John Grayken, the fourth richest man in Ireland, is under pressure to appoint an heir to his €25bn Texas-based private equity giant, Lone Star.
Grayken, who is thought to have taken out Irish citizenship in the Nineties, founded Lone Star in 1995. The company was part of the group that bought Anglo's $9bn (€7bn) US loan book in 2011. It has also bought property-backed loans for AIB.
Grayken is considered one of the shrewdest real-estate and distressed-asset investors in the game. Over the years, Lone Star has bought distressed mortgage-related assets valued at more than €66bn, helping banks in Canada, South Korea, Japan, Taiwan, Germany, Ireland and elsewhere rid themselves of bad loans following economic declines.
Although Grayken has a record of generating more than 20 per cent returns over two decades, pension trustees for the US state of Oregon are concerned by the lack of a successor for Lone Star.
Succession issues are particularly important for pension funds, which invest with a horizon of decades. Private-equity funds, including Lone Star's, typically contain a provision known as the key-man clause to protect investors in the event of senior-management departures that could affect the running or performance of their investments.
The lack of a designated successor became the focus of a discussion for Oregon's pension trustees when Grayken pitched his latest investment, a €3.88bn fund he finished raising last week to buy soured residential loans from Europe's banking crisis.
"I want to have a succession strategy in place," Oregon State Treasurer Ted Wheeler said.
Oregon has invested about €1.45bn in 10 prior Lone Star funds and the firm has roughly doubled the state's money, for a net annual internal rate of return after fees of about 18 per cent, according to figures cited at the May 1 meeting by the acting senior investment officer for real estate at Oregon's pension fund.
"These guys have done a great job for us, they've delivered outstanding returns, but no succession strategy for me is really problematic," he said.
"This is a long-term investment and it's a pension plan."
While the succession issue didn't impede Lone Star's ability to raise the new fund, with Oregon voting to invest as much as €310.5m, Grayken has faced the question of an heir apparent since the 2007 resignation of his longtime right-hand man, former vice-chairman Ellis Short.
Short left the firm just as the global credit crisis caused investors to shun risk, hampering Grayken when he set out to raise the predecessor fund to the €3.88bn one he closed last week.
When Grayken formed Lone Star in 1995, he brought in Short and relied on him to help run the firm. As the most senior executive after Grayken, Short helped lead the firm's move into Asia in the late Nineties. Besides buying billions of dollars of delinquent mortgages from Japanese and South Korean banks, golf courses in Japan and consumer lenders, it bought office towers in both countries.
Short oversaw the firm's Asian operations from Tokyo and later supervised European deals as well.
Grayken has no intention of building an institution, said Nori Gerardo Lietz, founder of Arete Capital and an early champion of Grayken's in her prior role as a pension-fund consultant. "Unlike some of these other organisations that are trying to really build an ongoing entity that will survive the founders, it is the John show," Gerardo Lietz said at the May 1 meeting of Oregon's pension trustees.
Lone Star made its name buying distressed-loan portfolios and lenders in Asia starting in the late Nineties. In some cases, it bought financial institutions to get at the underlying assets, reviving the lender and taking it public for a profit.
In 2005, Lone Star reaped a seven-fold return on its investment in Tokyo Star Bank. That same year, the firm sold a third of Japan's biggest golf-course operator, Pacific Golf Management, in the first initial public offering of such an asset.
Lone Star has an approximately 800-worker back office in Hudson Advisors, which takes loans that Lone Star buys and collects on.
Grayken's lack of a succession plan, and lack of interest in institutionalising his business, veers from the path espoused by KKR & Co and Blackstone Group, whose founders have taken the firms public.
Grayken declined to comment on succession.