Friday, August 2, 2013

A Private Equity Luminary?

Beth Healy of the Boston Globe reports, Kevin Landry, Boston private equity luminary, dies at 69:
Kevin Landry, a veteran of Boston private equity and one of its biggest personalities, died Thursday after a long battle with lung cancer. He was 69.

Landry was the longtime chief executive of TA Associates in Boston, working on such investments as Biogen Idec, now a pharmaceutical giant, and Continental Cablevision. He was widely respected in private equity circles for his work ethic, honesty and deep knowledge of the business. But he was beloved by legions of friends and clients for his blunt manner, his smash shot in tennis, and a seemingly boundless energy he brought to everything from flying jets to supporting women’s hockey at Harvard.

“For many of us, Kevin Landry was TA Associates. He joined the firm directly from Wharton, long before any of us knew of TA, and before a great many of you were born,’’ the firm’s chairman, Richard Tadler, said in a note to the staff Thursday. “He hated to lose and didn’t do anything halfway. Whether on the golf course or the tennis court, fishing or sailing, on the motorcycle or in the air, Kevin reveled in a challenge, physical or intellectual.”

A rare breed in the buttoned-down investment world, Landry could always be counted on for straight assessments of the economy, bankers, and politics. He never hesitated to speak his mind, even when his views were unpopular: He criticized the favorable tax treatment partners in his industry enjoy, and he called out lenders for being careless in the run-up to the financial crisis.

Recruited by venture capital pioneer Peter Brooke, Landry first took a job with TA in 1967. At the time, he didn’t know what venture capital was, Landry told the Globe last year.

An active Harvard University alumnus, Landry was a big supporter of the school, along with his wife Barrie, and they sent their two daughters there. They funded the school’s Jeremy Knowles Undergraduate Teaching Laboratory, an interdisciplinary teaching space supporting learning across the sciences and engineering, and endowed the women’s ice hockey coach position.

In 2010, Landry was awarded the Harvard Medal, the highest honor the university gives to alumni for extraordinary service.

“Kevin Landry was a great Harvard citizen,” Harvard president Drew Gilpin Faust said in a statement. “He enthusiastically supported academics and athletics, thoughtfully engaged in philanthropy, and eagerly shared his perspectives with deans and other leaders across the University, always with equal measures of candor and care.”

Landry took on cancer with the same upbeat fury he brought to the rest of his life. He was diagnosed in 2010 and given less than a year to live. But with aggressive treatment, he stayed active and continued to work. He retired last year after 45 years with TA, when he felt he couldn’t maintain his usual pace.

Still, he stayed sharp and continued to see friends and spend time with family. He also maintained a steady correspondence, sending e-mails with news, observations, and his classically acerbic critiques of liberal politicians.

Even as he dealt with cancer treatment, Landry told the Globe last year, “Look at the totality of my life. I’ve been so lucky.”

Landry’s partners at TA recently made a $10 million gift to Harvard to endow the Landry Cancer Biology Consortium and the Landry Cancer Research fellowships. The gift will fund research on cancer biology and treatments, including lung cancer studies.
Reuters also reports, TA Associates says private equity pioneer Landry has died:
TA Associates said on Thursday its former chairman, Kevin Landry, whose more-than-four-decade career with the private equity firm helped shape its industry, has died at 69 of cancer.

In a posting on its website, TA Associates called Landry a private equity pioneer, a relentless competitor and a generous benefactor. As a 24-year-old MBA graduate, he joined the firm in 1968 as its second hire and helped transform it from a small venture capital investor to a global private equity firm.

In 1978, Landry played a key role, together with Nobel laureates Walter Gilbert of Harvard and Phillip Sharp of MIT, in starting Biogen Idec Inc, a biotechnology company that has grown in market value to $52 billion.

Landry later opposed the rise of the debt-saddled buyouts in private equity and developed a reputation as an old-fashioned investor with a focus on good management, free cash flow and clean balance sheets.

Since 1982, when he became managing partner, the internal rate of return on TA Associates' investments, net of all fees and expenses, consistently beat the market and private equity benchmarks, the firm said.

His due diligence skills expanded beyond private equity. As a pilot of his own jet, he subscribed to written and recorded accounts of the Federal Aviation Administration's accidents and incident reports to avoid the mistakes of less-skilled pilots.

In the book "A Vision for Venture Capital," Landry is credited with finding about $2 million in checks inadvertently disposed of by a TA Associates secretary in the late 1970s. The money was part of a $10 million capitalization fund.

Landry located the garbage truck, the dump site and finally the checks' final destination at a recycling plant. After a search through bales of trash, the checks were found, according to the book.

Landry served on numerous corporate boards, including those of Biogen, Ameritrade Holding Corporation, MetroPCS Communications and Standex International Corporation.

He stepped down as chairman last year as his health deteriorated but continued to serve as a senior adviser. Survivors include his wife, three children and nine grandchildren.

Boston-based TA Associates has invested in more than 425 companies around the world and has raised $18 billion in capital from investors since its inception in 1968.
There is a beautiful tribute to Kevin Landry posted on TA Associates' website here. It ends off by stating: "The partners and employees of TA Associates will strive to exceed Kevin’s high standards and uphold his legacy. We will miss Kevin’s rare wisdom, sharp wit and loyal friendship."

Kevin Landry was a giant in the private equity industry. He raised $15 billion over his career at TA Associates. When he retired last August, he sat down with Beth Healy of the Boston Globe to reflect over his 45 year career:
Landry has often gone against the tide. When his younger partners wanted to do Internet deals in the bubble of 1999, he allowed it only briefly.

“There was generational tension. So I said, ‘OK, we will consider some early-stage investments,’” Landry said. Then he shut it off in March 2000 — just as the market peaked.

In 2007, when some in private equity were celebrating easy credit markets, he predicted dire consequences for the economy, which proved painfully accurate.

And while he generally opposes raising taxes, he says he can’t defend his industry’s advantageous tax treatment, which allows people like him to pay much lower tax rates on their earnings.

“He’s highly, highly principled. To a fault sometimes,’’ said Andy McLane, one of Landry’s longtime partners. “It sets a great example here about doing the right thing, taking the high road. He doesn’t tolerate people who hide things. He wants people to tell the truth.”

Landry, who grew up in Arlington and Andover, said he learned about honest dealing from his father, a teenage runaway who became a neurosurgeon and insisted that his five children tell the truth. He graduated from the Middlesex School, and is one of seven in his extended family to go to Harvard, including his two daughters.

He started as a physics major and decided it was too hard, switching to economics. He didn’t make terrific grades, he says, but “I probably had more fun than they had.”

Landry, however, always combined savvy with luck. In a favorite story among his college friends, they’d planned a raucous party at Harvard’s Quincy House one night. While most of the group wound up suspended afterward, Landry escaped punishment. He had decided to go away for the weekend.

As one of his friends, money manager Michael Holland of New York, wrote, “Kevin Landry: Lucky or smart? Yes.”

After Harvard, Landry entered the Army Reserve, where he learned to be a helicopter mechanic (not a great one, he says) and then to the University of Pennsylvania’s Wharton School to study finance. In 1967, Landry landed a summer job at TA Associates, which was just getting off the ground. He impressed TA’s founder, venture capital pioneer Peter Brooke, even though, Landry now confesses, he didn’t know what venture capital was.

Even as a young man, Brooke recalled, Landry was the most confident person he’d ever met. When Brooke offered Landry a permanent job, and tried to persuade him to stay instead of finishing at Wharton, Landry said no thanks.

After graduation, and another stint with the Army Reserve, a spot was still waiting for Landry at TA. The firm was doing small deals then, from $50,000 to $150,000, mostly in technology. Landry’s first deal: an investment in computer printer company.

In the 1970s, Landry became interested in genetic engineering, then a controversial field still far from commercial success. At a 1978 meeting in Geneva with a group of scientists, Landry was persuaded of one company’s potential. TA invested about $1 million to help start Biogen, which would become a giant in multiple sclerosis drugs and help establish Cambridge as a biotech hub.

“This was before biotech was biotech,” said Phillip A. Sharp, an MIT scientist who cofounded Biogen. “There was no word, ‘biotech.’ ”

About 1981, when Brooke left to start another Boston private equity firm, Advent International, Landry took over as chief executive. He worked on deals in the financial sector, such as Datek Online, a trading company that was merged into Ameritrade Holding Corp., and Keystone Group, an investment firm.

TA differs from many buyout firms in that it focuses on investing in established, profitable companies, rather than troubled firms or turnarounds.

The approach has paid off handsomely for investors. Over the past 40 years, TA has delivered returns averaging 20 percent annually, compared to about 9.5 percent for the Standard & Poor’s 500 stock index.

Such returns also made it easier to attract new investors to the firm’s funds, one of Landry’s chief responsibilities. Asking for money is not a job that many people enjoy, but Landry, as usual, tackled it with relish.

“The more challenging the better,’’ Landry said. “I almost view it as a war. A hundred prospects? Let’s go see ’em. It was fun.”

But two years of chemotherapy took a toll. When he decided to retire, Landry told clients, “There are too many days when my energy level, and even my intelligence level, cannot match my enthusiasm for the task at hand.”
I first heard of Landry back in 2004 when Gordon Fyfe, President and CEO of PSP Investments, asked me to help Derek Murphy, Senior VP Private Equity, with introducing and setting up this important asset class as part of a long-term strategy to diversify away from public markets.

I remember telling Gordon that I knew nothing of private equity and my prior experience was investing in hedge funds and analyzing financial markets. He just looked at me and said: "You will learn quickly and do a great job."

And so I did. I researched everything I could on private equity, met with funds and limited partners, and spent countless hours helping Derek prepare the business plan and board presentation.

It was during that time that I learned of TA Associates and the stellar reputation of Kevin Landry. Derek spoke highly of him and explained that he was a true pioneer, someone who wasn't afraid to "roll up his sleeves and do private equity the way it's meant to be done."

At the time, most private equity funds were engaging in financial engineering, saddling companies with debt.  Derek told me "when the next crisis hits, it will wipe out the financial engineering types and the real PE funds with operating experience will reemerge as the standard."

Indeed, private equity is heading down a new path. The days of earning profits through financial engineering and rapid portfolio turnover seem unlikely to return in the fore and the crisis did curb investors' appetite for mega buyout funds. But private equity funds are still eying dividend recaps, a prominent feature of the pre-crisis boom years, showing an increased demand from investors for riskier forms of corporate debt. And while some claim there is an important transition going on, private equity giants are adapting to the new normal and staging an impressive comeback, focusing their attention on new markets in Asia.

There are now renewed concerns that private equity will spark the next crisis. I'm not so sure but I do worry that low rates are spurring banks, private equity and other funds to take on a lot more leverage. As the hunt for yield intensifies, so does the use of leverage, increasing concerns of systemic risk.

But that's a  topic for another time. This comment is to pay tribute to Kevin Landry, a true private equity pioneer. I hope his legacy will be upheld not just by TA Associates but by other private equity funds.

Below, a must watch interview with another private equity giant, Carlyle Group's Co-CEO David Rubenstein. Mr. Rubenstein talked to Reuters Editor in Chief Stephen Adler back in April, discussing why he is optimistic on the U.S. buyout market and where he sees risks and opportunities in private equity.