GTCR isn’t swayed by the Obama administration’s recent spate of consumer finance protection regulations. In fact, the Chicago-based private equity firm plans to enter the sector with full force. Yesterday the firm announced it will dedicate $300 million to create a consumer credit platform led by Michael Rhodes, the former Vice Chairman of MBNA, which sold to Bank of America in 2005 for $35 billion.
The platform, called Palladian Financial Holdings, seeks to buy businesses and assets that deal with consumer credit, payments and rewards programs. In other words, companies that, directly or through partnerships, facilitate a bond between consumers and their credit providers. If that seems like a very narrow niche, that’s because it is. GTCR touts “consolidating fragmented industries” as one of its specialties. The sector is “target-rich,” said GTCR Principal Collin Roche.
Roche said the company is unfazed by the President’s proposed overhaul of consumer protection laws which are unfavorable to providers of credit. He said the long term value proposition on consumer credit investments is strong. “No one disagrees with consumer credit being core or important to a functioning economy,” he said.
Further, he argued that with the financial services industry in a state of fluctuation and its largest players facing challenges, there is an opportunity for entrepreneurial and agile companies to build themselves.
The firm is banking on innovation from Rhodes, who helped bring MBNA to colleges, retailers and professional associates across the world, to drive Palladium’s growth. When asked if a $300 million venture would be small potatoes to Rhodes, who ran MBNA Europe after the sale to Bank of America, Roche said the venture should not be limited to that figure. “There’s a good chance we’ll have co-investors down the line,” he said. Additionally, Rhodes has committed to investing an undisclosed amount alongside GTCR in the deal.
It’s not the firm’s first foray into financial services. In 2006, the company invested in BNY ConvergEx Group, a technology securities business carve-out from Bank of New York. The company has completed two add-on investments since the initial investment. In 2007, the firm did a $100 million PIPE into Nasdaq-traded Private Bankcorp, an institutional investment firm. Earlier this year the firm announced an investment in an insurance business called Ironshore Inc. worth $200 million.
The $300 million commitment to Palladian comes from GTCR’s ninth fund, a $2.75 billion pool closed in 2006. The fund is around half committed, Roche said.