Richard McGuire, a former partner at Pershing Square Capital Management, lined up financing from a unit of Blackstone Group LP to start a stock hedge fund, looking to add stakes in small and mid-sized companies.
Marcato Capital Management LLC, based in San Francisco, will target industries such as real estate and consumer goods, which typically have reliable cash flows, McGuire said yesterday in an interview. The firm will invest in companies with market values of $500 million to $5 billion, he said.
“There are a lot of companies in the small and middle market that go under-analyzed and under-appreciated,” said McGuire, 34, who will serve as portfolio manager. The strategy mirrors that of William Ackman’s Pershing, where McGuire worked from 2005 to 2009.
Hedge fund startups are relying more on seeding firms for initial funds as investors gravitate to larger managers. Almost all the $23 billion put into hedge funds during the first half went to those with more than $5 billion, Chicago-based Hedge Fund Research Inc. said Sept. 15. Such funds account for 60 percent of the industry’s $1.6 trillion of assets.
The biggest private-equity firms, such as Blackstone and Carlyle Group, have filled that void for startups by seeding more funds after investors shied away from large buyouts in the wake of the financial crisis. New York-based Blackstone is backing a fund being started by George Taylor, former head of commodities proprietary trading at Credit Suisse Group AG, according to two people briefed on the plans.
Marcato probably will pursue more stakes in companies like Landry’s Restaurants Inc., which agreed to a $1.4 billion takeover by Chief Executive Officer Tilman Fertitta this year, McGuire said. McGuire, who also persuaded Ackman to invest in the restaurant chain, said he doubled his own investment in Landry’s after he and Pershing pushed the company to seek a higher offer. Shareholders approved the deal yesterday.
The fund may team up with New York-based Pershing on some investments, he said. McGuire declined to disclose how much money he will start with. Peter Rose, a spokesman for Blackstone, whose Blackstone Strategic Alliance Fund LLP is participating, declined to comment.
Ackman also declined to comment, referring instead to his second-quarter letter to investors on Aug. 26, in which he mentioned the investment in Landry’s and McGuire bringing it to the firm’s attention.
“We wish him well and look forward to the opportunity for future partnerships in situations where our involvement can enhance our respective returns,” Ackman said in the letter.
McGuire gained boardroom experience at Borders Group Inc. when he became a director at the second-largest U.S. bookseller after Pershing became the largest shareholder in 2008. He moved into the chairman’s role the next year and helped develop a turnaround plan for the unprofitable chain. He resigned in May after Bennett LeBow became Borders’s biggest investor, as well as chairman.