Lone Star Private Equity

Lone Star is one of the last mega funds who has managed to remain private and maintain a low profile. It looks like they just recently closed fund XI at $8.2 billion (from website). So they are definitely a big player in the market.

These guys are very good and I read their average return is around 20%, without a single year in the red (who knows if that’s true or not). For comparison, Blackstone’s returns are about 17% on average. They have offices around the world, but I believe the majority of the United States PE professionals are based in Dallas and NYC. Not sure what the work/life balance is as an associate, but I’d assume it’s slightly better than the NY based megafunds (but this is purely a guess). Prestige is definitely solid. Exits to other MFs as well as top business schools are definitely possible. Similar to other large funds, I do think they tend to push you out after 2 or 3 years and I wouldn’t necessarily expect to be promoted to VP (although it looks like a few have stayed on).

As far as their investment strategy, on paper they are industry agnostic and invest across the capital structure. With that said, they seem to focus on distressed investments and have a particularly large presence in Industrials, FIG and real estate (although I believe they have a separate group and funds for their real estate investments). Most of their investments are mid-large cap ($750mm+) usually exiting within 3-5 years at $1bn+. They have had a lot of success providing liquidity in desperate/times and quickly exiting the investment. Their biggest and most direct rival is probably Apollo.

There is a lot of misinformation on them given their somewhat complex corporate structure (Hudson vs. Lone Star). Just to be 100% clear, Hudson is exactly the same firm as Lone Star. From what I understand, all the directors and below are technically employed by “Hudson” and everyone above a director is technically employed by “Lone Star”. I have no idea why it’s setup like this but I assume there are some tax benefits or increased carry for the senior partners. I am not sure if the real estate group is setup in a similar fashion.

And by the way, John Grayken (the founder) is the second wealthiest PE manager, behind Schwarzman.