Todd Boehly Makes Money by Thinking Inside the Box

%THE DOW JONES BUSINESS AND FINANCIAL WEEKLY www.barrons.com APRIL 12, 2019 A Michael Milken protégé mixes annuities with stakes in the Los Angeles Dodgers and Hollywood Reporter. Todd Boehly Makes Money by Thinking Inside the Box By Mary Childs Photograph by Cole Wilson Todd Boehly’s visit to Topeka, Kan., wasn’t going as planned. It was one of his earlier trips in his negotiations to buy life insurer Security Benefit, but one dark morning in 2010 after his cab dropped him off, he found that the doors of his hotel did not open. The front desk was empty, his cab gone. A managing partner of the investment firm Guggenheim Partners, he walked across the highway to another hotel and took its last available room. But it reeked of smoke. So, wrapping himself in the hotel sheets, he walked outside to a park bench, laid down, and closed his eyes. That didn’t work either, so he went to Security Benefit’s offices at 5 a.m. and waited outside for it to open. On his next trip Boehly (pronounced “BO-lee”) stayed at the Eldridge Hotel, a 30-minute drive away in Lawrence, for a more reliable outcome. Boehly not only bought Security Benefit for Guggen- The simple version of Boehly’s method is that he builds heim that year, but he eventually also purchased the insurer a box and then puts assets in it. from his former employer. It’s now the center of a sprawl- “Most things are boxes that own things. And it’s not the ing constellation of investments overseen by Boehly’s firm box itself that’s good or bad—it’s what’s in the box,” Boehly Eldridge Industries. The group has produced everything tells Barron’s. “Everything is structured.” from annuities through its insurer to a stock (with more Generally, Eldridge provides the capital to build the box, expected) that it successfully spun off into the markets for which is a company, and then money from Security Benefit retail investors. buys the things to put in the box that Eldridge built. Those Among the holdings: Dick Clark Productions, 17 acres of things generate cash flow, which provides income to pur- Beverly Hills real estate, and the Beverly Hilton; a ware- chasers of Security Benefit annuities. Often, they have been house-leasing manager; the Hollywood Reporter; a Qual- bundled and punched out in a neat securitization package. ified Opportunity Zone venture; the Oscar-winning film Other times, Eldridge puts up money to build or seed a com- distribution and production company A24; a farm-financing pany, and then Security Benefit buys whatever securities entity in Texas; and about 7% of the National League cham- that company ends up issuing. pion Los Angeles Dodgers (Boehly personally owns 20%). To explain, Boehly draws rectangles on a whiteboard, (over please) THE PUBLISHER’S SALE OF THIS REPRINT DOES Not CONSTITUTE OR IMPLY ANY ENdoRSEMENT OR SpoNSORSHIP OF ANY PRODUct, SERVICE, COMPANY OR ORGANIZATION. 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At Security Benefit, Boehly refo- (OGULGJH ,QGXVWULHV cused on “the idea that retirement &UHGLW &RQVXPHU 5HDO (VWDWH income is only going to go up in im- &%$0 WK )ORRU (QWHUWDLQPHQW 1RUWK &UHVFHQW portance, because as the world ages, 0DUDQRQ $XULI\ %UDQGV &DLQ ,QWHUQDWLRQDO retirement income is going up in 2QH6N\ &ORXG z $OOEULJKW value,” he says. “We wanted to be the z 6WRQHEULDU &RPPHUFLDO )LQDQFH 'UDIW .LQJV 7KH %HYHUO\ +LOWRQ cutting-edge retirement income prod- /$ 'RGJHUV z ,VOLQJWRQ 6TXDUH 13& ,QWHUQDWLRQDO z 7KH 6WDJH /'1 ucts,” offering an annuity with a va- ,QVXUDQFH 5HWLUHPHQW 2QH6N\ z 7KH 6W -DPHV riety of guarantees and interest-rate z 6( 6SRUWV1HW/$ 6ZLQJHUV options. z 6HFXULW\ %HQHÀW 9DOHQFH 0HGLD 8QD 5HVLGHQFHV Boehly, now 45, learned over a ca- z %LOOERDUG z :DOGRUI $VWRULD z 'LFN &ODUN 3URGXFWLRQV &KDYH] 5DYLQH reer at Credit Suisse First Boston, and 1RWH ,WDOLFV LQGLFDWH D QRQFRQWUROOLQJ z LQYHVWPHQW1R LWDOLFV LQGLFDWH D FRQWUROOHG 7KH +ROO\ZRRG 5HSRUWHU (OOLRWW %D\ &DSLWDO 7UXVW then J.H. Whitney, that he was good RSHUDWLQJ FRPSDQ\ z 05& (VVHQWLDO 3URSHUWLHV at evaluating credits in their different 2QH6N\ FRPSULVHV ERWK FRQVXPHU DQG z FRUSRUDWH HQWHUSULVHV $ 3UHVFLHQW shapes and packages, but he was also z )XOZHOO 3URGXFWLRQV 6RXUFH (OGULGJH ,QGXVWULHV good at creating intricate transactions and structures that he tried to opti- filling them with hypothetical, in- to spend your time getting organized, mize for risk appetite, investing time come-producing loans, or leases for you’d miss it.” horizon, ratings, and regulatory capital warehouses, or Pizza Hut franchises. It’s easier thanks to the latitude treatment. “These are institutional asset strat- CBAM is given: “We loved the fact we But the Security Benefit deal at- egies where we have two vectors didn’t get a phone call from Eldridge tracted scrutiny from regulators. working for us: We make the rate of or Security Benefit in any kind of pan- When Boehly invested in Security return here”—on the whiteboard he icked situation; they know we’d been Benefit, he took a $50 million loan from taps the things inside a scribbled rect- through these cycles before.” Michael Milken, one of Guggenheim’s angle—”within the warehouse, and That’s a reflection of the reputations biggest clients. In 2015, the Securities we make the rate of return here”— of Boehly and his managers, and the and Exchange Commission said that the business equity, the rectangle it- flexibility that Security Benefit brings. Guggenheim, in failing to disclose to self—”as we build the business.” Insurance assets are in no rush, which investors a personal loan from a client, The growing Eldridge empire puts can be a superpower for an investor. had committed a breach of fiduciary a point on the importance of smart At the same time, “long-dated income” duty. Guggenheim paid a $20 million structuring by, for example, giving in- is harder to find in the marketplace, fine, without admitting or denying the vestors the advantage of an insurance Boehly says. findings. Through a spokesperson, the product’s built-in tax-deferral; and the “If you can persuade people to stay firm told Barron’s that it does not com- advantages of a long time horizon, the with you for 30 years, 40 years, and ment on regulatory matters. Boehly kind that smart pension funds capital- you can give them persistency cred- also declined to comment on it. ize on, as money compounds peacefully, its for staying with you longer—that’s Soon afterward, Boehly felt that it without the turbulence of trading or all the stuff we’re thinking about,” he was time to strike out on his own. Gug- switching to new funds. says. genheim was increasingly focused on The box-with-things-in-it approach When Boehly arrived to pitch Se- fixed-income asset management and is exemplified in CBAM, an important curity Benefit in 2009, the insurer was investment banking, and was less en- fixture in the Eldridge firmament. The a mess. It had bought a mutual-fund thusiastic about the deals that Boehly manager of collateralized loan obliga- manager with $20 billion under man- was excited about, like in real estate tions invests some $11 billion, $4 billion agement, Rydex, just as asset prices or media. of which is Security Benefit’s. Eldridge plummeted in the financial crisis. It So, Boehly bought some of the as- owns some of the business’s equity, needed some $400 million to recap- sets he had collected at Guggenheim, which will appreciate if assets grow. italize and regain its footing. Boehly like Dick Clark and The Hollywood In the violent selloff of December persuaded Security Benefit’s CEO to Reporter, and set off to found his own and January, CBAM traded $2.4 bil- hire Guggenheim to manage its gen- private investment firm. The firm has lion of paper, buying as mutual funds eral account, and to help find capital. a private market valuation of $6 bil- sold to meet redemptions, snapping up He ended up investing in a group along lion. Boehly is the controlling investor, loans with higher coupons and better with Guggenheim to buy Security Ben- but about 90% of Eldridge is owned ratings, at lower dollar prices, says efit, closing in 2010. substantially by a partnership between Mike Damaso, who runs CBAM. The group injected $400 million to Boehly and Swiss billionaire Hansjög “Normally, you can’t do all three,” improve Security Benefit’s financial Wyss, and the rest is held by the firm’s Damaso says. “That was a very short strength ratings, and sold Rydex to management and a small number of window, really over in a few weeks. Guggenheim. Rydex became the plat- outside investors. There wasn’t a lot of time; if you had form for Guggenheim’s mutual fund of- And it is growing: Eldridge has just raised $1.36 billion of common stock, Take AllBright, a women’s network- was co-head of Guggenheim’s corpo- issued to a partnership mostly owned ing/co-working space. It’s opening in rate credit group, got it. by Wyss. West Hollywood, in L.A., competing “I felt that it would serve them ex- The businesses that Eldridge owns with the Riveter, the Jane Club, and tremely well over the years,” Milken don’t have to stay in the private El- soon the Wing.

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