The return of the "Masters of the Universe"

March 16, 2007

The “masters of the universe” are back. Just ask Lawrence Schloss.

“This is about as good as it gets,” said Schloss, chairman and CEO Diamond Castle Holdings, a private equity firm formed in 2004 that recently closed its inaugural $1.8 billion mid-market buyout fund. “From my perspective, it feels a lot like the ’80s.”

Schloss (A&S ’76) delivered an energetic, entertaining presentation on private equity at the Freeman School on March 15. Subtitled “The Return of the Masters of the Universe,” Schloss discussed the current global environment for private equity and outlined the opportunities and risks that lie ahead.

“There’s money everywhere––that’s what’s making the whole thing work,” said Schloss “There’s excess liquidity in the U.S., Asia and the Middle East, and people are willing to lend it very, very cheaply and they’re desperate to find enhanced returns.”

Thanks to a perfect storm of market factors, the largest private equity funds have tripled in size in the last six years. In 2006, an astonishing 44 percent of the funds raised were greater than $5 billion.

“You can’t imagine the difference of having three times as much equity because you’re going to leverage the equity 5-to-1 or 6-to-1,” Schloss said. “$400 billion of companies can get bought by the top five guys. It’s unbelievable.”

Looking forward, Schloss said he expects more megadeals like the recent leveraged buyout of TXU Corp., more going private transactions in general, an eventual reemergence of corporate buyers, and a continued very friendly buyout environment.

“The $64 billion question is where are [we] in the business cycle,” Schloss said. “I happen to believe that we’re fine in the business cycle. Yes, things will slow down a little bit, but that’s not the worst thing in the world either. If this year is the year of the pause and next year we get back on the horse and everything’s fine, that will have been a wonderful pause.”

Prior to founding Diamond Castle Holdings, Schloss was global head of CSFB Private Equity, a $32 billion private equity investment business. In that role, Schloss was responsible for a staff of 450, including 125 investment professionals on four continents and a 60 person private equity fundraising group. Schloss joined Donaldson, Lufkin & Jenrette, which in 2000 was acquired by CSFB, as an investment banker in 1978 and began investing DLJ’s capital when the firm began its dedicated leveraged buyout principal investing activities in 1985. He holds a BA in economics from Tulane and an MBA from the Wharton School.

Last Updated 11/19/08