Vulture capitalist or industrial saviour, Wilbur Ross thrives on crises.
Variously described as a 'restructuring specialist', 'bottom feeder', 'bankruptcy king' and 'vulture capitalist', Wilbur Ross has made a fortune buying distressed assets.
Background and early career
Wilbur Louis Ross was born in 1937 in Weehawken, New Jersey, the son of a lawyer and a school-teacher. His two-hour daily commute to Xavier High School in Manhattan appears to have been worthwhile, as he was accepted into Yale, his father's alma mater, from which he graduated with a bachelor of arts degree in 1959.
Although displaying a strong literary bent, he decided to pursue a career in business after a faculty advisory arranged a summer job for him on Wall Street. In 1961 he graduated with distinction from Harvard Business School's MBA program.
By the mid-1970s he had become a specialist in bankruptcy, and joined Rothschild as an advisor. He stayed with the firm for many years, setting up a private equity fund in the late-1990s targeting distressed assets, before eventually setting up WL Ross & Company in 2000.
Investment Style
While Ross is largely associated with rust-belt industries -- mid-western steel mills, southern textile plants, and Appalachian coal mines -- he is really agnostic as to the industry sector, investing wherever companies are in trouble.
With a background in bankruptcy, he tries to identify companies that will fail, and often short-sells these where he can. But he also understands what can be salvaged, and what has to be done to give it value. The bankruptcy process itself is often an essential part of the deal, allowing liabilities to be hived off, and making otherwise doomed businesses viable again.
A classic example of this was his investment in America's ailing steel industry, which was weighed down by pension and health-care obligations -- the bankruptcy process allowed the health-care responsibilities to be reduced, and the pensions to be transferred to the taxpayer via the Pension Benefit Guaranty Corporation. In 2004 he sold International Steel Group to Lakshmi Mittal for $4.5bn, making fourteen times his initial investment in just two years.
But the company he sold was much more efficient than the companies he bought, as he was able to more than halve the man-hours required per tonne of steel. Ross is keen to point out that "every single [steel] company we bought would have been liquidated had we not bought it".
It's those sorts of debt- and efficiency-related problems that attract Ross. Often these situations can be ironed out more quickly than litigation or fraud issues, although these too can present opportunities, as in the case of Indian computer services company Satyam.
Current positions
Ross loves companies in crisis, and what could be more of a crisis than the banking chaos we've seen over the past year. By the end of June, two-thirds of Ross's portfolio was in financials, and as a result he's estimated to have considerably outperformed the market rally of the past six months. Despite this positioning, he thinks we are probably in a suckers rally.
He is currently looking at casinos, many of which have big debts, and expects to continue investing in old-economy businesses like rail cars and automotive parts. As far as Detroit is concerned, his opinion earlier in the year was that, even at very depressed sales levels, "there ought to be a way for someone to make a living from a $100bn business".
Politics
A supporter of the Democratic Party, Ross is also a strong advocate of protectionism. He regards it as one of the biggest mistakes of the last administration that they allowed Lehman Brothers to fail, and thinks another stimulus package will be needed in order to get the economy moving.
By the end of 2010 he predicts that 500 American banks will have failed, which is interesting when you consider that only 87 have failed so far this year. These tough times ahead will doubtless provide more investment opportunities.
Describing himself as "the luckiest person alive", Ross says his biggest blunder was "waiting until [he] was older than 60 to go into business on my own. I should have done it sooner". We can only speculate on where he'd be today if he had done so.
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