Langone Eyes Close For Debut Vehicle –

Ken Langone, a co-founder of Home Depot, has scheduled a final close next month for his debut private equity fund, that could wrap the effort at $500 million.

Although the $500 million tally would be considered successful in relation to other first-time fund raisings, Mr. Langone may have harbored higher aspirations. Sources who have met with Mr. Langone said he had originally set out to raise $1 billion. Mr. Langone denied he had sought to raise that amount and said he would not be comfortable investing more than $500 million-the amount listed on the Invemed Catalyst Fund, L.P. offering memorandum.

The fund, which was launched in the fall, will attempt to emulate a merchant banking model and will invest in buyouts, as well as minority stakes in small-cap public companies; Invemed also may target corporate orphans and start-up companies. The firm will focus on the retail, medical technology and technology industries.

Most notably, the partnership will not use leverage in its investments. “I would rather take my chances on the income statement as opposed to the balance sheet,” Mr. Langone said, explaining that a leveraged company can collapse if it underperforms over a short time horizon.

Along the same lines, the firm will not be exiting investments in two to three years, as many firms do, but rather will stay in for five to 10 years so its portfolio companies will have time to grow. The fund has a 10-year life and the firm expects to exit most of its 20 to 25 investments through the public markets.

Mr. Langone heads New York investment-banking and brokerage firm Invemed Associates, which will manage the fund in conjunction with Gladwyne Partners. Based in Gladwyne, Pa., the group has a line-up that includes former Lazard Freres & Co., LLC directors Michael Solomon, Philip Young, Susan Goldberger and Robert Friedman. Several sources said investors whom Mr. Langone has approached have been concerned that he will be splitting his time between investing the fund and managing the investment banking group.

“I think clearly any investment we will make would include provisions that would tie him to the fund’s activity,” said Terry Blaney, who heads the private equity program at Delta Airlines and currently is reviewing the fund.

Mr. Langone maintained that his primary focus for the next 10 years will be on managing the fund. He added that he is making a significant investment in the partnership, thereby showing his interests are aligned with his investors, but he declined to provide further details.

Friends and Skeptics Abound

An impressive list of L.P.s that are friendly with Mr. Langone-including Armstrong World Industries, Chrysler Corp. and GE Equity-have indicated they will commit to the effort. Also, CMS Companies in February raised $150 million to commit to the effort.

Others in the institutional investor community have been less than enthusiastic. Gatekeepers have not responded well to the offering, nor have some public pension directors who were included in the marketing, industry sources said.

Critics say the fund lacks a defined focus and it is hard to fully understand Mr. Langone’s investment history.

Mr. Blaney, for example, said he liked Mr. Langone’s investment record and accepted the broad focus. However, he said he is not entirely comfortable with private equity firms investing in public companies and believes it is a reflection of an already-overheated private equity market.

Mr. Langone has covered the gamut in public- and private-equity investing and plans to use many of the methods he has used previously in investing this fund. He is best known for being on the ground floor of several multi-billion dollar companies, including Electronic Data Systems Corp. and Unifi, a textile maker.