W.L. Ross Reaches New Heights –

While private equity returns are generally shielded from public scrutiny, a good barometer to gauge a fund’s success would be to monitor the size of fits succeeding vehicle. The “winners repeat” strategy dictates that strong performance begets robust demand. If there are any doubts, consider the enthusiasm surrounding new vehicles from Blackstone Group, Apollo Management, Sun Capital Partners, and others that either have or are in the midst of raising exponentially larger follow-up vehicles.

Another name to add to that list is W.L. Ross & Co. Riding the success of its International Steel Group investment, the New York-based turnaround firm, according to SEC filings, has raised $1.1 billion for its latest fund, WLR Recovery Fund III LP, representing a more than two-fold increase over the its previous effort, the $450 million WLR Recovery Fund II, LP.

Wilbur Ross, the namesake and founder of the firm, started his career path in the bankruptcy advisory group at Rothschild Inc. That was in 1976, and from that time to 2000, Ross and his team assisted in restructuring $200 billion worth of corporate liabilities. Moving from advisor to investor in 1997, Ross, while still at Rothschild, increased his focus on buying distressed securities. In 2000, along with his 20-person team, Ross spun out from the investment bank, creating W.L. Ross & Co.

The new group began small. The firm’s two funds, the Rothschild Recovery Fund and the Asia Recovery Fund had roughly $450 million in combined capital. With the separation from Rothschild, W.L. Ross expanded its international focus, opening offices in Japan and Korea, and much of its early activity was dedicated to those regions.

However, the W.L. Ross story, to most, begins with its activity in the U.S. Distressed deals are an acquired taste to begin with, but the firm’s palate has savored certain industries others wouldn’t dare try to stomach.

First came the firm’s seemingly innocuous bet on steel. In the midst of a wave of bankruptcies that took down more than 30 steel outfits, W.L. Ross spearheaded the $325 million acquisition of Cleveland’s LTV Corp. The investment was goosed temporarily when President George W. Bush imposed tariffs on steel imports. However, the linchpin to the deal came through reworking the union contracts and consolidating the industry with a series of acquisitions, including Bethlehem Steel and Acme Steel. With the turnaround in place, Ross took the company public in 2003, and earlier this year engineered its sale to Mittal Steel Co., locking in a 13x return on the deal.

Ross has made similar wagers in the textile and coal industries, and the firm has filed to take its International Coal Group platform public in a $250 million IPO. International Textile Group, meanwhile, is continuing its consolidation run, and after merging the operations of Burlington Industries and Cone Mills Corp., W.L. Ross had battled Carl Icahn for control of WestPoint Stevens, eventually losing the struggle in June.

The firm’s two predecessor funds, WLR Recovery Fund and WLR Recovery Fund II, have been nearly unrivaled in their success. The funds, according to CalPERS, have returned 3.4x and 3.5x their investments, respectively, achieving IRRs of 35% and 108 percent.

In addition to the firm’s primary turnaround funds, W.L. Ross has continued to expand the franchise. Last year the firm teamed with Philippe Nguyen’s Investors in Private Equity to launch the ?250 million Investors in Private Equity (IPE) Expansion Fund to invest in LBOs and build-ups in Europe. Meanwhile, this past May, Ross partnered with Masters Capital Management to create a nanotechnology investment vehicle.

According to the Form D filings with the Securities and Exchange Commission, the minimum investment the firm accepted for its latest fund was $5 million. The fund accepted contributions from 68 accredited investors, none of whom were identified in the filing, and there was no placement agent mentioned either. Calls to W.L. Ross & Co. were not returned by press time.

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