Guggenheim’s Walter Trims Deutsche Deal Amid Growth Push
When Mark Walter, the chief executive officer of Guggenheim Partners LLC, ran Chicago investment firm Liberty Hampshire Co., a junior associate asked in 1996 why he decided to accept money from outside investors.
“I’d rather have a small piece of an incredibly large and successful pie than own all of nothing,” Walter said at the time, according to the associate, Brian Friedman, who worked at Liberty for a year and had been a student of Walter’s at the Illinois Institute of Technology Chicago-Kent College of Law.
Walter’s drive to expand suffered a setback last week when talks to buy three of Deutsche Bank AG (DB)’s four asset-management units fell apart, a deal that would have more than quintupled Guggenheim’s assets and put it on par with the likes of Legg Mason Inc. and Franklin Resources Inc. The two sides are still in discussions on RREEF, a Deutsche Bank division that invests in real estate and infrastructure and has $49 billion euros ($63 billion) under management.
Since 2000, Walter has built Guggenheim Partners from a family office with a handful of employees into a $125 billion global asset manager through smaller deals including the acquisitions of Claymore Group and Rydex ETF owner Security Benefit Corp. The 51-year-old, who shot to prominence earlier this year as the man behind the $2.15 billion purchase of the Los Angeles Dodgers, may seek more deals after hiring investing veterans including Henry Silverman, the former chief operating officer of Apollo Global Management LLC, to advise on expansion.
‘Appetite for Expansion’
“RREEF by itself won’t satisfy Walter’s appetite for expansion,” said Howard Tai, a senior analyst in the capital markets group of Boston-based research firm Aite Group LLC.
Walter, who spent his childhood in Cedar Rapids, Iowa, stayed away from the spotlight before this year. He declined to comment for this story, as did Michelle Lee, a spokeswoman for Guggenheim.
Walter is the controlling partner behind the Dodgers purchase and a member of the partnership called Guggenheim Baseball Management LLC, which includes former Los Angeles Lakers player Magic Johnson and baseball executive Stan Kasten. Walter, who lives in Chicago and is a Cubs season-ticket holder, may have paid as much as $850 million more than the closest bid. A group led by Steve Cohen, who runs SAC Capital Advisors LP, offered the next-highest bid at $1.3 billion, a person familiar with the situation said in March.
Financing terms for the sale, which closed May 1, haven’t been disclosed. The principals of Guggenheim Baseball own the team along with member-controlled entities that contributed capital to the purchase, according to a person familiar with the arrangement who wasn’t authorized to speak publicly.
“A franchise as storied as the L.A. Dodgers often trades based on the same dynamics that a painting might trade on,” said Steve Patterson, president of Houston-based Pro Sports Consulting LLC, which advises professional and college teams on transactions and media deals. “There’s only one L.A. Dodgers franchise, only one or two cable deals and only one Sandy Koufax.”
Koufax, a Hall of Famer, played for the team for his full career and is considered to be one of the sport’s best pitchers.
Those who think Walter overpaid fail to appreciate how much the media rights add to the franchise’s value, Patterson said. The team’s television contract with News Corp.’s Fox Sports expires after the 2013 season. The bidding for Dodgers rights will “drive a number that’s never been seen before.”
Walter has been a seller as well as a buyer in building his empire. In 2006, Guggenheim sold almost 72 percent of its alternative asset-management unit to Bank of Ireland Plc, before buying most of it back in 2009 after the bank put it on the market following a drop in assets under management.
Other transactions show he is focused on tapping into exchange-traded funds, the fastest-growing product in the money-management industry. The firm announced the acquisitions of Claymore Group in 2009 and Security Benefit the next year, making it one of the 10 largest ETF providers in the U.S.
Guggenheim had planned to acquire the Deutsche Bank units as a separate entity, similar to how the firm’s 2010 transaction with Security Benefit was structured, Alan Schwartz, executive chairman of Guggenheim, said in an April 30 interview with Bloomberg Television at the Milken Institute Global Conference in Los Angeles.
“It’s a really intelligent way to do it,” said Schwartz, the former CEO of Bear Stearns Cos. “It will not put any pressure, or disruption in our existing asset-management business, which will stay focused on its customers and its products.”
Taking a Pass
Deutsche Bank and Guggenheim agreed to end discussions on a potential sale of DWS Americas, DB Advisors and Deutsche Insurance Asset Management and focus talks on RREEF, the Frankfurt-based lender said May 11.
“A lot of very savvy and sophisticated investors have looked at the Deutsche Bank transaction and elected to pass,” in part because they only wanted pieces of the disparate business, Burton Greenwald, an independent fund consultant in Philadelphia, said in an interview.
Walter majored in accounting at Omaha, Nebraska’s Creighton University, whose alumni include Joe Ricketts, founder of brokerage TD Ameritrade Holding Corp. Ricketts’s family had held the record for the highest price paid for a Major League Baseball team at $845 million for the Chicago Cubs and Wrigley Field in 2009.
After college, Walter attended Northwestern University Law School and worked in the Chicago office of law firm Sonnenschein Nath & Rosenthal, now known as SNR Denton. He seemed well-respected by his colleagues, Scott Turow, an author and attorney who’s been at SNR since 1986, said in an e-mail.
Walter left the legal world for a job in finance, joining First Chicago Capital Markets Inc., where he worked in businesses including asset-backed securities. In 1996, Walter and three partners from First Chicago started Liberty Hampshire, which provided asset-backed financing for large financial institutions.
In the first year, only about eight people were employed at the firm, according to Friedman, who started as an intern and stayed on as an associate while going to graduate school.
“He wanted to make sure that everybody understood what the goals were, what the specific tasks were that needed to be accomplished and that everybody understood the big-picture environment, regardless of what their role was,” said Friedman, now a managing director at First Analysis Securities Corp. in Chicago.
Walter was “more comfortable in a pair of jeans than he was in a $2,000 suit,” Friedman said. “He always had an ability to stay relaxed even in stressful situations, which made him appear laid-back. Yet he was always thinking and energized.”
In 2000, Dominic Curcio, who was at Liberty Hampshire, linked Walter with J. Todd Morley, who had a mortgage-securities business, and Peter Lawson-Johnston II, a descendant of Meyer Guggenheim, to form Guggenheim Partners, said a person familiar with the relationship who asked not to be named because the details aren’t public.
The Guggenheim family derives its wealth from Meyer, a tailor who was born in Switzerland, came to the U.S. in the 1840s and a made a fortune in mining and smelting. Preceding Guggenheim Partners was Guggenheim Brothers, a family office for managing the Guggenheim family’s funds.
As it grew, Guggenheim Partners raised money from outside investors such as Sammons Enterprises Inc., a Dallas-based company with interests in industrial products and insurance. Guggenheim has more than 2,200 employees at more than 25 offices in nine countries and offers asset management, advisory, investment banking and capital markets services.
Guggenheim has beefed up its leadership to guide growth. Walter brought in Schwartz in 2009 to help the firm expand to full-service investment banking, Schwartz said at the time. Silverman, who joined in March as vice chairman of the investment-management business, would focus on the Deutsche Bank acquisition, Schwartz said in the April 30 interview.
Walter lives in Lincoln Park, Illinois, with his wife and 10-year-old daughter, and is involved in local nonprofits, including the Lincoln Park Zoo. Guggenheim is the main sponsor for the zoo’s annual benefit and Walter’s wife, Kimbra, has been on the women’s board since 2006, said Christine Zrinsky, vice president of development for the zoo. The Walters want to be actively involved in conversations about projects rather than just write checks, she said.
“They’re very private people,” Zrinsky said. “Mark runs his company, but everything else they do as a couple.”
Walter supports other homegrown causes, as well as political efforts. He gave $30,800 to the Democratic National Committee and $5,000 to President Barack Obama last year, according to the Center for Responsive Politics.
He’s a trustee of the Solomon R. Guggenheim Foundation, which runs museums including those in Manhattan and Bilbao, Spain. Stephen Swid, the chairman and CEO of SCS Communications Inc. and also a trustee, said he’s known Walter for at least 10 years and sees him at the foundation’s board meetings.
Walter is “bright and honest,” asks the right questions and fulfills his pledges, Swid said in a telephone interview from his New York office.
“He makes good decisions and explains them,” Swid said. “That’s an asset.”
To contact the editor responsible for this story: Christian Baumgaertel at email@example.com