Alpha - September 2007 - (Page 53)

tions imposed by institutional investors. In putting together the Goldman private equity platform, Cooper ignored many widely accepted rules governing fundof-funds manager selection, including constraints on investments in ﬁrst-time funds and “nonbucketable strategies” — or strategies that don’t ﬁt into categories investors have preapproved for a speciﬁc portfolio allocation. Cooper also discarded standard asset allocation models, which he viewed as superﬁcial and ﬂawed, and replaced them with quantitative and qualitative models of his own design. The result: The Goldman private equity group added 31 first-time funds and expanded into such new areas as distressed debt. “There was nothing like our approach in the industry,” Cooper says. Cooper left Goldman in 2004 with thoughts of starting a ﬁrm in which he could apply his approach more broadly. But his ﬁrst attempt ﬂoundered. In 2005, Cooper and Priestley, along with two other founding principals, launched Nantucket Partners, a private equity fund that employed and expanded upon the ideas that worked so well at Goldman. Institutional investors wouldn’t bite; the fund received commitments for only $200 million of a targeted $500 million and was shut down in 2006. Priestley, who met Cooper at GSAM while searching for money management clients, describes the experience as “humbling.” But at Lincoln Vale, Priestley and Cooper think they have hit upon the correct formula. They are still using the models employed at Nantucket Partners and Goldman Sachs Private Equity Group, but they are applying them only to markets in which information is difﬁcult to obtain and impossible to use without specialized knowledge or skills. It is in markets characterized by the absence of transparency — markets that Cooper calls “non-Bloomberg-executable” — that the two managers see the opportunity to generate superior riskadjusted returns consistently. Given the crowded state of the hedge fund and private equity industries, Priestley says, these opportunities will most often be found in niche markets like U.S. biotech and dry bulk and container shipping, the markets chosen by Lincoln Vale for two of its ﬁrst two funds. “In these markets a Bloomberg terminal won’t help you in getting the answers,” says Cooper. “You need in-depth understanding and unusual managers. The combination of informational advantage and specialized skills is absolutely necessary to obtain the type of return available to almost any well-run alternative fund prior to 2000.” PHIL COOPER’S PATH TO WALL STREET was atypical, to say the least. When he joined Goldman Sachs in 1996 at the age of 45, his résumé bore little resemblance to that of a traditional partner at the ﬁrm. Born in Syracuse, New York, in 1951, Cooper left home to attend Boston University in 1969, but was called back to Syracuse in 1971 to help run the family commercial contracting business after an uncle died. He completed his undergraduate studies at Syracuse University, earning degrees in journalism and business. Upon graduating he began a career in advertising, working ﬁrst for an agency in Boston, then with Batten, Barton, Durstine & Osborn in New York as an account executive. After several years at BBDO, Cooper had an epiphany. It was 1979, and he was at a focus group facility in Rutherford, New Jersey, watching through a two-way mirror as a group of women discussed home methods for coloring and conditioning hair. (The two most popular: washing hair with orange soda and coating it with peanut butter.) “It was then that I decided that this wasn’t how I wanted to spend the rest of my life,” Cooper says. He quit advertising to cofound a software company that created visual presentations of numerical data to facilitate statistical analysis. Computer Pictures Corp., which built one of the first PC-based data modeling programs, was launched in 1979 with about $30,000 — THOMAS HEALEY, FORMER in investments from family PARTNER, GOLDMAN SACHS and friends, such as Robert Knox, a classmate of Cooper’s at Boston University who later founded New York–based private equity firm Cornerstone Equity Investors. A second round of ﬁnancing brought in institutional investors, including Welsh, Carson, Anderson & Stowe, Venrock and Greylock Partners. Cullinane Data Systems purchased Computer Pictures in 1983 for $14 million. Cooper and Computer Pictures co-founder David Friend held a majority stake at the time of the sale. Cooper then enrolled at MIT Sloan School of Management. His work building Computer Pictures had introduced him to sophisticated analytical techniques, and he was eager to learn more advanced theory. As an Alfred Sloan Fellow, Cooper discovered modern portfolio theory and the world of options and derivatives. He was captivated by quantitative finance. His master’s thesis: applying mathematical techniques to ﬁnancial and operations research problems, the ﬁrst cousins to portfolio management. But Cooper was not Wall Street bound — not yet, anyway. In the six years after his graduation from MIT Sloan in 1984, he founded ﬁve software companies. In addition he organized a small investment management company in 1987 that raised institutional assets to launch technology start-ups. The transactions were simple. Cooper would prospect the deals, ﬁnance them with capital from institutional investors, including Harvard Management Co. and Colorado-based Vista Ventures, and advise management as a company board member before exiting. The strategy was successful, but it revealed to Cooper something about himself. Sperling, who at the time managed the private equity program at Harvard Management Co. and now serves as the co-head of private equity ﬁrm Thomas H. Lee Partners, says Cooper learned the following lesson: “You are a mediocre CEO but a good investor; stop doing the ﬁrst and start doing the second.” Taking that lesson to heart, Cooper joined the quantitative investment management ﬁrm Boston International Ad- “There were many occasions when I had to answer calls from clients because Phil hadn’t invested in them.” SEPTEMBER 2007 • INSTITUTIONAL INVESTOR’S ALPHA • 53

Table of Contents Feed for the Digital Edition of Alpha - September 2007

Contents Letter from the Editor Longs & Shorts Pension Corner: Keeping the Faith The Good Guys: Going Public Interview: Barry Bausano - A Delicate Balance Cover Story: Cruel, Cruel Summer Profile: Phil Cooper - Alternative Flight Plan Strategies: Marshall Wace - TOPS in Its Field Profile: Fortis Investments - Banking on Alternatives Research Center: Top Equity Trading Firms Alpha Bytes: Desktop Duel Unhedged: Commentary - The Taxman Cometh

Alpha - September 2007

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