The Vulture Fund

by Stephen W. Frey

  Slade shook his head. There was that worm again, slowly but relentlessly boring its way into his brain. He had to stop questioning. The commander was above reproach. Wasn’t he?

  6

  The office decor seemed more appropriate for a man running a stodgy nineteenth-century bank than for one about to steer the Street’s most progressive investment bank into the twenty-first. Modern financial hardware was not to be found in the room. There were no on-line systems, no computers, no fancy telephone banks, nothing indicative of the techno-information age that had overtaken the financial world.

  The office walls were painted dull gray. From them hung ancient fox-hunting prints in heavy, well-worn frames. The room’s furniture, including a huge dark wood rolltop desk in the far corner, would have looked natural in a museum exhibit. Everything was old, including the typewriter sitting on the credenza beneath the window overlooking the beginning of Wall Street, which was just outside Walker Pryce’s front door. The office even smelled ancient—musty and slightly stale. J. P. Morgan would have felt at home.

  Mace had been to this office only a few times in his four-year career at Walker Pryce, so he hesitated in the hallway and took in the scene for a moment. The office was out-of-date, that was certain, but somehow it was still impressive. Finally he knocked on the open door.

  Lewis Webster glanced up from the papers on the desktop to Mace. “Are you quite finished gawking at my office?” he asked in his unfriendly, gravelly whisper.

  So the old man had known Mace was there the entire time. Webster didn’t miss a trick. He might look a little feeble, but looks could be deceiving. Mace did not respond directly to Webster’s confrontational tone. It was better to ignore the old man’s barb than to respond. “Marston said you wanted to see me.”

  “Yes, come in. Close the door behind you.”

  Mace walked slowly through the doorway into the large room and closed the door.

  “How is Marston?” Webster asked.

  As Mace sat down in the chair, he thought he detected the hint of a smile cross Webster’s thin lips but could not tell for certain. Webster rarely smiled. “He’s fine.” But Marston hadn’t seemed fine. Usually the man was focused and energetic. Since yesterday morning he had been preoccupied and lethargic, unable to assist effectively with several large transactions other vice-presidents in the Real Estate Advisory Group were attempting to close. Marston’s problems didn’ affect Mace, however. Mace closed his own deals.

  “I’m glad to hear that,” Webster said.

  Mace brushed a tiny piece of paper from the pants leg of his conservative chalk-stripe suit. “Lewis, what did you need me for?” In business matters Mace was terse and direct. His ability to earn money was limited only by the hours in the day, so he made the most of them.

  Webster stiffened slightly. He was unaccustomed to anyone but another partner addressing him as Lewis. Even some of them addressed him as Mr. Webster. “I want to enlist your assistance on a project I am pursuing.”

  Mace nodded but said nothing. Though he did not have daily contact with the man, he had been in enough meetings with Webster to determine that the older man seemed suddenly uncomfortable.

  “It is an extremely important project for Walker Pryce.” Webster continued. “One that I believe will enable the firm to remain independent, one that should enable us to maintain our partnership status and not have to access the public market.”

  Mace inhaled slowly but exhibited no reaction to this piece of news. Like all good businessmen, Mace was adept at gathering information both from clients and from members of his own firm, and he knew that a majority of the partners wanted to go public. Now. This project had to be a blockbuster for Webster to be able to convince the others of the executive committee—Marston and Polk—to forgo the public equity markets at this point and remain a partnership. “Tell me about it.”

  “I want to raise a large pool of money we will use to invest in Manhattan commercial real estate and shares listed on the New York Stock Exchange. Walker Pryce will manage to fund and seed it with fifty million dollars of the partners’ capital.”

  “How big a fund are you talking about?”

  “At least a billion.”

  Mace stared at Webster. A billion dollars. That was big. Even for Walker Pryce.

  “And I want to leverage that billion dollars of capital by having the fund borrow another billion on top of the equity from commercial banks to give us a total of two billion to invest.” Webster went on. “Walter Marston, Graham Polk, and I all believe that the markets are extremely overvalued, that we are headed for some very big corrections in these markets, severe downward movements in real estate and stock prices, and we want to be ready when that happens. When the crash hits, we’ll wait for the prices to hit the trough, then buy cheaply and enjoy the spoils when values go back up again—as they always do.”

  “A classic vulture fund,” Mace said.

  “Yes.” Webster’s voice was almost inaudible.

  Mace nodded. Prices were too high. But in the investment world it was almost impossible to predict a correction accurately. Just when all the pundits thought values would dive, they would spurt up. And vice versa. But if they raised all that money and the fund didn’t work because prices didn’t dive, it wouldn’t be a good thing for his career. The investors, who had been looking for sky-high returns and had instead received very little, would be hot. Word would get out that he had been responsible. Webster wasn’t going to take the heat. That was certain. Of course, Mace thought. He was the fall guy in case the fund tanked, an insurance policy. “But, Lewis, our own economists on the twenty-third floor aren’t predicting any kind of severe downturn. They aren’t pressing the panic button.” Mace attempted to substantiate his lack of enthusiasm.

  “Economists.” Webster sneered. “Ask them for someone’s telephone number, and if they don’t know it, they’ll estimate it for you. Toilet paper is of far greater value than an economist. The only reason I maintain our economic department is that as such a high-profile firm we have to have one.”

  Mace didn’t agree. Walker Pryce’s economists were extremely talented and had provided him with an immense amount of highly accurate information. But that wasn’t a battle he was going to fight at this moment. “All the same, I think it would be a huge risk to bet the firm’s future on the success of a fund like that.” Mace swallowed hard. He could tell that what he had just said wasn’t what Webster wanted to hear.

  Webster nodded thoughtfully and stroked his beard. “Mace, how old are you?”

  “Thirty.”

  Webster smiled. “In your four years at Walker Pryce you’ve performed very well. Fifty million dollars in fees last year as a vice-president, if I’m not mistaken.”

  “That’s correct.”

  “Quite a remarkable accomplishment for such a young man.” Webster snickered. “There are forty-year-old managing directors walking around here who didn’t generate even two million in fees last year, let alone fifty.”

  Mace nodded. He knew where the deadwood was.

  Webster shook his head. “It’s gotten to the point that as long as you are managing director and can fog a mirror, we pay you over a million dollars.” Webster paused. “Mace, what did we pay you last year, all in?”

  “Eight hundred and fifty thousand.”

  Webster shook his head again. “Not enough. You should be a managing director. At least.”

  “Sounds good to me.” Mace grinned at the old man.

  “It’s just that we have these unwritten rules at the firm. You know, a minimum of seven years at the firm to make managing director, a minimum of ten years to make partner.”

  Mace glanced out the window again. The old man was a master manipulator.

  “Youngest managing director in Walker Pryce history. In its history.” Webster whispered the last few words again loudly for effect. �
��How does that sound?”

  “It sounds very good, Lewis.” Mace answered the question immediately, but his voice was flat. He did not like being cornered.

  “As senior partner I can guarantee you that title, Mace. Within six months. If you help me with the fund. I need your contacts in the real estate business and your ability to see value in the equity markets. I can guarantee you the title and an annual compensation of two million, minimum. You know you’ll make partner in short order after that, and you will have the satisfaction of knowing that your work enabled this firm to remain a partnership. So that someday you will know how it feels to be a partner at the most prestigious investment bank on Wall Street.”

  Mace did not respond.

  Webster pushed forward. “As an old man I can tell you that success or failure in life depends on a few very important decisions. And playing for the right team. This is one of those decisions, Mace, and I’m the captain of the team you want to play for.” He paused. “If you aren’t with me, you are against me.”

  Since his childhood Mace had been analytic, gathering pertinent information with respect to a decision he was facing, then making the best decision based on that information. But sometimes the information available wasn’t enough to resolve the issue and you simply had to go with your gut. Now his gut was telling him to reject Webster’s plan and go back to the Real Estate Advisory Group. But then he’d be playing for the other team in Webster’s eyes, and as long as the old man held on to the senior partner spot, he’d never make managing director.

  It shouldn’t happen this way. It wasn’t fair to have to be caught up in a political maelstrom. He ought to be able to work hard, make the firm a great deal of money, and be compensated appropriately. But life wasn’t always fair. He was well aware of that. “What would my role be?” he asked quietly.

  Webster’s eyes danced. He had struck a nerve, as he had been certain he would. “Chief investment officer. I want you to target Manhattan properties in which the fund might invest. The profile of the target properties will be simple: large, prominently located commercial office buildings that are on shaky financial ground. I’m sure you know about a few of those.”

  Mace nodded. Half the real estate world was constantly on the brink of bankruptcy. It was always that way, no matter how strong the economy was. Real estate buyers consistently attempted to use as much debt and as little of their own money as possible to fund a purchase, putting a huge cash-flow burden on the property in the form of debt service. A small hiccup in rental income, and cash flow wouldn’t meet interest expense. Any extended cash-flow shortfalls, and the owner would have to run for bankruptcy protection and look for the best price offered for the building as a way out of his mess.

  “Begin negotiating with the owners of those properties and with the mortgage holders as well. Just open a dialogue, nothing more than that to start with. Visit them, or invite them here for a nice lunch. But clear the property with me first.”

  “Okay.” Mace inhaled slowly. That would be easy enough. People were always willing to listen. And for the right price any piece of property was for sale. Investors were not sentimental. Not the good ones anyway.

  “Start researching the stock market for undervalued shares too. I realize that’s a kind of open-ended project, but you’re smart. You know where to look for value. You can use a couple of associates from the Mergers and Acquisitions Advisory Department to do the grunt work. I’ll call Renenberg, the head of M & A, myself and inform him of your requirements. But don’t tell the associates why you need the research.”

  “Of course not,” Mace said cynically.

  Webster ignored Mace’s tone. “Finally, and in the strictest confidence, I want you to begin talking to your contacts at the large New York commercial banks about committing loans to the fund. Talk to banks that specialize in lending to real estate and equity funds. We might need quite a few institutions in the syndicate to raise a billion dollars for a blind pool, and it may not be easy to rope them in.”

  Truer words had never been spoken, Mace thought. Opening the discussions wouldn’t be difficult. He knew all the senior people in the real estate areas of the big New York commercial banks. Getting them to commit to a loan would be another story. “Where are you going to find the fund’s equity, Lewis? The billion dollars that will support the bank loan.” Mace folded his arms across his chest defiantly.

  “I’m going to a select few of the wealthiest U.S. families.”

  “Why? Why not go to the institutions? That’s where we have our best relationships.”

  “I want to keep this fund quiet. Very confidential. I don’t want others to know what we are doing. Institutions would blab this thing all over the Street.”

  “How many families do you intend to go to?”

  “Eight, ten at most.”

  Mace grimaced as though he were almost in physical pain. “Old-family money is hardly high-octane cash. I mean, they’ll take some risk, but do you really think you’ll circle a billion-dollar fund with ten families? That’s a hundred million dollars a family. I know you’re talking about some pretty well-hung people, but still—” Mace hesitated, his silence conveying his doubts. “And I can’t help you there. I don’t know those people. I know a different kind of investor. I know the institutions: the insurance companies and the pension funds.”

  “I have that angle covered,” Webster said.

  “Really? I didn’t know you were buddy-buddy with those people. Usually we go to the institutional market.”

  Webster coughed and rearranged several papers on the desktop in front of him. “I’m not familiar with those people either, the families, I mean. But you’ll have help from someone who is.”

  “Help?” That sounded mysterious.

  Webster stared directly at Mace. “Yes, help. Do you have a problem with that?” The old man’s whisper became confrontational.

  Mace pushed out his lower lip. “No, no problem.”

  “Good.”

  “Who is this person?” Mace wanted to know.

  “Someone from the outside.”

  “Oh.” That was interesting. Walker Pryce rarely went outside the firm for a project like this. It rarely went outside the firm at all, except to hire junior people. “Have you already made an offer to this person?”

  “Not formally. I wanted your opinion first.”

  Mace nodded. That was good. It demonstrated a respect he appreciated. “When do I get to meet him?”

  Webster coughed again. “First of all, it’s not a he—it’s a she—and you will meet her tomorrow afternoon.”

  Mace grinned. “I see. Well I don’t mind a female subordinate. I’m an open-minded guy.”

  “She won’t be your subordinate, Mace. She’s coming in at the managing director level.” Webster was matter-of-fact. “She will report directly to me, and you will report to her. And only to her. As of this moment you are no longer a member of the Real Estate Advisory Group. Marston is in agreement with this.” Webster paused. “Of course you will have direct access to me also. But I want this woman informed of everything you are doing. I want her in every meeting you are in.”

  Mace touched his lip. He had nothing against having a woman as his boss. His problem was the fact that he would have a boss at all. For the last two years he had operated almost independently. He had been free to originate and close his own deals with a minimal amount of interference. And that system had worked very well. Now he would have reporting responsibilities again. And who knew how controlling this woman might be? He stared at the old man. “Isn’t it unusual to bring someone in from the outside like this? Someone who doesn’t know Walker Pryce?”

  “First of all, she has excellent contacts with wealthy families as a result of previous experience. Second, this fund will be independent of the firm except for the involvement of you and me. And third, if she does need help with the way
s of Walker Pryce, I expect you to give her any help she needs. Is that clear?”

  “Perfectly.” That was one thing about Webster. You always knew where you stood with him and what he expected of you.

  “Good, then I believe that’s all we need to discuss at this moment. You can begin putting together your list of real estate targets. Wait until tomorrow to contact the associates in the M & A group. Give me a chance to speak with Renenberg first. I’ll have Sarah call you tomorrow with the names of the associates you can use.”

  Mace rose to leave. The meeting was over. That was clear. He wasn’t happy with what had transpired, but the opportunity to argue with Webster was slim—and slim was out of town.

  “One more thing, Mr. McLain.”

  Mace turned back toward Webster.

  “Tomorrow I want you to move down from your office on the thirtieth floor to the seventh floor. We’ll be able to keep this project much quieter there, away from the others. I’ll make certain that you have all the computers and on-line systems you need. I know how much you like having technology at your fingertips.” Webster said the last few words as if they left a bad taste in his mouth.

  “Fine.” Mace turned to go. As he reached the door, he stopped and turned back. “Lewis?”

  Webster glanced up from his papers. “Yes?”

  “You know that I’ve been teaching a real estate class at Columbia Business School.”

  “Yes.”

  “I’ve identified a woman in the class I think would fit in well here at Walker Pryce. She’s extremely bright and—”

  “Rachel Sommers.” Webster cut Mace off in mid-sentence. “That’s who you are talking about, isn’t it?”

  Mace nodded. “Yes, but—”

  “I’ve already talked to Charlie Fenton. He told me that you two had a discussion about Miss Sommers. I’ve already had Sarah schedule a full day of interviews for her next Monday. Take her to lunch, and make certain that she will accept our generous request to interview here at Walker Pryce. And make sure she’s for us.”