Just as football dynasties come and go, so too do hedge funds. HRJ Capital Holdings, the fund of hedge funds founded in 1999 by former San Francisco 49ers Ronnie Lott and Harris Barton (Joe Montana was also involved for a while), recently announced that it was considering a bailout under which Santa Clara, California–based Silicon Valley Bank would step in and take over HRJ’s investments. The somewhat unorthodox move lets the bank recoup the $68.9 million HRJ owes it.
When HRJ was new and the memory of the 49ers’ five Super Bowl wins was fresh, the firm focused on venture capital opportunities. It later expanded into buyouts, distressed debt and real estate. Last year it sought to launch a new $250 million buyout fund and committed that amount but raised only part of it, which is where the SVB credit came in. HRJ posted various revenue streams as collateral.
The deal has a benevolent quality to it. The bank said in a December announcement that it would keep fund managers in place (the firm employs about 40 investment professionals). HRJ Capital has offices in Atlanta, Boston, Chicago, New York, Shanghai and Zurich but is based in Woodside, California, within the orbit of Silicon Valley. Aaron Deer, an equity analyst and managing director at New York–based investment banking firm Sandler O’Neill & Partners who covers SVB Financial Group, the bank’s parent company, says the proposed deal comes about in part because of the tight-knit nature of Silicon Valley, where commercial bankers, hedge fund managers and venture capitalists run in the same circles.
“If I heard that any other bank was doing this, I’d say you had to be kidding me,” says Deer, implying that most other lenders would simply have shuttered HRJ and written it off. Credit lines usually work splendidly under the model HRJ was trying to follow; investors won’t always commit unless they know that a firm already has some money to play with. But in the past year or so, funds of funds have struggled to raise cash, even as many have been battered by shrinking assets. The arrangement would allow the bank to receive management fees from investors, as well as stakes in each of HRJ’s investments, according to a spokeswoman for SVB Financial. HRJ Capital didn’t return calls.
According to a recent Securities and Exchange Commission filing, the bank’s SVB Capital family of funds has more than $1 billion in assets under management. “You’d be bringing in some talented managers from HRJ,” Deer says. “They’ll fit in well.”
