NEW MEDIA/TECHNOLOGY:

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 opportunity."

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 dishes.

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 Russian truck-maker.

"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.'"