Mr. Eckert formed the firm, initially called Greenwich Street Capital, in 1994 as the private equity arm of Smith Barney. In 1999, Greenwich's partners became full owners of the firm.
GSC has moved to Florham Park, N.J., from its first digs on Greenwich Street in Manhattan, and has evolved from a midmarket private equity focus to the debt side of the private market. The firm now specializes in control distressed debt investing, corporate credit, mezzanine lending and structured finance.
These days, GSC Capital is adding new areas. The firm is branching out into real estate and is soon expected to take public its real estate investment trust. In February, the firm launched a distressed debt hedge fund.
GSC, whose European mezzanine fund closed in 2000, is now expanding to Asia. Last November, it formed a joint venture with Tishman Speyer Properties LP, New York, to develop and acquire high-quality commercial, residential and mixed-use properties in China.
GSC is also broadening its management structure and is in the process of switching from a partnership to a corporation. In February, the firm promoted 22 executives, giving them all ownership stakes. GSC had raised $120 million in senior-term loan facility maturing in 2012 and a $20 million senior revolving credit facility in a self-recapitalization aimed at retiring existing debt and giving employees more of an equity stake in the firm.
While Mr. Eckert does not plan to retire soon, he is "institutionalizing" GSC to ensure the firm lasts long after he and other senior executives retire.
Why did you change to a debt focus from private equity? When I was figuring out what business to be in, (I thought) the last thing the world needs is another leveraged buyout fund. I didn't think we could have a competitive advantage. The way we do distressed is effectively buyout. We buy through bankruptcy. It's a niche way of playing the buyout business that appeals to me.
How did GSC get into real estate? We decided to go into structured finance in 2004. We hired Fred Horton from TCW for a hedge fund and REIT and several (mortgage-backed securities) deals. The REIT is not public, but we filed a registration statement under the name GSC Capital Corp. We created it last June as a private REIT in contemplation that it would go public.
When did you start your push into Asia? In the second half of last year. We entered into a joint venture with Tishman Speyer in China. We launched a fund (the $500 million Tishman Speyer GSC Asia) to develop high-end commercial properties in China.
Why are you concentrating your Asian investment efforts in China? It's a country that is going to be a big player in the world's economy. Already it has a very vibrant real estate business. Over time, it will develop into a more sophisticated capital market.
Will you be investing in any other areas in the world? We're not looking at any other country in Asia. If China real estate is successful and if the capital markets develop, we might see a mezzanine and credit business. It's logical to look at distressed debt in Europe. It's a logical tie in to mezzanine and corporate credit in Europe. Once the hedge fund is up and successful, we may broaden our hedge funds to Europe.
What is attractive about the hedge fund business? We see opportunities we could not do in a fund that takes controlled positions. Hedge funds are trading operations and a mortgage hedge fund is a good add-on. We're in the business of analyzing residential mortgages and CDO (collateralized debt obligation) mortgages. I would not want to start large in a hedge fund because in a hedge fund you have to invest immediately.
What new investment strategies are in the works? We are looking at the real estate mezzanine business in the U.S. … which will be a complement for our controlled distressed business.
Why? It's related to what we're good at: capital structure that has complexity … It may lend itself to a REIT structure for financings. It's arguably related to our mortgage business.
Do you see distressed opportunities in the United States? There isn't now and has not been in the last two years. I see corporate credit, buyout funds and Wall Street creating the next distressed cycle. Banks don't make loans, hedge funds do. Hedge funds make more loans than banks. There is a lot of supply.
Are you going public? We have no plans to go public at this time. We are incorporating now for better corporate governance and to attract and retain people. Our model is a multidisciplinary money manager. A partnership works for a monoline company … Leveraged buyouts make more of their profits from capital gains, and partnerships are more efficient if profits are from capital gains.
Is the refinancing related to the incorporation? The refinancing was a fund-raising opportunity. It was a way to refund the bank debt. The interest rate was relatively high and was to mature in 2007. We are cashing them out and restructuring the bank loan. We are exchanging preferred debt for new debt. There is an outside limited partner whose preferred stock is being redeemed by the refinancing. (Mr. Eckert declined to identify that partner.)
In February, you promoted 24 executives. Was this related to the refinancing? You can think of the refinancing as a separate thing. We streamlined our balance sheet and took advantage of good financing and we received a credit rating for the first time. (B1 senior secured rating by Moody's Investors Service Inc. and a B long-term counterparty credit rating with a stable outlook from Standard & Poor's Ratings Services.) … We are saving millions in annual debt costs.
We now have more senior, experienced people than we have dollars. There is a balance. How much money you can manage is determined by the depth of your bench. Before, we had more money. We spent a lot of time hiring and developing people. We have very low turnover. We made a lot of investment in people in the last five to seven years, and it is paying off now. The promotions reflect what we were doing to develop them.
Where do you see the firm in the future? We started from a captive buyout shop and are growing into a money management firm. We are now closer to my original objective to be a major financial institution that will last long after I've retired. ... We now have the senior management and we have the platform to manage more money. I think in the next three to five years we will significantly increase our assets under management in the business we are in and we will expand into related businesses, and we will do that in a profitable fashion. We have the management structure in place to do that, and I plan to be the active CEO during that time.
And after that? I intend to be the active CEO for at least the next five years.
Will you be retiring after five years? I only plan five years at a time. I plan to retire sometime, but I quite enjoy what I'm doing.