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Erskine Bowles: Bill's Gain, Carousel Capital's Loss

News: Analysis & Commentary: FUNDS


Can the buyout fund thrive without its chief strategist?

Carousel Capital Partners LP's steering committee faced a ticklish problem at its first meeting on Oct. 22. The man who had launched the $183.5 million leveraged-buyout fund and acted as its chief investment strategist was rumored to be a candidate for White House Chief of Staff during a second Clinton Administration. To investors, who had committed a minimum of $1 million each to the fund, Erskine B. Bowles's possible departure was a huge concern. Bowles allayed their fears. "Don't worry," participants remember him saying. "I'm going to stay and run the fund." Two weeks later, Bowles was on the phone to investors with news: President Clinton wanted him. Declining the job was not an option.

Perhaps investors in the fund, which Bowles and partner Nelson Schwab III had closed to new investors just last May, can look at Bowles's departure to replace Leon E. Panetta as their small contribution to the nation. Schwab says that four investors may ultimately drop out but that another has offered to make up the difference--an offer Schwab has declined.

Business won't stop at Charlotte (N.C.)-based Carousel--Schwab says the fund's first three leveraged buyouts will close soon--but Bowles will be missed. "Erskine brought a halo effect to Carousel," says Thomas P. Hollowell, Bowles's former partner at Charlotte's Bowles, Hollowell, Conner & Co. investment banking firm. "They'll have a hard time overcoming the loss."

Indeed, with Bowles gone, it won't be easy for Schwab and newly recruited general partner Reid G. Leggett to obtain the 30% return on capital that Carousel had told investors to expect. That forecast, plus the Bowles aura, had led some of the South's leading executives to put their money on Carousel. NationsBank Corp. Chief Executive Hugh L. McColl Jr. and First Union Corp. chief Edward E. Crutchfield Jr. each agreed to seed the fund with $25 million of their banks' funds in their first meetings with Bowles and Schwab last spring.

The idea was simple. Start with Bowles's connections from a 26-year career as an investment banker and from working in the Clinton Administration, first as head of the Small Business Administration and later as Clinton's deputy chief of staff. Add Schwab's operating experience: Bowles's former University of North Carolina roommate had led his own buyout of a $350 million amusement-park business called King Entertainment Co., that yielded an 80% annual return to investors before it was sold to Paramount Parks in 1992.

"HOME RUN." To find prospects among the small and medium-size Southeastern firms they targeted, Carousel's managing partners plan to rely on the fund's 88 investors for tips. Almost all are retired or current top executives of Southern companies, including Oakwood Homes, Winn-Dixie Stores, America Online, and Home Depot. The Carousel managers also plan to ask investors to serve on boards at acquired companies. "This fund is still a home run," says Tony Plath, director of the center for banking studies at the University of North Carolina at Charlotte.

So far, Carousel's investors seem to be putting patriotism ahead of their own interests. At least some believe that Bowles had no choice but to serve when his country called. "When he's on his deathbed, he'll be glad he did," says Carousel investor and America Online Inc. founder James V. Kimsey. Of course, that kind patriotism will be more sorely tested if any of Carousel's deals end up in extremis.By David Greising in AtlantaReturn to top


Carousel Ride

HISTORY: The $183.5 million Carousel Capital LBO fund was launched by Bowles last May. Bowles resigned as general partner when he accepted the White House Chief of Staff job. His fund stake will be placed in a blind trust.

INVESTORS: First Union and NationsBank put up $25 million each. Eighty-eight individual investors put up a minimum of $1 million each for an expected annual return of 30%.

PURPOSE: The fund is working on up to 12 LBOs of retail, health-care, and services companies. Deals range in size from $25 million to $150 million.


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