By Jeremy Kahn – Oct 25, 2011 3:00 PM PT
Nicolas Berggruen can’t sit still.
An hour into our interview, at the poolside restaurant of the Hotel Cipriani in Venice, Italy, the billionaire investor glances at the lunchtime crowd drifting over from their sun loungers. He fidgets. His fingers pirouette along the table edge. Polishing off a cappuccino that’s heaped with mounds of whipped cream, he suggests we move.
Berggruen selects a pair of wicker sofas on a patio outside the hotel bar. “It is better here, no? A little cooler,” he says. Five minutes later, he decides we are too close to a boisterous group. So we move again, this time to a table tucked discreetly into the corner of a deserted veranda on the far side of the hotel, Bloomberg Markets magazine reports in its December issue.
Berggruen, 50, lives his whole life this way, always on the move, as he seeks out companies to buy from Berlin to Bangalore to Brisbane. For the past decade, the dual American and German citizen has had no fixed home address. He constantly roams the world on his Gulfstream IV jet, living out of five-star hotels. Most of the time, he carries only a small tote bag containing clothes and his BlackBerry.
“If you have things and if you are a perfectionist, which I am, you have to really tend to them, and it takes energy away from other things,” says Berggruen, whose pink shirt, monogrammed with his initials in red on the pocket, is fraying at the cuffs and collar.
$2.5 Billion Fortune
The son of a wealthy art dealer, Berggruen parlayed a trust fund worth about $250,000 into a fortune of at least $2.5 billion, according to data compiled by Bloomberg. Over three decades, the investor has gotten rich by tapping his worldwide network of business contacts to find mostly small beaten-down companies to buy, expand and sell.
Berggruen has also made money with four blank-check companies: shell companies that go public and then use cash or shares to acquire an operating business.
“Nicolas is a very insightful investor,” says James Hauslein, a private-equity investor who’s a former chairman of Sunglass Hut International Inc. and a former independent director of a Berggruen blank-check company. “He has a long and successful career of building up companies and reviving brands.”
The eccentric investor has stumbled plenty too, particularly when taking detours from his buyout specialty. A foray into hedge funds produced lackluster results before he chucked the venture. And several of his investments in faddish businesses such as ethanol were a bust. “You make mistakes,” Berggruen says. “You learn. I’ve learned a lot.”
Now, Berggruen is moving even farther afield in a quest to save the West from sinking into chaos. He says the stock market swoons of 2011, the brinkmanship in Washington over the debt ceiling and the euro-zone debt debacle are symptoms of the same underlying problem. “What you really have is a deep, deep governance crisis in the West,” he says.
To reduce the political paralysis that threatens the U.S. and Europe, the billionaire donated $100 million to create the Nicolas Berggruen Institute, with offices in Berlin, Los Angeles, New York and Washington.
In early September, the institute assembled a group called the Council for the Future of Europe. It includes former government leaders Gerhard Schroeder of Germany and Felipe Gonzalez of Spain, former European Commission President Jacques Delors, as well as economists Nouriel Roubini, Joseph Stiglitz and Mohamed El-Erian, the chief executive officer at Pacific Investment Management Co. Former British Prime Minister Tony Blair has served as an adviser.
In public statements from Brussels, the group called for greater political integration within Europe. That includes the centralization of some fiscal policy, wider powers for the European Central Bank and European Financial Stability Facility to restructure the debt of private banks and the issuance of joint euro-area bonds to relieve the sovereign debt crisis.
Berggruen, who in the past has funded the campaigns of U.S. Democrats, including Senator Charles Schumer of New York and President Barack Obama, says his institute isn’t necessarily introducing new ideas. Rather, his aim is to help experts reach agreement and then lobby to turn their proposals into policy.
“In Europe, all the experts say you need more integration, but the public doesn’t buy it yet,” says Nathan Gardels, a senior adviser to the Berggruen Institute. “So their job is really to resell the vision of an integrated Europe to the public.”
Berggruen seamlessly slips between the worlds of politics, finance, art and Hollywood. He flew to the island of Borkum in the North Sea, where Schroeder was vacationing, to talk to him about the European initiative. Schroeder then helped recruit other former heads of state for the project.
“We got them one by one,” Berggruen says.
In Los Angeles, the investor throws an annual party at the Chateau Marmont that has drawn the likes of Leonardo DiCaprio and Paris Hilton. Berggruen is also a trustee of the Los Angeles County Museum of Art and has begun acquiring contemporary works for its collection.
“He’s a natural networker,” says Michael Govan, the museum’s director. “He looks at the world holistically, encompassing culture and economics and politics, and he weaves it together with all the people he knows.”
Berggruen grew up under the influence of the art world that made his father, Heinz, rich. Heinz was a Berlin-born German Jew who fled the Nazis for San Francisco in 1936. While there, Heinz writes in his 1997 autobiography, he worked as a curator and art critic and had a brief affair with Mexican artist Frida Kahlo.
After World War II, he settled in Paris and, as a dealer, amassed one of the world’s most significant collections of works by Paul Klee and Pablo Picasso, says Andrew Strauss, senior director of impressionist and modern art at Sotheby’s in Paris. Before he died in 2007, Heinz donated some 90 works by Klee to the Metropolitan Museum of Art in New York and sold more than 100 paintings by Picasso as well as works by Alberto Giacometti, Henri Matisse and Klee to the Berlin State Museums for the below market price of $120 million.
Growing up in Paris and attending boarding school in Switzerland in the 1970s, Berggruen was passionate about politics. As a teenager, he read Jean-Paul Sartre and leaned left; for a time, he refused to speak English because he thought it was the language of imperialism.
At the age of 17, he reconciled with capitalism and worked as a trainee for Robbie Rayne, who was then investment director of buyout firm London Merchant Securities, known today as LMS Capital Plc.
“He was very bright and much more serious than most people his age,” Rayne says. “And very quickly, he caught on to the private-equity business.”
He enrolled at New York University in 1979 and got his undergraduate degree in business in just two years, according to the school. In 1985, he founded a company to manage his investments and the small family trust.
Today, Berggruen Holdings has offices in Berlin, Istanbul, Mumbai, New York and Tel Aviv and nine senior executives who help the founder find investments and manage them. The firm owns more than 30 companies, ranging from real estate to furniture, to health care. Berggruen is financing skyline-shaping towers around the world, including designs by Pritzker Architecture Prize-winning Richard Meier in Newark, New Jersey, and Tel Aviv.
He also bought German department store chain Karstadt Warenhaus GmbH out of bankruptcy in 2010 for the symbolic price of 1 euro. The investor immediately provided the business with a 65 million euro ($83 million) cash infusion and promised to spend 400 million euros over five years to revive the brand — his highest-profile corporate rescue effort to date.
Berggruen, who says he negotiates many of the buyouts himself, looks for companies loaded with debt or with family owners who are looking to retire. The firms also need to have strong cash flows and defensible business models. After restructuring the company’s debt and investing in expansion, he’ll often hold it for a decade or more before selling. He says that he rarely fires rank-and-file workers, because his goal is to grow revenue. But he does typically shake up top management.
“It is always a question of finding the right people,” he says. Berggruen himself is never one of them. “I discovered pretty early that I am probably a terrible manager,” he says.
Fund of Hedge Funds
Berggruen’s $7.8 million purchase of AAi.FosterGrant Inc., an indebted Smithfield, Rhode Island-based eyeglasses manufacturer, was one of his biggest scores. He pushed management to offer new product lines and trendier styles. In 2004, the company acquired the Magnivision brand of nonprescription reading glasses, more than doubling its share in that market.
Following the acquisition, the company was renamed FGX International Holdings Ltd. When FGX went public in October 2007, Berggruen sold about half of his shares for $113 million. Two years later, French company Essilor International SA bought FGX, earning Berggruen another $139.2 million.
Berggruen has had more success managing his own money than other people’s wealth. In 1988, Berggruen co-founded Alpha Investment Management LLC in New York to run a hedge fund plus a fund of hedge funds. Alpha Investment’s flagship fund of funds, which collected a management fee on top of charges from the underlying hedge funds, didn’t outperform the market. After subtracting fees, it only about matched the returns of the Standard & Poor’s 500 Index in the 1990s, with a third of the index’s volatility, Berggruen says.
The firm grew to about $2 billion under management before the founders sold it in 2004 for an undisclosed sum. By then, Berggruen had soured on Alpha.
“I did it for internal reasons to manage some of my own capital better,” he says. “But in reality, the business made me manage the capital worse, not better, because if you have outside money to manage, you have to be much more careful and cautious.”
Two years later, as the stock market’s bull run was nearing its peak for the decade, Berggruen moved to cash in. He and business partner Martin Franklin set up Freedom Acquisition Holdings Inc., a blank-check company that went public in December 2006. It raised $528 million, a record for a blank- check-company IPO at the time. The next year, Freedom purchased U.K. institutional investment manager GLG for $4.15 billion.
“This is a bit like big-game hunting,” Berggruen says. “You look for companies of a certain size that deserve to be public.”
Berggruen and Franklin played the blank-check game three more times: Their Liberty Acquisition Holdings Corp. raised more than $1 billion on the American Stock Exchange in December 2007 and acquired Spanish media company Promotora de Informaciones SA — which owns El Pais, the country’s largest paid-circulation daily newspaper — for $1.29 billion in November 2010.
Then came Liberty International Acquisition Co., which went public on the NYSE Euronext in Amsterdam, raising $879 million, in February 2008. It acquired U.K. insurance provider Pearl Group Plc — now called Phoenix Group Holdings — for $1.45 billion in September 2009.
Finally, they founded Justice Holdings Ltd., which raised $1.44 billion — another record amount — on the London Stock Exchange in February. It has yet to make an acquisition.
Berggruen and Franklin’s investment in Freedom didn’t work out as well as they had hoped. As founders, they were entitled to purchase shares of Freedom at a deep discount. The stake they spent $54.5 million to acquire was worth more than $270 million in the days immediately following GLG’s reverse merger with Freedom.
Then, staff defections from the renamed GLG Partners Inc. and the global credit crunch caused the firm’s shares to plunge 90 percent from November 2007 through mid-December 2008. Two years later, U.K. hedge-fund manager Man Group Plc bought GLG for just $1.13 billion, about $3 billion less than what Freedom had paid for it.
Berggruen made $1.8 million in the end, and Franklin, who was given additional shares as a director of GLG, pocketed $6.2 million.
“All of the alternative investment managers, including GLG, got decimated,” Franklin says.
Long before dabbling with blank-check companies, Berggruen had already made enough money to buy all of the trappings of the ultrarich: a Fifth Avenue apartment in Manhattan, a mansion on a private island near Miami, the Gulfstream IV and artworks by Damien Hirst, Jeff Koons and Andy Warhol. Berggruen says that living amid all of that luxury turned into a burden and didn’t make him happy.
“I understand the human instinct to want to create a nest and possess things, to show them off,” he says. “But for me personally, it became less and less interesting.”
So in 2000, Berggruen sold his houses, put his art collection in storage and gave away or sold most of his possessions, including his car. He says his decision to live a rootless existence wasn’t a means of dodging taxes; he says he pays them in the U.S.
The investor, who signed a pledge promoted by fellow billionaires Warren Buffett and Bill Gates to donate at least half of their wealth, says he’ll give away all of it eventually.
“Everything I do now is about growing the pot to have more to give away,” he says.
He has never married and says he is not interested in having children. Berggruen has been photographed at charity and fashion events arm in arm with a series of actresses and models, including Gabriella Wright, a British actress.
In the past five years, Berggruen has poured his earnings into several projects to solve the world’s problems that have sometimes gone astray. In 2006, a subsidiary of Berggruen Holdings invested $85 million and helped secure a $100 million line of credit, as well as a $20 million loan from the state of Oregon, to build the largest ethanol plant on the West Coast. He believed, erroneously he now says, that ethanol would be a growing source of clean energy despite the chemicals and dirty fuels used to transform corn into fuel.
The ethanol company filed for bankruptcy in 2009. Construction delays, plant outages, a sulfate-contaminated ethanol shipment and the narrowing spread between corn and ethanol prices doomed the project.
“It was a disaster,” Berggruen says.
His investment to reduce world hunger also flopped. In 2008, Berggruen announced a plan to buy 24,700 acres (10,000 hectares) of uncultivated land in Latin America and Southeast Asia and turn it into farms to increase food production. Although he already owned almost 30,000 acres of farmland in Australia, he put any further investment on hold after discovering what any farmer could have told him.
“There are a lot of variables out of the control of the people in the business, meaning commodity prices and climate and land issues,” he says. “I didn’t think I had come up with a sensible business plan.”
Berggruen’s investment in urban renewal in Newark has been more promising. He commissioned Meier to design a retail, office and residential complex that will include subsidized housing for teachers.
“Nicolas is a godsend to this project and to Newark,” says Stefan Pryor, the city’s deputy mayor for economic development. “This is one of the most complex projects in the city — maybe in the whole country — and it wouldn’t have been possible without the steps Nicolas undertook to make it happen.”
Berggruen is also pushing for governance reform in California, where he lives for several weeks a year, staying at the Peninsula hotel in Beverly Hills. With the state struggling with a $27.6 billion budget shortfall and cutting welfare programs for children, Berggruen last year brought together a panel of boldface names to offer solutions.
Google Inc. Chairman Eric Schmidt, billionaire Eli Broad, former governors Gray Davis and Arnold Schwarzenegger and former U.S. secretaries of state George Shultz and Condoleezza Rice formed the Think Long Committee for California. In an attempt to reduce political gridlock, the group will call for giving more power to local governments, reforming the ballot initiative process and broadening the state’s tax base.
The committee is coordinating closely with California Forward, a bipartisan group that advocated for state budgets to be approved by simple majority rather than a two-thirds vote. Voters approved the measure in 2010. Berggruen has promised to spend $20 million to back the Think Long Committee’s proposals.
“Twenty million dollars gets a lot of people’s attention,” Broad says.
Back at the Hotel Cipriani in Venice, Berggruen’s BlackBerry buzzes. “I really need to go,” he says. He has another meeting. Then, tomorrow, it’s back on the Gulfstream IV. The next city, the next deal, the next place in need of a self- appointed savior await.
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