The doors to Rockland Management’s 44 Nassau Street offices have quietly opened. Founder Stephen Moseley has set staff, electronics, and everything ready to assist clients. Potential investors are now calling to make appointments, anxious to take advantage of Moseley’s fund management mastery. But a website? Well, some investment houses are above that sort of thing.
For Chuck Schwab and his boys seeking to lure investment dollars from folks’ cautiously budgeted paychecks, a website flashing low fees and high promises makes a fine tool. But when your investors roster includes foreign, oil-rich governments, and the amounts pushed across the table begin at $50 million, transactions take on a whole different tone. Moseley’s clients do not browse online.
Rockland marks Moseley’s latest venture in private equity investments for institutional clients, and he cites it as special for two reasons. First, he has opened his own business in his home town. Moseley is the son of retired Princeton surgeon Roger Moseley and Princeton University communications specialist Caroline Moseley. Stephen recalls fond memories from his early Princeton Day School times.
Second, Rockland represents a true entrepreneurial leap for its founder, who has spent his career laboring within major investment houses. Following his bachelor’s at Wesleyan University and master’s from Yale in management, Moseley joined Dillon Read & Company, then Merrill Lynch as an investment banker. As vice president of CS Boston, he handled that firm’s private equity group.
From there, Moseley took on the managing director post for Rutledge Capital, PCG Capital Partners, and Estes Management, handling private equity funds of as much as $775 million. In 2008, when StepStone Group in La Jolla ,California, recruited Moseley as its president, the company knew it was getting a track record that meant reliability and an aura of advantage for clients.
The Rockland Management vision began brewing last October. And with it launch this year, Moseley has taken his abilities and reputation into his own realm in his own town.
Moseley has positioned Rockland to provide institutional investors with the customized creation of private equity portfolios.
Institutional investors are not the same as you and me. Yes, they just have more money, but their requirements for wealth management are vastly different. Generally, they fall into three groups: sovereign wealth, that is, the money of individual governments; pension funds; and large families or other foundations. Each holds its own cash flow needs and investment parameters, but all of them have what Moseley terms, “the luxury of the long view.”
When the government of Kuwait presented the StepStone Group with $6 billion to invest in private equities, Moseley notes Kuwait was looking 30 to 50 years out. Pension funds have not only the luxury but the necessity of planning for a steady income stream for multiple generations. Unlike the individual who places his retirement funds in a standard fixed annuity, indexed, say, to the S&P 500, a five-year maturity lies not within these institutions’ overall vision.
It is this need for long-term, uninterrupted, secure revenue streams that sends governments, pension funds, and non-profits looking into private equity. Since private equities often react opposite the mainstream market to various pressures, says Moseley, “they become a nice way to fill the gap during an overall market downturn.”
It is similar to individual investors who took the plunge in high tech and medical stocks, and then found a little hedge in gold very comforting during the recent crash.
For most institutional clients, private equity represents 5 to 20 percent of their total portfolio. Pension funds stick with the lower percentage due to very strict investing parameters. Some state governments, as in Washington, may brush the 20 percent mark, seeking higher yields. And in one exceptional case, the George Kaiser Family Foundation deployed nearly half of its funds in various private equity ventures.
Insurance companies, involved in a trickle-and-flood cash flow business, also seek the steadiness of private equity investment, but it is quite unlikely any of them will cross Moseley’s threshold. “Money management is about half of what an insurance firm does,” says Moseley. “They hire their own in-house advisors and don’t reach outside.”
Private equities cast a wide net, encompassing any fund or investment in a non-publicly traded company. Moseley concentrates his strategies primarily on buyouts and acquisitions, and larger venture funds. Other private equity investments may include distressed securities (those in default), growth capital (expansions by more mature firms), and mezzanine financing (such as preferred stock).
Private equity’s main attraction is its higher-than-market yield. Generally, Moseley’s clients reap returns several percentage points above most indexed and publicly traded funds. It’s frequently the highest earnings available to institutions requiring a secure, conservative investment profile.
The second attraction is diversification. “It’s an ideal way for the investor to get ahead with a different positive return,” says Moseley. The current downturn has lifted the private equity market into the limelight not only as a hedge alternative, but with an increased number of options. More buyouts are available, and likewise, American have responded to economic spirals and downsizings by creating a rash of new startups. Venture capital firms are no less strict in their standards, but they now have a lot more fodder to chew over, and equity funds have a greater choice.
Yet Moseley is the first to point out that the private equity field is deceptively well mined. The first daunting aspect lies in the necessary commitment. Private equities tend to be as liquid as permafrost. They cannot be resold in any kind of hurry, nor is there any real options market for these assets. Like wine, they tend to perform better over time, so unless you are dealing in a decade-long perspective, it is best to look elsewhere.
Additionally, private equity demands a team of very careful advisors. “Unlike a public index fund, which may vary 12 to 15 percent from top to bottom,” says Moseley, “when private equity funds go wrong, they go terribly wrong. The top ones do very well, but the poor performers sink very badly.”
This means that equity advisors bear an enormous burden to pick the right horse.
It also means that the advisor’s reputation mirrors his selections, and word passes quickly in this intimate village of the investment realm. Last May, when a whiff of scandal hit StepStone Group concerning the handling of a public pension fund, the private equity advisor was truly rocked. Though totally cleared of all charges after a thorough investigation, Moseley, as firm president, chose to step down, to avoid the media distractions he felt would have frightened clients.
“When you deal with funds that are politically voted on, elected officials make the whole situation very sensitive, and not easily compatible with investment,” he says.
Money is made by those who invest with their brains, not their hearts or passions. “Venture funds have a faster growth and great sex appeal” says Moseley, “and we back some of the top tier funds, but for the most part I am finding their return not worth the risk.” Instead he holds a much greater appetite for a good solid buyout.
Such acquisitions typically aim at a rebirth, through a change of control, for a company that has been dead or dying for about a year. The equity investors supply the funds to bring about a leveraged interest in the company and work with the new management to redesign the business for success.
As a rule, Moseley warns against the control trap. “The change-of-control transaction is complex enough without power grabs,” he says. “The allure for the investor to insert himself into the management process and take control may have great sex appeal, but to make things work, everyone has to rely on the ship’s captain.”
Ideal buyout prospects do not mushroom up overnight, urging the advisor to instantly leap on this deal of a lifetime. Moseley notes that it may take months, even years to examine and line up the right company. The same is true with the growth equity selections that finance established firms through specific expansion plans. In order, the advisor diligently scrutinizes the industry, the particular company, and the management team.
In his new venture, Moseley is considering lowering the initial investment bar to $25 million, depending on the relationship potential. “I am dealing with several former clients from past firms, but I also realize there is a new market here and I want to be flexible for it.”
Every day this private equity advisor reminds himself that he is dealing with other people’s money — and a lot of it. The amounts being as great as they are make each percentage point of return dramatically important. Institutions are making a blind commitment personally in both the advisor’s skill, and his character.
“Private equity is very hard, maybe a terrible way to make a living,” says Moseley, “but I take satisfaction in knowing that it’s an extremely efficient way to deploy capital.”
#b#Rockland Management LLC#/b#, 44 Nassau Street, Suite 370, Princeton 08542; 609-497-1114. Stephen Moseley, president. #b#Home page: www.rocklandmanagement.com.#/b#