Maurice “Hank” Greenberg, the 87-year-old former head of American International Group Inc., plans to seek outside investors to help him fund private-equity deals lasting a decade or more.
Starr Cos., a New York-based group of insurance and financial-services companies Greenberg oversees, placed one of its private-equity businesses in a subsidiary that registered with the U.S. Securities and Exchange Commission last month, filings show. The unit, Starr Principal Holdings LLC, said it plans to raise money as needed from institutional investors such as sovereign-wealth funds and ultra-high-net-worth family offices, without specifying how much.
AIG began investing insurance assets in private equity during the 1980s and ramped up the activities in the mid-1990s, in part by taking a stake in a fund run by a former interim prime minister of Pakistan. Greenberg started building a new private-equity business after leaving AIG in 2005, with plans to hold some investments at least 10 years and to give clients the right to choose which deals they participate in.
“Hank has always been a smart buyer and builder of companies,” said Peter Yu, the former president of AIG Capital Partners Inc., set up by the insurer to make private-equity investments in emerging markets. “People tend to think of private equity in the narrow buyout-related terms of a Henry Kravis or Mitt Romney, but more generally it’s simply about building businesses.”
Kravis is co-founder of KKR & Co. and Romney, the Republican presidential candidate, helped start Bain Capital LLC. Yu is now managing partner of Cartesian Capital Group LLC in New York.
Starr Principal is run by Hank’s youngest son, Scott Greenberg, who began his career at Bankers Trust Co. and has more than 20 years of private equity experience, according to the parent company’s website. Starr Principal’s merchant banking operations are headed by Geoffrey Clark, a former partner at Goldman Sachs Group Inc. who co-founded the private-equity operations within the bank’s asset-management arm.
Greenberg has been building up Starr’s investment and insurance operations since he resigned from AIG in March 2005, ending an almost four-decade reign at the helm of what was then the world’s largest insurance company. The SEC and former New York Attorney General Eliot Spitzer were investigating AIG’s accounting practices at the time, and four years later, Greenberg agreed to pay $15 million to settle SEC accounting allegations without admitting or denying guilt.
Stake in AIG
While at AIG, Greenberg also served as chairman and CEO of both C.V. Starr & Co., founded in 1919 by Cornelius Vander Starr as an insurance agency in Shanghai, and its affiliate, Starr International Co., which held a 12 percent stake in AIG valued at about $21 billion as of March 2006. Both are now part of the Starr Cos. group, which sold most of its AIG shares after the federal government took an 80 percent stake in the insurer during the 2008 financial crisis.
At the end of last year, Starr Principal managed about $2.35 billion of private-equity assets for the Starr Cos., whose operations also include underwriting and placing insurance and investing in public as well as private companies. Starr Cos., having made private-equity investments ranging from $10 million to more than $200 million on its own, wants to bring in outside capital for some transactions because it’s finding larger deals that are attractive, Clark said.
While private-equity funds typically hold investments for three to five years, Starr Principal intends to hang on to some acquisitions for at least 10 years, he said. Starr will provide 25 percent to 50 percent of the equity financing for each transaction that involves outside partners, compared with the commitments of 1 percent to 5 percent that buyout firms usually make to their funds.
“It’s the ability to hold a high-quality business for long periods of time” that will compound returns, Clark said. “Our goal is to bring in the optimal investors alongside our own capital for larger deals.”
Under Greenberg, AIG in the mid-1990s invested in Emerging Markets Partnership, now known as EMP Global LLC, a private-equity firm co-founded by Donald Roth, the former chairman of Merrill Lynch Europe Ltd., and Moeen Qureshi, an ex-vice president at the World Bank who served as Pakistan’s interim prime minister in 1993. That led AIG to form two of its own private-equity units, including AIG Highstar Capital LP and AIG Capital Partners, according to Robert Percopo, who previously served as the partner in charge of originations at AIG Highstar.
“Greenberg saw what kind of carry these guys were making and what kind of management fees so he set up a couple of different entities,” Percopo said.
Carry refers to carried interest, the 15 percent to 20 percent of investment gains kept by private-equity firms, which also typically collect 1.5 percent to 2 percent of assets as management fees.