Following the final close of its latest fund, CRG is preparing for a changing of the guard, as firm founder Charles Tate prepares to hand the reins to current president Nate Hukill.
As part of the succession plan, Hukill will begin to fill Tate’s shoes once CRG III, which hit its hard-cap of $1.25 billion in equity commitments, completes its investment period. Through leverage, the firm will gain approximately $2 billion of investable capital in CRG III.
Once the investment period wraps up, Tate’s compensation from CRG will come entirely from a share in future performance of the Houston-based healthcare investment firm for a five-year period and a portion of the carried interest on the firm’s fourth and fifth funds.
In addition, Tate told Private Debt Investor that the Founders' Group, created as part of the succession plan, will receive his portion of the firm’s cashflow declines over the five-year period transition period, becoming available for reallocation to the other group members.
Along with Hukill, the Founders' Group consists of David Carter, Andrei Dorenbaum, Luke Duster and Mike Weinmann, all four of whom are managing directors, while Dorenbaum also serves as the firm’s general counsel.
Corporate governance also features in the plan.
“Under current governance for the firm, all investment decisions must be unanimous among members of the Investment Committee,” Tate said. “For all non-investment decisions, however, while consensus is desirable,” ultimately he has the ability to decide.
“This control feature will be passed on to Nate… once the plan becomes effective,” he finished.
“It was mentioned [that I could take Charles’ place] at the beginning, but it became clear I needed to earn it,” Hukill said, referring to when he joined CRG from Highland Capital Management in 2009. “I think that over several years I was able to do that, but I was certainly held accountable for building the firm and delivering on my promises.”
“I don’t believe I would have started those discussions if Nate didn’t have the qualities and capabilities to succeed me,” Tate said. “The founder or person in charge has to have confidence in others who will serve interest in investors and people within firm.”
Tate’s early experience at Morgan Stanley and time at Hicks, Muse, Tate & Furst shaped his view for what he wanted CRG to be, he said. He was at Morgan Stanley when the investment bank went public in 1986, which he found had a negative impact on the firm’s culture.
“While the advisability of going public was certainly a sound one, I thought the impact on the culture was not positive,” he said. “That’s an important experience that shaped my view on what to do at CRG.”
His time at Hicks Muse, Tate & Furst, a firm he joined in 1991, taught him the importance of rigorous execution of an investment thesis. He left the firm in 2002. Experience at both predecessor firms shaped his view that extreme caution should be exercised in bringing in outside investors not actively involved in the firm’s day-to-day activities, he said.
CRG almost had to start at square one when it switched strategies from their first fund to their second fund, going from investing in royalties to investing in debt and equity.
“The biggest obstacle was rebuilding the investor base,” Hukill said. “Charles and his previous team had an investor base that was investing in pharmaceutical royalties. We [now] make investments in both debt and equity in commercial-stage healthcare companies. When we marketed Fund II, investors saw that the strategies were different.”
“Healthcare is a great space to invest,” Hukill added. “People continue taking their medications even when financial markets aren’t doing what we want them to.”