Former NFL star Ronnie Lott has resigned as an executive with Capital Dynamics, the Swiss alternative asset manager that earlier this year assumed management control of funds-of-funds raised by Lott and others under the HRJ Capital brand.
In a brief email obtained by peHUB, Capital Dynamics thanked Lott for “for his contributions to the company and wish him well in his future endeavors.”
For the uninitiated, HRJ was formed in 1999 by ex-San Francisco 49ers stars Lott and Harris Barton, with Joe Montana joining the following year. It was originally called Champion Ventures, and invested professional athletes’ money in venture capital funds like Accel Partners, Benchmark Capital, Kleiner Perkins Caufield & Byers, Mayfield Fund, MDV, Sequoia Capital, Summit Partners, Redpoint Ventures and Technology Crossover Ventures. Montana left in 2006, by which point the since-rechristened HRJ Capital had broadened both its investor base (institutional investors) and investment strategy (buyouts, real estate, hedge).
It was one of the Valley’s most popular investment shops, but was ultimately felled by a dangerous reliance of “warehouse loans” — or bridge financing that allowed HRJ to invest out of funds-of-funds that weren’t actually raised yet. This worked fine when the fund-raising environment was rolling, but proved disasterous late last year when HRJ invested nearly all of a $250 million-targeted fund that only managed to raise between $110 million and $130 million.
HRJ subsequently defaulted on its loan to Silicon Valley Bank, which included certain management company assets, including revenue streams, as collateral. The immediate result was that many paychecks stopped being printed, and personnel began departing. Sources also say that the collateral included some of Lott and Barton’s personal assets, including at least part of the mortgage on one of Lott’s homes.
Around three months after the default, Capital Dynamics agreed to swoop in and take over management of the HRJ funds-of-funds. It also reached an agreement with Silicon Valley Bank, which included at least a partial repayment of the defaulted loan. It is important to note, however, that Capital Dynamics did not acquire HRJ Capital itself, a shell company that wound down operations save for some pending litigation brought by ex-employees.
The goal for Capital Dynamics was to expand its U.S. fund-of-funds business, which was formed in 2005 via the acquisition of Westport Private Equity. It specifically cited the expected contributions of Lott and Barton, who are both known to have deep relationships within the Silicon Valley investment community.
Capital Dynamics is not currently commenting on Lott’s departure — the firm says personnel matters are private — but conventional wisdom is that Barton was more important than Lott, who had spent the past several years working on a hedge fund platform that is no longer operational. Barton, on the other hand, continues to be out and about, particularly as part of the effort to raise a new fund-of-funds called Champion Ventures VII.