Family matters

On the morning of his interview with PDI, Lawrence Golub was dashing off to catch a flight to Boston to attend a Harvard Business School event with his 17 year old daughter. The event, which was also sponsored by the Young Presidents Organization, hosted 25 company chief executives from around the world, together with their teenage children, to introduce them to Harvard’s business program. As part of the event, the teenagers would work on a business idea and plan to pitch to venture capitalists later that weekend.

Lawrence, the founder of his eponymous private debt firm Golub Capital, and whose daughter is interested in studying marketing, says he wouldn’t be surprised if several of his children (he has two sets of 17 year old and 13 year old twins) went into finance. After all, it’s something of a family tradition. 

Karen Finerman, Lawrence’s wife, runs her own hedge fund, Metropolitan Capital, and is a frequent participant on CNBC’s Fast Money. His younger brother, David Golub, is a president at Golub Capital. Lawrence has the title of chief executive and says he and his brother are partners. They disagree all the time, but being brothers, they’ve been taught to play nice since an early age.

“David and I have been best friends since before he could speak. Growing up, we played together every day, we fought together every day and we had to make up every day. We have disagreements, but I have disagreements with [the other senior people at the firm], too.” Lawrence says that when these situations arise, they talk it out and figure out who feels more strongly about the issue.

“We actually say, ‘Are you pounding the table on this?’ And if someone says, ‘Yes, I’m pounding the table on this,’ then it’s our culture for the rest of us to defer to that,” he explains. “The only real sparks fly when two people with opposite points of view both say that they’re pounding the table and we have to work it out. But it doesn’t happen often.”

While they may not be blood relatives, the other senior executives at the firm have been introduced to Golub by friends or friends of friends who worked there, with many having ties to David, who joined the firm in 2003 from mid-market private equity firm Centre Partners Management. “Far and away our biggest source of recruits has been via internal referral; there’s very little recruiting through search firms or bringing in of people we didn’t already know,” David says.

Whether it’s a trait they’ve picked up at Golub or one they’ve had all along, a theme that permeates among seemingly all the employees at Golub is a tendency towards caution and a conservative approach. Although the firm has experienced a significant uptick in assets in the past few years – finally reaching the $10 billion mark at the beginning of this year and jumping to number ten on this year’s PDI 30 ranking from 27 last year – the dealmakers and business development executives at Golub have always taken a measured approach to growth. Golub tends to avoid deals that might be too risky, even if they might deliver better returns. The firm’s dealmakers also spend a lot of time figuring out which companies and sponsors to pursue; aiming to partner with the same PE clients on a recurring basis, rather than aggressively pursuing new ones. And in its negotiations with investor prospects, Golub would even forego relationships with LPs where they don’t feel like the firm’s own products are the best fit for the LP’s strategy.

FIRST STEPS

Golub Capital got its start in 1994, when Lawrence struck out on his own after spending a year at the beleaguered Bankers Trust where he wanted to set up a similar business and needed approval from four senior executives. “I got two of them to say yes, and the other two couldn’t even focus,” (It was around the time the bank was starting to have problems with its derivatives pricing, which eventually led to its demise). When he decided to start Golub Capital, he mostly collected money from friends and former colleagues at Allen & Company, where he spent six years prior to Bankers Trust. One notable anchor investor in Golub’s first fund, which raised $19.6 million, was Dan Lufkin, one of the founders of investment bank DLJ, whom Lawrence knew from Allen & Co., but didn’t think he’d manage to get on his radar. 

When he called Lufkin and asked for an appointment, Lufkin agreed to it right away. Lawrence went to his office to talk about his strategy. “I sat down with him for about half an hour. He gave me a few ideas, he thought the strategy was interesting and I felt very good to get that gratification from him. Then I thanked him and as I got up and started walking out and he said, ‘Well, wait, where are you going? You haven’t asked for the order. Aren’t you going to ask me to invest?’” Lawrence recalls.

Lufkin, who is a Wall Street legend and environmental philanthropist, put in half a million at the time. Stanley Shuman, Lawrence’s former boss and mentor at Allen & Co., who is still a managing director there, was also an investor in the first fund. Lufkin has invested in every fund ever since and has been an avid participant in the growth of the business. “He sends us the most gracious, handwritten notes on our reports,” says Lawrence, who has by now collected a stack of these letters from Lufkin.

The first fund finished investing around 1999. It returned north of 19 percent and gave the money back to investors over the next five years. With a track record established and more investors introduced to the firm via existing relationships, Golub set out to launch its second fund. That one raised $200 million entering 1999, but only invested $4 million initially. “The internet boom was going crazy, the telecom boom was going crazy, and in 1999-2000, with a brand new fund, we only invested a grand total of $4 million,” Lawrence recalls. “It felt like utter failure, but then the financial markets contracted, we hit a recession and, by luck, we looked like geniuses,” he adds.