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Dec 27, 2010

Robert Grady, A Master of All Trades

Whether it is about investing in education or making policy, Robert Grady is an expert. He is a master of all trades.


By simply looking at his photo, one might guess that he is a kind, middle-aged man. However, after having a conversation with him, one discovers that he is quite witty and very wise in many areas. He has established an incredible fortune in the field of venture capital investment as well as achieved successful milestones in the political arena. Robert Grady is Partner and Managing Director at Cheyenne Capital Fund.


When the journalist met with Robert Grady at the China World Hotel, Grady was just finishing a meeting with a few business investors. Unlike most investors, Grady seldom wear suits and prefers casual wear unless he needs to attend certain formal occasions. “It makes me feel relaxed,” said Grady when asked about his choice of attire.


Most Chinese have never heard of Robert Grady and even if they have, they don’t know much about him due to his preference for being low profile. Grady has visited China a couple of times, and we were lucky to have interviewed him back in 2006. During that time Robert was a Partner and Managing Director for the Carlyle Group and Chairman of the National Venture Capital Association (“NVCA”).

Four years have passed and Robert Grady has since left Carlyle Group. He is now Partner and Managing Director at Cheyenne Capital Fund. We caught-up with Robert Grady to find out the latest from him.


From Politics to Investment


“Before venturing into the investment industry, I had served in the White House as Deputy Assistant to President George H. W. Bush and Executive Associate Director of the Office of Management and Budget,” said Grady during a brief introduction of himself.


Considered one of George H. W. Bush’s top advisors, Robert Grady was the chief speechwriter and senior policy advisor to Bush Sr. during the 1988 Presidential campaign. Grady played a major role in the election of the country’s 41st President. It was part of Robert’s contribution that enabled Bush to make the famous pledge “Read my lips: no new taxes” at the 1988 Republican convention. The acceptance speech left a lasting impression on the nation.


In Grady’s long political career, not only has he served at the White House, but he was also the Associate Director of the Office of Management and Budget (“OMB”) for Natural Resources, Energy and Science; Director of Communications for New Jersey Governor Thomas H. Kean; and Chief of Staff for U.S. Congresswoman Millicent Fenwick.


Despite being a venture capitalist for over a decade, Grady still holds a significant role in politics. Today, he is the Chairman of New Jersey’s State Investment Council, which oversees the state’s $68 billion pension fund, as well as the Chairman of the State of New Jersey’s Council of Economic Advisors, appointed by Governor Chris Christie.


Some say, “Robert Grady is not only a successful scholar and politician, but a brilliant investor.” When Robert Grady decided to shift his focus from politics to economy issues, most people couldn’t understand why he chose to do so. “They think that just because I have a successful track record in my career, it would be risky to give it all up and start a new venture by moving into the world of finance and economy, as I will have to learn many new things from scratch.” Of course, turns out that Robert Grady was naturally good at risk-management.


In 1992, years after Robert Grady had left the political scene, he joined Robertson Stephens & Company, a leading emerging-growth investment bank based in San Francisco. Robertson Stephens & Company was considered by many as “a company with tremendous opportunities for growth,” and it was Grady who spearheaded such success.


“When I joined the company, there were only 120 employees with only $50 million in annual revenue. However, they had very high-tech data analysis and processing systems which ultimately helped propel the company’s annual revenue up to $250 million in 1997.” It was during the peak of the company’s growth that Grady made a surprising decision to sell the company to Bank of America Corporation for $540 million(US). He explained, “One of the main reasons which prompted me to make the decision was capital. In order for a company to expand its business, as well as generate higher profits, raising capital is key. Back then, Bank of America Corporation happened to have merged with Nations Bank. The people trusted Bank of America Corporation even more, because Nations Bank was government run. Therefore, it was a wise decision to sell the company to Bank of America Corporation.”


In 1998, Robert Grady purchased the stock ownership from Bank of America Corporation at a price of $400 million (US) and sold it to Bank of Boston Corporation at the price of $800 million (US). “We did some integration then as the Internet was slowly developing. Desktop computers were no longer efficient, and restructuring (technology) was the only wise option.” Robert Grady dubbed this a “second-hand trade,” which in return helped Robertson Stephens & Company reach a 40-fold profit increase in eight years.


From Carlyle to Cheyenne


It has been a decade since Robert Grady joined Carlyle Group back in 2000. Carlyle Group, popularly known as the “Ex-President’s club” within the investment circle, was the largest private equity firm in the world.


The years in Carlyle constituted an important phase of Grady’s career in private equity, just as venture capital constitutes an integral part of the American economy. “The venture capital industry began to develop in America in the 1970s. After so many years, it has developed to be one of the main driving forces for economic development. In particular, it has played a crucial role in the rapid development of the TMT industry. Besides, IT companies were established and developed under the influence of venture capital institutions,” Grady said.


Carlyle’s influence in the global capital field has been self-evident, but Grady still chose to leave after working for nearly a decade, reminiscent of movies where the climax generally means the end.


“The ten years in Carlyle Group were quite pleasant. We made a lot of successful investments and Carlyle prospered. I joined Carlyle in 2000 as the 12th partner, and when I left in 2009, Carlyle already had 82 partners. The fund management scale was also increasing exponentially from the $0.6 billion (US) at the beginning to $9 billion,” said Grady.


It’s generally held that working at a large company makes one feel more fulfilled, but the notion has been completely overthrown by Grady.


As large as Carlyle Group is, it still failed to stop Grady from leaving. He said that “the main reason for (me) to choose Cheyenne Capital Fund over Carlyle was (my) family.” His wife Colleen Elizabeth Maloney is from Wyoming, situated in the Rocky Mountain Region in the American West. Wyoming’s capital, Cheyenne, is in the East of the state. Mr. Grady went on to say, “We were settled in San Francisco, but my wife and her family are from Wyoming. Just as Chinese people say, ‘If the family lives in harmony, all affairs will prosper;’ so since we couldn’t live in Wyoming, we decided to relocate to Denver, Colorado, just south of the Wyoming border, putting us quite close to my wife’s parents.”


However, with the expansion of Carlyle, the company decided to move headquarters to Washington, so as to provide more conveniences and opportunities for managers. As Washington is far from Wyoming, Grady made a surprising decision to leave Carlyle.


Another reason that made Grady decide to leave Carlyle was an invitation from John Fitzgerald - one of the founders of Cheyenne Capital Fund. They met each other at work many years earlier. Years of friendship made them know each other better and the headquarters of Cheyenne Capital Fund was in Cheyenne. Therefore, Mr. Grady was more than pleased to join Cheyenne Capital Fund.


Grady said with a smile that he was suggested to participate in the political circles. As Wyoming is dominated by the Republicans and he is a Republican, it would be a nice choice for him to participate in the election.


Working in Cheyenne


Grady finally chose Cheyenne Capital Fund for family reasons. “Cheyenne Capital Fund is a small-scale fund with a total of $363 million (US) and only three partners in management,” said Robert Brady, “compared to Carlyle, this is a really small-scale fund.”


With the continuous expansion of the fund and as an LP fund, its investment achievement cannot be underestimated. You can see the shadows of Cheyenne Capital Fund behind leaders in the industry, such as Carlyle Group, Blackstone Group, CIVC, Madison Dearborn Partners, Francisco Partners, and Institutional Venture Partners. Grady said that thanks to the Wyoming legislature, the largest LP of Cheyenne Capital Fund, they can get more help and support with investments.


Cheyenne Capital Fund was established by John Fitzgerald in 2003. It not only engaged in the investment in blue-chip private equity funds, but also some direct private equity investment, such as leveraged buyout, capital restructuring, or capital and stock increases. Besides, Cheyenne Capital Funds also made direct investment in some experienced industries, such as manufacturing, consumption and service, financial service, media, commercial service, and energy industries.


Compared to the long history of venture capital investment in America, Cheyenne Capital Fund is still very young, but as one of the LPs of Carlyle, the strength of Cheyenne cannot be underrated. Grady said, “I knew John when he was still working in Carlyle Group. As John was investing in Carlyle at the time, we met each other and became friends.” Now, they spend a lot of time together. Both of them like talking about politics and industry. Both are baseball fans. The only difference is that Mr. Grady likes the NY Yankees while John likes the Colorado Rockies.


John has accumulated rich experiences in biological and law fields, while Grady has made more studies in venture capital and technological fields, which complement each other. Grady said that he’s more interested in rapid-developing small technology companies, while John pays more attention to the financial structure of large companies.


Cheyenne not only invests in venture capital institutions but also makes direct investment. These days, Grady has been quite good at transferring between the roles of GP and LP. He said, “I like both GP and LP very much, and I can learn a lot through this work. I always believe that no matter as an LP or GP or CEO, you have to learn new things every day.” For Grady, his priority is to look for industries and funds with investment values and opportunities, and secondly to prepare for raising the second capital for Cheyenne Capital Fund by every possible means.


As for the Chinese Yuan fund growing rapidly in China, Grady said he would not consider it for the time being. “However, it doesn’t mean that the fund has no promising future in China. In fact, Carlyle Group has launched numerous Chinese Yuan fund projects.” he said. “It’s just that Cheyenne Capital Fund is only a small fund and we are still not capable enough to raise and manage Chinese Yuan funds.”


Having joined Cheyenne for only a short time, Grady has finished three investments, including on-line English language teaching company Eleutian Technology, the 13th fund IVP XIII of private Institutional Venture Partners, and Francisco Partners.


Eleutian Technology is an on-line language teaching company, providing on-line language instruction for global business and education entities. In October 2010, Eleutian Technology merged with Idapted. Kent Holiday, President and Chief Executive Officer of Eleutian Technology and former Vice President of KT (Korea Telecom) said, “Not only did Robert Grady accumulate rich experiences in the investment field, he had a very unique and deep understanding on enterprises. As an entrepreneur myself, not only has this cooperation (with Grady) helped in terms of capital and resources, but I have managed to absorb a lot of wisdom from him myself.”


Grady skillfully and easily transfers between the roles of LP and GP, and given his rich experiences in the industry, we believe that it won’t be long before he uncovers some great diamonds in the rough.


SOURCE: Capital Magazine, China