Marron’s Reputation Pays Off For Lightyear –

Donald Marron still has cachet. The former chairman and chief executive officer of the Paine Webber Group Inc. and now the founder of Lightyear Capital has rounded up $750 million from four main investors to invest in and buy financial services companies.

Raising three-quarters of a billion dollars for a debut fund in a rough environment is a Herculean effort, which speaks to the reputation Marron has built over the years.

Marron, who ran PaineWebber for 20 years and oversaw its sale to Swiss conglomerate UBS, departed in 2001 amid speculation that he would enter politics. Rumors had him joining the Bush Administration, heading the Securities and Exchange Commission or running for the Senate as a Republican from New York.

Politics may still be in the picture. But, for now, his commitment to private equity is keeping him busy. His firm has 27 employees, yet Marron declined to name any of his managing directors. He said he would release the names together in an upcoming announcement about the firm, its fund and its first majority stake deal, which closed last week.

Lightyear Fund’s limited partners include Caisse de Depot of Quebec, GE Equity, UBS, which reportedly gave $500 million, and a Japanese insurance company.

“These are all very sophisticated investors, and we share similar experiences in the financial services segment of investing,” he said.

Besides the common thread of financial services and Marron’s reputation, another draw to investing in the fund was the opportunity to co-invest on deals.

“I don’t want to speak for the investors’ motivations, but in general I think that co-investing is appealing to most investors these days,” Marron said, adding that LPs co-investing will be typical for future Lightyear deals.

Deal No. 1 Down

In its first buyout deal, Lightyear Capital purchased Collegiate Funding Services (CFS) for an undisclosed amount. Marron said Lightyear would typically commit about 10% of the fund to one deal; this one wasn’t far off that mark. Trust Company of the West arranged the debt financing and was a co-investor, along with Caisse de Depot and GE Equity.

CFS is a student lending company that develops and markets financial solutions to meet the specific needs of the higher education and postgraduate communities.

Through its Real World Loan consolidation, collegexit, and the soon to be launched Enlighten Parent PLUS Loan programs, CFS caters to student and parent education loan borrowers. The company has two offices in Fredericksburg, Va., where it is based; and satellite operations in Pinellas Park, Fla., employing more than 1,000 people.

J. Barry Morrow, formerly president and chief operating officer of CFS, will serve as CEO. The company’s co-founders, Gary Frazier and Danny Darby, will continue as consultants.

Lightyear Capital is not committed to financial services exclusively, since CFS does not fall into that sector. It was nonetheless appealing, Marron said.

“This company is both in a high-growth area (student loans), and it has new products, but it’s also involved in securitization, so it fits several of the areas we’re interested in.”

Financial services companies will be Lightyear’s main focus for their consolidation opportunities around the world.

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