Never Underestimate an Investor Named Warren

What do the Nasdaq, race cars, and bottled water have in common? Not much--unless you're F. Warren Hellman, chairman of San Francisco-based investment group Hellman & Friedman LLC, one of a handful of firms cleaning up at a time when most are picking up the scattered pieces of the tech mess. Indeed, the private-equity firm has been so strikingly successful lately that some investment partners and rivals consider Hellman the Warren Buffett of the West Coast. Besides sharing the same first name as the Berkshire Hathaway Inc. (BRK.A ) billionaire, Hellman has gained a reputation for unearthing value in such eclectic investments as the racing-circuit franchise Formula One Holdings Ltd. and Australian water bottler Neverfail Bottled Water Ltd.

Now he is shelling out $240 million for debentures that, once converted, will amount to a 9.8% stake in the Nasdaq Stock Exchange. Hellman is betting that if the exchange successfully breaks free from the National Association of Securities Dealers, its primary owner, for a possible public offering, the firm's piece could earn a return of more than 20%. Hellman is counting on Nasdaq's listing to be just as successful as the recent initial public offering of the Deutsche Borse exchange in Frankfurt. He also likes Nasdaq's roughly $500 million in cash reserves and its strong growth prospects. "Simply put, Nasdaq is a terrific business franchise," he says.