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.
Frustrating Holding
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.
Compounding Power
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.
This article provided by Bloomberg News.