LBO CHIEF INSPIRES FRIENDS IN HIGH PLACES TO PITCH IN
by Jon Birger
Put a dozen investment bankers in a room and just about the only
thing they'll agree on is how much they should be paid. So it
speaks volumes about Henry R. Kravis that he has every major
Wall Street firm working for the same cause -- for free.
The cause is the year-old New York City Investment Fund,
which aims to create jobs by providing financing for small
companies, some of which are in low-income New York
neighborhoods. When Mr. Kravis began recruiting volunteers to
advise and evaluate these companies, the first call he placed
was to Goldman Sachs & Co.
"I asked Goldman whether they'd help out for six months,"
Mr. Kravis recalls. "They said, `We don't want to do it for
six months -- we want to do it for longer.' At that point, I
knew we were in business." Soon, every other major Wall Street
firm clamored to get on board the project spearheaded by their
most important client.
The chairman of the world's largest leveraged buyout firm,
Kohlberg Kravis Roberts & Co., Mr. Kravis has already
helped persuade 63 of New York's largest corporations and
wealthiest individuals to donate their time and money to the
fund, which operates as a subsidiary of the New York City
Partnership and Chamber of Commerce. The list of investors --
each of which gave $1 million -- includes AT&T Corp.,
Chase Manhattan Corp., Goldman Sachs, Time Warner Inc., and
Travelers Group Inc., as well as Mr. Kravis himself.
Making profit is not fund's objective
Investors are expected to get their principal back within
15 years, possibly with a small profit, but making money is
not the objective. "Over the years I've had friends tell me,
`I'd like to give something back to the city, but I'm not sure
exactly how to do it,' " says Mr. Kravis. "This is an
What makes the investment fund unique is the personal
involvement of so many local business leaders. For example,
Jerome Chazen, former chairman of Liz Claiborne Inc., and
Mahmoud Mamdani, deputy director of investment banking at
Morgan Stanley Dean Witter & Co., are advising Harlem
restaurant Sylvia's on ways to mass-market some of its
So far, the investment fund has made seven investments. One
of the first was a $2 million loan to Neighborhood Health
Providers/Royal Health Care, a managed care program that will
eventually employ 800 people in Brooklyn and Queens.
Giving back by creating jobs
Creating jobs in low-income neighborhoods is a nice legacy,
and at 54 -- an age when many investment bankers contemplate
retirement -- Mr. Kravis could hardly be faulted for thinking
about such things.
He insists that he does not, and others agree. "Henry is
driven by the idea that life has been very good to him and he
has an obligation to give something back," says venture
capitalist Russell Carson.
As for Mr. Kravis' place in the history books, time appears
to be on his side. Once pilloried for greed and callousness,
the corporate downsizings and reorganizations initiated by KKR
and other LBO firms in the 1980s are now paying dividends in
the form of record productivity and stock prices.
"The buyout industry definitely made boards of directors
more responsible and more focused on returns," says Mr.
Kravis. "Today, companies are run significantly better than
they were in the past."
Mr. Kravis even says he has no regrets about cooperating
with Bryan Burrough and John Helyar for their book Barbarians
at the Gate, about the 1980s buyout binge, although he was
portrayed as cold and egotistical. The book, later turned into
an HBO movie, wound up getting him the business of Kamaz, a
"I spent two days with the CEO of the company, and at one
point I said to him, `I have to ask you something -- why did
you choose to do business with KKR? He looked at me and said,
I saw the movie.'"