Mister Macho

Over espresso, boss of a private equity shop tells why he hires Ivy League MBAs, and why he is genetically wired to take risks

February 23, 2017

About the author

Noam Ganel, CFA is the founder of Pen&Paper, a value-oriented, contrary-minded journal of the financial markets. Between 2010 and 2020, Ganel worked for Silvergate as Vice President in Capital Markets. He provides advisory services to family offices,  private companies, and financial advisors.

If you are looking for a second opinion, especially when considering big changes to your portfolio or strategy. Unbiased, professional insights can help you reexamine your assumptions and reduce emotional decisions.

Join the waitlist to learn more.

I cut to the chase. Do you sleep well at night owning a commercial real estate portfolio leveraged at over 90 percent? “I don’t associate leverage with insomnia,” Frank Cowperwood* replies. “And I never slept well anyhow.” Frank is an intimidating if not fearsome real estate investor. He is responsible for one of the West Coast’s largest commercial real estate private equity shops. And his ever-expanding empire is headed by a group of six Ivy League MBAs.

“Hiring ivy leagues was one of the smartest moves I ever did,” he states. “City officials and bankers immediately recognize the team as smart and hard-working. The effect is mystical. A few weeks ago, I was cc’d on an email a city official had sent out to colleagues. He mentioned my team’s sophistication and strong work ethic as a paramount reason why he felt we should win the bid. It was a foreclosed shopping mall. Point is, except for reading our bios, he never even met us.” 

He wears a woven three-piece suit, red tie, gold cufflinks, accompanied with what looks to be a meticulously combed hair. Alongside his conservative appearance, is a dry corporate humor (“it takes two to Tango. But I don’t dance”). But his balance sheet tells a different tale. I bring to his attention that a 15 percent discount on his real estate portfolio would result in insolvency of $150 million. “That’s true,” he says. “But I also earned over $15 million in each of the past five years. And the chance that I will ever sell the portfolio at that discount is slim to none. ”

“I am genetically inclined to take risk,” he notes. “There is a century long debate about whether humans are essentially born with a mind that is a blank piece of paper, what John Locke described as ‘Tabula Rasa,’ or that we are preprogrammed with certain characteristics.” He shakes his head. “My father had declared bankruptcy more times than I can count, and my grandfather’s decision, to depart Scotland in the late 19th  century, only to reach an unknown land such as America, after weeks of travel, demonstrates that risk is ingrained in my genes.”  

We’ve been speaking for more than two hours, shared five appetizers, one entre, and two espressos. Cowperwood’s phone rings. “What is it?” he replies? “Okay, I’m there in two minutes.” He explains that a CMBS lender is questioning his team’s pro forma assumptions. We say goodbye and he makes his way, quite nervously, towards the door. Whoever lent 90 cents on a dollar of real estate is probably getting nervous too. 

* Frank Cowperwood, a fictional character from the novel “The Financier” written by Theodore Dreiser, is a pseudonym.