeared unfazed by Aames' stock price during a recent interview.
"No one was under illusions here," Mr. Gluckstern said. The terms of the deal, he pointed out, valued Aames stock at $1 per share. "The stock price is irrelevant today," he said.
The stock will perform "when the company performs," Mr. Spass added.
Capital Z's Financial Services Fund II is looking for its insurance, health care, and financial services investments to pay off in three to eight years, the two said.
"A lot of financial services stocks are trading 20% lower than they were six months ago," creating opportunity for savvy investors, Mr. Spass said.
Though liquidity has improved in the past month in some sectors, including the subprime group, there is still a consistent theme of "more money going to large-cap than small-cap companies," said partner Adam M. Mizel.
Many of Capital Z's investors have longstanding relationships with one or several of the fund's partners, and they applaud the group for its creativity, thoroughness, and timing.
"It's hard to point at a bad investment that Bob or Steve have made," said David Nelson, managing director of Chase Securities' global insurance client management division.
Capital Z Financial Services II's 50 international investors are led by Zurich Financial Services, which has committed $610 million, and Chase, which committed $75 million.
Mr. Nelson said Chase has a 10-year relationship with Mr. Gluckstern and Mr. Spass. Its first investment in a fund controlled by Mr. Gluckstern and Mr. Spass netted a return of more than 80%, Mr. Nelson said.
"Part of it is timing, a lot of it has to do with the way the deal is structured, and their due diligence is second to none," Mr. Nelson said.
Mr. Gluckstern's skills as a value investor do not necessarily earn him kudos outside Wall Street.
As co-owner of the floundering New York Islander hockey franchise, he was accused in a New York Post editorial last year of "trying to get richer" off the team, while treating "hockey as an afterthought"-harsh words for a hockey fan but music to any investor's ears.
Steven Hilbert, chief executive of finance and insurance company Conseco Inc., a Capital Z Financial Services II investor, said, "We were eager to invest in the fund because they deliver."
The fund occupies a very special niche in the world of private equity, Mr. Hilbert noted.
"They're not hung up on having total control," he said. "They can broker deals with other companies and find it non-threatening."
In a January deal, for example, Capital Z fronted most of the equity in a deal to buy six insurance subsidiaries from PennCorp Financial Services Inc. The units will be owned and run, however, by Universal American Financial Corp.
Mr. Gluckstern's and Mr. Spass' personas certainly echo Capital Z's "it's not all about money" mantra. Casually dressed and conspicuously relaxed, the two stressed the importance of life outside of work.
"You have to have some sort of balance," Mr. Gluckstern said.
The fund, Mr. Spass joked, is "looking to take the L out of LBO."
The firm is moving its headquarters from New York's financial district to the trendy Soho neighborhood. It may not be a traditional location for a financial fund, but it's more enjoyable than the financial district, they said.
Capital Z's investors do not fault the fund for its quirks.
"The reason they come across as laid back is they've got a good track record," Mr. Nelson said. "They've invested 20% of the fund already, their time line is longer than in the past, and they're seeing a lot of opportunity."
