From CLOs to ‘Ozark,’ ex-Guggenheim president builds an empire
Four years ago, Guggenheim Partners President Todd Boehly negotiated what by Wall Street standards was an unusually civil departure. On his way out, Guggenheim agreed to let him buy a handful of its businesses and even take a few senior executives.
The investment firm Boehly started, Eldridge Industries, now has holdings in everything from Hollywood to insurance, e-sports to facial-recognition technology, and its profits have grown to rival some of the larger players in finance.
Eldridge is on track to earn at least $500 million this year, Boehly said in an interview with Bloomberg Television, putting it in the same league as Lazard. At his request, Duff & Phelps performed a valuation of his firm, pegging it at about $6 billion. He has no plans to sell or take Eldridge public.
“It’s our capital to invest as we best see fit, without regard to day-to-day dynamics in the markets,” Boehly said. “What we’re trying to build here is something that stands the test of time.”
That means the freedom to keep expanding — and with it the risk of trying to do too much and ending up with an unwieldy mess. Among the new investments Boehly is pursuing or considering: a football club in the U.K.’s Premier League, real estate in Europe and farm financing in the U.S.
Whatever Eldridge buys would extend an empire that already includes the Hollywood Reporter, Billboard, Dick Clark Productions and the studio behind the Netflix hits “Ozark” and “House of Cards”; Security Benefit, an insurer with $40 billion of assets; CBAM Partners, an $11 billion loan buyer; a $2 billion hotel and condominium development in Beverly Hills; 7% of the Los Angeles Dodgers and minority stakes in DraftKings, the fantasy sports platform, and Epic Games, the company that created the online sensation Fortnite.
Because Eldridge is so diversified and also closely held, comparisons are difficult. The Greenwich, Connecticut-based firm incorporates some elements of both Warren Buffett’s Berkshire Hathaway and Athene Holding. Like Berkshire, Eldridge is a holding company that uses premium revenue from a captive insurer — the so-called float — to fund investments. Like Athene, the insurer whose assets are managed by Apollo Global Management, it issues annuities to create that float.
Just don’t confuse Eldridge with private equity.
“What we’re not going to be doing is buying things in an auction format with the idea that we’ll be selling them three years later,” Boehly said. “That’s just not part of our ethos.”
Guggenheim was still a startup when Boehly, who’d worked at Credit Suisse and JH Whitney & Co., was hired in 2001. He built its credit-investing business, was named president in 2006 and grew wealthy as Guggenheim expanded in asset management, insurance and investment banking. No one outside finance paid him much interest.
That changed in 2012 when Boehly joined his then-boss, Guggenheim Chief Executive Officer Mark Walter, basketball legend Magic Johnson, former Atlanta Braves President Stan Kasten and two others in a blockbuster deal for the Dodgers. The group paid a record $2.15 billion for the baseball team, media rights and associated real estate. Boehly has a 20% stake.
Guggenheim soon faced questions from clients and regulators over the financing its insurance affiliates provided for the purchase. Boehly left in 2015 to form Eldridge. He stayed on Guggenheim’s board and kept his stake in the firm until last year.
Security Benefit was one of the companies Boehly brought with him from Guggenheim and insurance became a central piece of the Eldridge puzzle. Instead of assets to flip, Boehly and his partners seek out businesses with stable cash flows they can securitize. Security Benefit then buys parts of that debt.
Such vertical integration is a departure from industry convention, and to some it could resemble self-dealing. Most insurers buy investment-grade corporate bonds issued by unrelated parties and allocate only a small percentage of their assets to alternative credit. Security Benefit, by contrast, has about 60% its balance sheet in debt secured by corporate assets, intellectual property and media rights, aircraft and rail cars, equipment leases and real estate, much of it originated inside the Eldridge family.
The advantage, Boehly said, is twofold: Security Benefit knows more about the credit quality of its affiliates; and Eldridge, as the parent, can ensure those companies make their payments. He added that Security Benefit has to meet regulatory standards set by the Kansas Insurance Department and it only invests in debt rated by a third party.
“Our options would be to take Security Benefit’s balance sheet, allocate the activity out to a bunch of different managers who aren’t aligned with us the same exact way,” Boehly said.
If all goes according to plan, Security Benefit’s investments earn more than enough to satisfy its annuity obligations and the company keeps or reinvests any excess returns as profit.
It doesn’t always go as planned. Take NPC International, a Pizza Hut franchisee half-owned by Eldridge that’s close to a debt default. While Boehly said he still believes in Pizza Hut’s “tremendous brand,” he’s frustrated by NPC’s recent performance and recognizes there’s no “magic bullet” to fix it.
Boehly runs Eldridge from the second floor of a low-rise building with views of the picturesque Greenwich harbor. His four partners, Tony Minella, Duncan Bagshaw, Bill Hagner and John Klein, worked with him at Guggenheim and each has an economic interest in the firm. Boehly is the controlling shareholder and together with Swiss billionaire Hansjoerg Wyss, whom he met through Credit Suisse, owns 87% of its equity.
It’s a sprawling realm that ranges from niche businesses such as SE2, a technology platform for insurance companies, to the grilled cheese fast-casual concept Melt Shop. In Beverly Hills, Eldridge’s Cain International subsidiary is a partner in the $2 billion expansion and development of the Beverly Hilton and 17 adjoining acres overlooking the Los Angeles Country Club.
Boehly had the Duff & Phelps valuation prepared as part of his agreement with Wyss. According to a summary provided to Bloomberg, Eldridge had an enterprise value of $5.7 billion to $6.6 billion as of year-end 2018. Broken down by business, it’s $4 billion to $4.5 billion for insurance and related services: $500 million to $600 million for credit: and $400 million to $500 million each for real estate, sports and media and other ventures. Boehly also said Eldridge will have reduced its debt from about $1 billion several years ago to $200 million by the end of 2019.
The goal, ultimately, is also Buffettesque: compounding returns. He points to Koch Industries, the closely held conglomerate built by brothers Charles and David Koch, as another model. Start with investments that can earn 6% or 7% a year on their own, then add leverage to reach 12% or possibly 15%.
“You look at what that’s created over decades and you can see the merits to having strategies that compound,” he said.