Buffett inspires G2’s direct investments

June 16, 2014 2:42 pm
Buffett inspires G2’s direct investments

By Stephen Foley
image001

It was doing the maths on Warren Buffett that made Todd Morley believe traditional private equity funds and hedge funds might be in trouble.

Mr Morley, the well-connected co-founder of investment group Guggenheim Partners, has been building up his new venture, G2 Investment Group, in recent months with partnership deals in Californian real estate and Canadian oil and gas – based on the theory that sophisticated investors want direct ownership stakes in these assets rather than pooling their money in high-fee funds.

On the heels of a tie-up with the Los Angeles property developer Nelson Rising, G2 has begun investing with Canadian oil and gas financier Rick Grafton to take advantage of what they say are wildly underpriced energy assets north of the border, Mr Morley told the Financial Times.

The aim is to offer outside investors direct access to “assets of basic human need”, such as energy and shelter, through equity in holding companies, without a fund manager taking the traditional 2 per cent annual fee and 20 per cent cut of investment gains.

Sitting in G2’s Manhattan office, between a white board of scribbled notes and a screen showing a PowerPoint presentation of the company’s investment thesis, Mr Morley cites a 2008 article by economist and Financial Times columnist John Kay, which reimagined Mr Buffett as a traditional hedge fund manager and Berkshire Hathaway as his hedge fund.

The extraordinary mathematical conclusion was that, siphoning off “2+20” fees and investing them in the same underlying assets as Berkshire – compounded over a 42-year career – would have yielded Mr Buffett the investment manager a $57bn fortune. By contrast, the Berkshire fund, reduced each year by the fees and therefore compounding at a much lower rate, would have grown to a meagre $5bn.

This vast gap between managers, known in private equity funds as general partners, and investors, known as limited partners, is why some sophisticated investors, such as endowments and pension funds, have become less keen on traditional funds, and private equity and hedge fund groups are increasingly offering bespoke co-investments for large clients.

“You don’t see many billionaires who became billionaires by being LPs – but plenty who did by becoming GPs,” Mr Morley said. “Private equity and hedge funds are a leaky sieve, and what has happened since the financial crisis is a huge pushback from big and smart investors against funds and against blind pools.”

Mr Morley, a former mortgage trader, co-founded Guggenheim Partners in 1999 by persuading the wealthy Guggenheim dynasty to transform their family investment office and manage outside money. The company now boasts $210bn under management.

After leaving Guggenheim to found G2 in 2009, he engineered a tie-up with the Forbes family to put their name on a placement agent for private equity funds, although G2 is in the final stages of selling that venture to its management.

“Todd’s contacts are on more of a global basis than those traditional Canadian resource companies have gone after,” said Mr Grafton, a former vice-chairman of Canaccord Capital and founder of Grafton Asset Management.

Traditional oil and gas fundraising in Canada involves tapping domestic investors plus “stopping in for a day or two in New York”, Mr Grafton said, but much greater investment will be needed if Canada is to tap oil sands reserves in the west of the country and reorientate transport infrastructure towards new markets in Asia.

Last year, Grafton and G2 funded a joint venture with Calgary-based Bellatrix Exploration to fund new drilling in western Canada.

“Houston and Calgary are the two most important academic centres for oil and gas, but Canada does not have the capital markets sophistication that the US has,” Mr Morley said. “There is no such thing as mezzanine debt for Canadian oil, so when the equity market goes illiquid, as it did in 2011, you can have hard assets trading a big discount.”

Attracting the investment Canada needs, however, will require giving sophisticated capital, such as Middle Eastern sovereign wealth funds, investment structures that are more Buffett-like, Mr Morley said.

“They are asking, ‘Why should I put millions in a fund and pay two and 20 when I have got better deal-flow in my own country?’”

Rising Realty Partners & G2 Investment Group Form Rising Realty Merchant Bank

Rising Realty Partners & G2 Investment Group Form Rising Realty Merchant Bank

With an anticipated initial raise of $3 billion, RRMB will give investors access to multiple real estate product types in coastal California

Los Angeles, CA (April 29, 2014): Rising Realty Partners and G2 Investment Group announced today the formation of Rising Realty Merchant Bank (RRMB) which will provide global investors the opportunity to invest in multiple real estate product types throughout coastal California. The leadership of RRMB includes two nationally recognized leaders in real estate and finance: Nelson Rising and J. Todd Morley. The private venture anticipates raising $3 billion initially.

RRMB will initially focus on real estate opportunities within coastal California, a strength for Rising Realty Partners given the experience of its principles in shepherding high profile real estate developments through entitlement, construction and occupancy throughout the Golden State. The company will provide equity investors with shares in proceeds from multiple real estate product types instead of the traditional fund approach of investing in a single type of real estate (such as office, retail or single family homes).

Additionally, RRMB will not be constrained by the standard 10 year horizon of most real estate funds, but instead create lasting equity and long term enterprise value. As a Merchant Bank, RRMB will also offer equity opportunities for foreign investment in full compliance with the Foreign Investment in Real Property Tax Act.

Rising, Chairman & CEO of Rising Realty Partners, has previously served as CEO of two large, publicly traded real estate companies, as Chairman of the Federal Reserve Bank of San Francisco, the Real Estate Roundtable in Washington, DC and the Grand Avenue Committee in Los Angeles. Morley is Chairman & CEO of G2 Investment Group. Previous to G2, he co-founded the global investment firm Guggenheim Partners.

In addition to Rising and Morley, Christopher Rising, President & COO of Rising Realty Partners and Trevor Neilson, President of G2 Investment Group, will play pivotal roles in the growth of RRMB.

Christopher Rising began his career as an attorney at Pilsbury Madison & Sutro and has been a Senior Vice President of Asset Transactions at MPG Office Trust, Inc. and also served as Chief of Staff to brokerage legend John C. Cushman III at Cushman Realty Corporation in Los Angeles. Neilson, a former staff member in the Clinton White House, previously worked for Bill and Melinda Gates at their family office and foundation. He is also Co-Founder of Global Philanthropy Group, and is active in a large number of philanthropic ventures around the world.

“We are extremely proud and excited to form a new merchant banking holding company with Nelson and Christopher Rising and their very talented team. G2’s investment model is to create investment partnerships with the best asset operators in any given discipline. The Risings certainly meet this criteria given decades of successfully investing in and developing world class real estate projects. We also feel this is an important time in the economic recovery and a critical moment caused by monetary policy. Our belief is that hard assets which offer inflation-protected returns will out-perform dollar and paper-based assets as we finally eliminate quantitative easing and the inevitable rise in interest rates,” said Morley.

Founded in 2009, G2’s investment strategy is focused on “pillars” of human need — food, water, energy, real estate, health care, communication, education which often create asymmetrical return profiles, many of which act as a hedge against inflation. Los Angeles-based Rising Realty Partners currently owns and operates a portfolio of 16 buildings totaling more than 2.4 million square feet across coastal California.

“I am extremely pleased to be partnering with Todd Morley, Trevor Neilson and G2 Investment Group. They bring a global reputation in the capital markets and an unprecedented level of respect amongst sovereign wealth funds and ultra-high net worth individuals. It’s well known that Todd played a seminal role in the structuring and branding of Guggenheim Partners and that smart, active and highly liquid investors trust his judgment. Together, we will be able to offer investors a real estate investment platform that does not exist today,” said Nelson Rising.

###

Link to LA Times Article: http://touch.latimes.com/#section/-1/article/p2p-80019294/

Todd Morley warns “Beware the ‘Zombie Stock Market”

May 2, 2013

G2 Chairman & CEO, Todd Morley, quoted in U.S. News & World Report article on highlights from 2013 Milken Institute Global Conference.

http://www.usnews.com/news/blogs/rick-newman/2013/05/02/beware-the-zombie-stock-market

Rick Grafton on Milken Institute Conference “Energy Infrastructure: Getting New Supply to Market Faster” panel

G2 partner Rick Grafton, CEO of Grafton Asset Management, featured at the 2013 Milken Institute Global Conference on the panel “Energy Infrastructure: Getting New Supply to Market Faster”.

Maria Boyazny on Milken Institute Conference “Credit Markets: What’s Next?” panel

MB Global Partners CEO Maria Boyazny featured at the 2013 Milken Institute Global Conference on the panel “Credit Markets: What’s Next?”

Todd Morley on Milken Institute Conference “Reading the Tea Leaves” panel

G2 Investment Group Chairman & CEO Todd Morley featured at the 2013 Milken Institute Global Conference on the panel: “Reading the Tea Leaves: Where Are Markets Headed?”

Maria Boyazny on Business News Network

October 2, 2012

Maria Boyazny was recently featured on the Headline show of the Business News Network in Canada discussing opportunities in the credit markets.

http://watch.bnn.ca/headline/october-2012/headline-october-2-2012/#clip774707

Patrick Mitchell appearing on “Bloomberg Rewind” – Bloomberg TV

August 29, 2012
Patrick Mitchell of Northern Gulf Partners discusses investment opportunities in Iraq with Bloomberg TV’s Matt Miller
http://www.businessweek.com/videos/2012-08-29/would-you-bank-on-iraqs-future

Bartle Bull discusses “What Syria’s Rebels Need” – New York Times

August 14, 2012
Bartle Bull, founding partner at Northern Gulf Partners, travelled to Syria for an inside look at the escalating conflict
http://www.nytimes.com/2012/08/15/opinion/what-syrias-rebels-need.html?_r=3&ref=opinion

Maria Boyazny appearing on “After the Bell” – Fox Business

July 31, 2012

MB Global Partners CEO Maria Boyazny on the risks associated with investing in high yield securities.

http://www.foxbusiness.com/on-air/after-the-bell/index.html#/v/1764261719001/can-investors-make-money-in-junk-bonds-loans/?playlist_id=87062