The state board's 2008 annual report carried its investment in Valor at a face value that was 8% less than its cost. Overall, the face value of the pension funds' private-equity investments was 19% below cost.
While declining to provide figures, Mr. Gracias said that his was one of the few private-equity funds to end 2008 in the black.
Throughout, Mr. Gracias has hewn to a guiding principle: “We are fundamentally business builders,” he said.
But not just any businesses.
He looks for companies in industries where he expects demand to rise — recent attention to the environment will fuel demand for zero-emission cars like Tesla, he believes — and that can benefit from changing demographics like the aging of the population (he bought a home health agency last year, betting that growing numbers of elderly will boost demand for such services). Then he fixes them.
“We look for companies with strong demand potential,” he said. “And we're also bottom up — we use our resources to improve the business.” His team spent time in France helping Tesla with problems in a factory, for instance.
To date, Valor's biggest investment has been in Salt Lake City-based Sizzling Platter LLC, an umbrella company with 86 Little Caesars Pizza outlets and 34 other restaurants — including Sizzler steakhouses — under its wing. Mr. Gracias declined to say how much money he's invested in the company or what its returns have been. But the unit has been on an acquisition tear, most recently last month with the purchase of a Little Caesars Pizza operator called Pizza Pizza Co.
Valor also owns a pipeline company in Texas and operates a ski resort in California, an Atlanta skin-products company called Astral Brands Inc. and North American Coatings LLC. It is putting $40 million into Valor Home Health Care LLC.
But without question, Mr. Gracias' splashiest investment is in Tesla. When he was starting his first fund, he also was earning a law degree at the University of Chicago. There he met David Sacks, who went on to become PayPal Inc.'s chief operating officer.
Mr. Gracias invested in PayPal, an online payment service, and along the way was introduced to PayPal co-founder Elon Musk. The two struck up a friendship, and when Mr. Musk decided to back the company that would become Tesla Motors Inc., he invited Mr. Gracias to put in some of his own money as well. At the time, the world's first high-speed electric car was just a prototype in a garage.
Before investing his own funds, Mr. Gracias brought the proposal to the board of Valor, which decided to put some of the fund's money behind it as well. Mr. Gracias has a seat on Tesla's board, and his Roadster is the fourth one to be built.
The San Carlos, Calif.-based company plans to roll out a sedan next year (Mr. Gracias has reserved the second one off the assembly line, after Mr. Musk) and has ambitions for an initial public offering in 2011.
The recession has been tough, Mr. Gracias said. But, he said, his firm managed to cut costs at portfolio firms and keep making acquisitions despite the lack of access to credit.
“He'll put money into an undermanaged business; he'll put people into it,” Harris Associates' Mr. Herro said. “He will not let something fail.”
Ann Saphir is a senior reporter at Crain's Chicago Business, a sister publication of Pensions & Investments