Larry Schloss has agreed to become the next chief investment officer for New York City, peHUB has learned. He currently is chairman and CEO of private equity firm Diamond Castle Holdings, and previously ran CSFB Private Equity and DLJ Merchant Banking.
The CIO position is one of several not yet officially filled by new NYC Comptroller John Liu, who took office earlier this month. It is unclear if Rita Sallis — CIO under former NYC Comptroller William Thompson — will remain in any capacity.
Schloss did not return calls from peHUB, while a Liu’s spokeswoman declined to comment. We did reach one of Schloss’ Diamond Castle partners, but he simply said: “You’ll have to talk to Larry.”
While we wait for official word, it’s worth briefly discussing what this move could mean for both Diamond Castle and New York City:
Diamond Castle: Sources tell me that Schloss was Diamond Castle’s godfather, but that he no longer spent much time (if any) in the deal trenches. As such, his departure will mostly be felt in terms of introductions — particularly if and when Diamond Castle begins trying to raise its next fund (Diamond Castle IV is over 70% called, according to LP documents).
I’ve been unable to learn how Diamond Castle’s keyman provision is written, but it’s unlikely to be triggered by Schloss’ departure alone. The firm has six other senior managing directors. This includes Michael Ranger, who was named alongside Schloss on SEC offering documents for Diamond Castle IV (which is really the firm’s first fund, but that’s a whole other story).
According to the Oregon State Investment Council, Diamond Castle IV had a -9.7% IRR through the end of Q3 2009. Its most recent deal came today, when it sponsored an add-on acquisition by existing portfolio company York Label.
New York City: Here’s a not-so-secret fact about Larry Schloss: He’s really, really rich.
In this particular time and place, that alone is a major job qualification. Schloss should be nearly impossible to bribe, and would have the flexibility to quit if he believes that Liu or others have begun to bend to undue influences (think Hank Morris).
What will be more interesting to watch, however, is how Schloss gets used to the organizational cluster$&*$ he’s about to inherit.
New York City actually has five public pension systems, of which four invest in private equity. Each of those mini-systems has a board of trustees but no independent investment staff. Instead, they rely on recommendations from the Comptroller’s office, which serves in a custodial and chief financial advisor role for each pension system (it also gets one vote on each board). The Comptroller’s office staffers also work closely with consultant Pacific Corporate Group, even though PCG reports directly to the different pension system trustees.
For a guy like Schloss who’s been his own boss for a while, his new role could take some getting used to.
Finally, I would hope that hiring Schloss signals that Liu doesn’t think as little of private equity as his predecessor did. Not because I care that NYC loves private equity, but because pensioners deserve to have a $12 billion-plus portfolio be managed by a dedicated individual.
Thompson officially had an available job for “Director of Private Markets,” but he allowed it to sit vacant for years (CIO Sallis did double duty). Moreover, Thompson once said that he’d add new private equity staffers to reduce possible overwork caused by his placement agent ban, but never did so. I assume and hope that Liu and Schloss will do better.