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Warburg Invests $125 Million in Broker-Dealer Start-Up Cortview

Warburg Pincus LLC is investing $125 million in a new broker-dealer as private-equity firms seek to profit from shifts in the financial industry.

The venture, Cortview Capital Securities LLC, is led by Michael Lacovara, Ted Luse and their two co-founders. Luse, 49, who left lender BB&T Corp. in June, said he expects Cortview to raise as much as $2 billion within a year to support debt trading.

Cortview, based in Richmond, Virginia, can attract traders and customers from regional banks that are trimming their broker-dealer units to focus on lending to businesses and individuals, Luse said in an interview. Private-equity managers are investing in or creating broker-dealers after the demise of Lehman Brothers Holdings Inc. and Bear Stearns Cos. in 2008.

“We aren’t chasing the Pimcos of the world,” Lacovara, 46, who previously led investment bank Rodman & Renshaw Capital Group Inc., said in an interview. “We are looking for clients from regional and super-regional banks that are restricting the ability of salesmen and traders to serve their clients, and holding back a portion of their compensation.”

Pacific Investment Management Co., known as Pimco, runs the world’s biggest bond mutual fund from Newport Beach, California.

Eight fixed-income traders and salespeople had quit BB&T, North Carolina’s second-largest bank, since May to join smaller firms building bond-trading units, the company’s Bill Hardy said in July. Hardy became the Winston-Salem-based bank’s head of debt capital markets after Luse’s departure.

Aquiline Investment

Aquiline Capital Partners LLC, the private-equity firm run by Jeff Greenberg, is investing $225 million in CRT Capital Group LLC, a Stamford, Connecticut-based broker-dealer with almost 1,000 institutional clients.

Warburg Pincus is backing its first new broker-dealer management team with the Cortview deal, an investment from Warburg Pincus Private Equity X LP, a $15 billion pool raised in 2007.

The firm’s other financial-services investments include stakes in Citigroup Inc.’s former insurance unit, Primerica, as well as bank holding companies Webster Financial Corp. and Sterling Financial Corp., which said last month it was raising $730 million from investors.

“Displacement in the financial-services sector and changes created by the recent financial-services legislation create a unique opportunity,” Michael Martin, a managing director at Warburg Pincus, said in a statement.

Regional banks usually lack big trading operations, leaving larger institutions as dominant competitors, said Paul Miller, managing director at FBR Capital Markets Corp. in Arlington, Virginia.

“You just can’t hang up a shingle like you did 10 years ago and think you’ll get flow,” Miller said. “You’ll get flow by having a big balance sheet.”

Cortview has offices in New York, Charlotte, North Carolina, and Boca Raton, Florida. The firm, also founded by Bradford Bodine and Sean Byrne, expects to open 11 more in the next 12 months, according to Luse.

Broker-dealers connect buyers and sellers making trades. They also buy and sell securities to customers for a profit.

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