Ex-Goldman Banker Channels the Hulk for Deals With Billionaires
Ex-Goldman Banker Channels the Hulk for Deals With Billionaires
(Bloomberg) -- The first thing visitors see after stepping off the elevator at Gerry Cardinale’s RedBird Capital Partners is a 10-foot-tall statue of the Incredible Hulk.
“My guys and gals are young,” the former Goldman Sachs Group Inc. partner said with a grin. “The Hulk is there to remind them to be a little pissed-off, a little hungry and a little angry, in the midst of having $10 cappuccinos.”
Cardinale, 51, has also stayed hungry. During his stint as a private-equity executive at Goldman Sachs, he worked on deals with some of biggest names in sports, including Dallas Cowboys owner Jerry Jones and the New York Yankees’ George Steinbrenner. For the past four years, he’s focused on building his own firm, which aims to leverage the connections and expertise of billionaire entrepreneurs to help build businesses.
“He’s not only brilliant, but he’s also very charming,” said Jones, who’s a RedBird investor. “He’s right at the top percentile of bankers of having fun, and he joins me right at the top of people in sports having fun.”
RedBird is currently negotiating a deal to help the Yankees buy back the YES Network from Rupert Murdoch’s 21st Century Fox Inc., according to a person with knowledge of the matter who asked not to be identified because the transaction hasn’t been completed. Fox has owned 80 percent of the sports network since 2014, when it was valued at about $4 billion, while Yankee Global Enterprises owns the rest.
Cardinale is among a group of money managers, including Tony Pritzker’s PPC Partners and Byron Trott’s BDT Capital Partners, looking to attract family offices and wealthy individuals who want to be more than just passive investment partners. What they’re pitching is a hybrid of traditional private equity and venture capital that offers a more active role for its limited partners, many of whom have built their own successful businesses.
“This is the first stage of evolution away from private equity,” Cardinale said in an interview in his Madison Avenue office.
To be sure, RedBird still has many of the trappings of traditional private equity. An $800 million revolving commitment from Ontario Teachers’ Pension Plan buttresses its operations, supplemented by a $300 million fund raised from a network of families and entrepreneurs. Some of the families and individuals also contributed $600 million to be invested alongside the fund, giving them a bigger voice in how the companies they back are run.
Investments are meant to last beyond the three years to five years favored by many private-equity funds, with RedBird and its partners adding cash as businesses grow. And unlike venture capital’s boom-or-bust returns, the success rate is meant to be high.
“It’s inconceivable that we would ever lose money on an investment,” Cardinale said, a hint of his native Philadelphia accent coming through. “If something comes out of left field, we’ll grind it and work through it. I don’t care if we hold it forever, we’ll get back to where we need to be. I will never lose anybody’s money.”
Cardinale, who grew up in the city’s affluent Main Line suburbs and rowed for Harvard University before attending Oxford University as a Rhodes scholar, has made a study of appealing to stubborn, outspoken entrepreneurs. He won Steinbrenner’s friendship after the former Yankees boss and New Jersey Nets co-owner Ray Chambers turned to Goldman Sachs for help in splitting from Cablevision and launching the YES Network. The deal was unveiled the day before the Sept. 11, 2001 attacks and resulted in a legal fight over whether Cablevision must carry the fledgling network as part of its basic cable package—a battle YES eventually won.
“When you’re dealing with a family vs. a company or an individual, things tend to be more emotional,” said Hal Steinbrenner, who inherited the Yankees with his brother after their father died in 2010 and who invests some of the family’s money with RedBird. The elder Steinbrenner’s criticisms “could oftentimes be ferocious,” his son said, but Cardinale was “able to handle that with a smile and keep focusing on message.”
Cardinale met Cowboys owner Jones and his family in 2008. They’d been invited by Michael Ovitz, the founder of Creative Artists Agency and former Walt Disney Co. president, to spend time on his yacht in Saint Barts.
By the end of the trip, Cardinale and Jones had the germ of an idea for a new business: convert a team of employees hired to sell luxury suites and club seats at the new Cowboys Stadium into a company and market its know-how to other sports and entertainment venues. The result was Legends Hospitality Management, created by the Cowboys, the Yankees and Goldman Sachs.
“It was, from the get-go, Gerry’s idea,” Jones said.
After leaving Goldman in 2012, Cardinale spent a few months at BDT Capital Partners before striking out to start his own firm. RedBird’s first investment was in TierPoint LLC, a data center operator run by telecommunications entrepreneur Jerry Kent. Cardinale had worked with Kent earlier, investing $350 million of Goldman’s money in Suddenlink Communications as it bought up cable companies.
Kent approached Cardinale in 2013, when he started thinking about how to raise money for TierPoint. “I said, ‘Gerry, I want you to get a group together that has long-term capital, that doesn’t have a typical private-equity time frame, where the day you close is the day you start worrying about your exit,’” Kent said in a phone interview.
Cardinale assembled a shareholder group mostly composed of family offices, which gathered $180 million and gave rise to RedBird. He soon brought on two partners from Little Rock, Arkansas-based Stephens Group, a family office that invested in the TierPoint deal. Hunter Carpenter and Robert Covington had previously managed money on behalf of the family of Witt Stephens Jr. and Elizabeth Campbell.
Of the $1.7 billion that RedBird invested across 13 deals, more than half has been doled out after the initial investment, Cardinale said. The firm has been making three to five new investments per year of $50 million to $100 million each. The investments have returned 21 percent annually on average over the past three years before fees and taxes, according to a person with knowledge of the matter.
“Capital should be a strategic weapon,” rather than money that needs to be put to work on a specific timeline, Cardinale said. “Everybody tends to operate within the constructs that are presented to them. And my whole thing has always been: Well, if the constructs don’t work for you, change the constructs.”
RedBird’s investments are split into four units: energy, communications, opportunistic investments, and sports, leisure and hospitality. Earlier this year, Cardinale expanded the fourth division to include advisory services, calling it RedBird Sports Group. Alec Scheiner and Brent Stehlik, who both joined from the Cleveland Browns, help run the unit, which recently advised a client interested in buying the Carolina Panthers.
“Everybody today loves sports, and they tend to have stars in their eyes. It’s like the new Hollywood,” Cardinale said. “The challenge for us is how to play that game, not make mistakes, and win.”
Whether RedBird can forge a new path deploying the capital of rich families remains to be seen. While it’s a great marketing pitch, turning away large pools of institutional capital has proved difficult for money managers needing to retain talented employees. Moreover, some of Redbird’s investments are still organized as private-equity vehicles, with few, if any, structural requirements that they be held long-term.
Its executives acknowledge they haven’t found a tailor-made solution to these challenges. But a desire to build something novel is part of what persuaded Rob Klein to leave his job as head of alternative investments at JPMorgan Chase & Co.’s private bank and become a RedBird partner.
“None of us wants this to be a $40 billion, 400-person private-equity firm,” said Klein, who oversees operations and investor relations.
The best way to ensure that doesn’t happen, Cardinale said, is to remain as lean and ravenous as the big green guy who guards the firm’s entrance.
“I want people to look at RedBird and say, ‘Those guys are the Navy SEALs of the industry,’” he said. “These are scrappy, hungry, entrepreneurial guys.’”
--With assistance from Sophie Alexander and Scott Soshnick.
To contact the editor responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Steven CrabillPeter Eichenbaum
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