Bloomberg News

Mack Starts Fund-of-Funds With Investor for Magic Johnson

October 19, 2012

John Mack Starts Fund-of-Funds With Investor for Magic Johnson

John Mack, known for cutting costs, not only ran Morgan Stanley and Credit Suisse First Boston at separate points, but also did a brief stint in 2005 as the chairman of what was once the world’s largest hedge fund. Photographer: Peter Foley/Bloomberg

John Mack, the former head of Morgan Stanley, is going into business with a 77-year-old tax lawyer who oversees more than $15 billion in investment assets for clients such as ex-basketball star Magic Johnson and the founding family of Estee Lauder Cos.

Joel Ehrenkranz, who co-founded a tax and estate legal practice with his brother Sanford in 1966, joined forces with Mack to start fund-of-funds manager E&M Advisors LLC, according to a registration filing last month with the U.S. Securities and Exchange Commission. E&M expects to raise $500 million this quarter to invest in outside hedge funds and private-equity deals, the firm said in the filing.

Mack, a onetime bond salesman and trader, could help E&M Advisors attract assets from corporate executives and private- banking contacts cultivated during the course of his 35-year career at Morgan Stanley (MS:US), said Brad Hintz, a bank and brokerage analyst at Sanford C. Bernstein & Co. Since leaving as Morgan Stanley’s chairman at the end of last year, Mack has become an adviser to companies including buyout firm KKR & Co., where he signed on in March.

“John’s Rolodex would be mammoth,” said Hintz, who worked for Morgan Stanley from 1986 to 1996 as a managing director and treasurer. “The classic model of Goldman Sachs and Morgan Stanley was you had the relationship with the company and the executive.”

Daniel Schloendorn, a partner at the law firm Willkie Farr & Gallagher LLP who represents Ehrenkranz, said his client declined to comment. Mack said in a brief interview that he had simply lent his name to the venture.

“We have no plans,” Mack said. “I’ve just known Joel for a long time.”

Brief Stint

Mack, who developed a reputation over the years for cutting costs, not only ran Morgan Stanley and Credit Suisse First Boston at separate points, but also did a brief stint in 2005 as the chairman of what was once the world’s largest hedge fund. In June of that year, he joined Arthur Samberg’s Pequot Capital Management Inc., based in Westport, Connecticut-based, before going back to Morgan Stanley at the end of the month as chairman and chief executive officer.

After exiting the New York-based bank last December, the Wall Street veteran set up John Mack Advisors LLC, according to Delaware state records. E&M Advisors was incorporated two months later, with John Mack Advisors and Ehrenkranz’s E&E Capital Advisors LLC both holding 50 percent stakes, according to the September filing.

E&M Advisors said in the regulatory filing that its first fund-of-funds will allocate assets to third-party money managers who “utilize a broad range of investment strategies,” and may also make direct investments in operating companies as well as co-investments with private-equity funds.

Fund Fees

When allocating money to hedge funds, Mack and Ehrenkranz plan to charge their investors an annual management fee equaling 1.5 percent of net asset value, while taking a fee equaling as much as 2.5 percent of the cost of each private-equity deal. The fund of funds will also charge performance-based fees equaling 5 percent to 25 percent of profits, depending on investment type, according to the SEC filing.

John Ehrenkranz, Joel’s 47-year-old son, worked as a managing director at Morgan Stanley Capital Partners, the brokerage’s merchant-banking division, from 1996 until 2004, when he joined his father’s investment-management business, according to regulatory filings. The elder Ehrenkranz is active in the same New York philanthropic circles as Mack, serving as a trustee at the Whitney Museum of American Art, the Museum of Modern Art, the Mount Sinai Medical Center and the New York University School of Law.

Lauder Family

Joel and his brother Sanford, 73, started a tax and estate planning legal practice 46 years ago that catered to high-net- worth individuals, such as the Lauder family, SEC filings show (EL:US). According to court documents, Joel was an executor for the estate of Alan Tishman, the real estate developer who “helped transform New York’s skyline,” according to the New York Times.

The law firm began managing money for its clients, initially by having them invest in commercial real estate partnerships and then in hedge funds, said a person familiar with the firm who requested anonymity because of confidentiality agreements. In a 2004 civil trial tied to his former role as the president of Walt Disney Co., Michael Ovitz testified that Joel Ehrenkranz was one of his two principal money managers and had also been one of his main tax advisers from 1990 to 1995, according to court transcripts.

Early Entrant

Ehrenkranz’s fund of funds “was one of the earliest ones that was ever started, well before a number of the big guys like Merrill Lynch and BlackRock” got into the business, said Julian Rundle, the chief investment officer of Dorset Management LLC, a New York-based firm that creates customized portfolios of hedge funds for clients.

In 2000, an Ehrenkranz money-management unit called E&E Advisors LP registered with the SEC to provide investment advisory services for high-net-worth individuals, including clients of the family law firm. Ehrenkranz legal clients can pay their retainers to the law firm by having the money deducted from accounts tied to their investments in E&E Advisors funds, according to regulatory filings.

E&E Advisors has about $11.4 billion in assets under management, including $10.8 billion in separate accounts and $583 million in funds of funds, according to regulatory filings. A second Ehrenkranz investment advisory unit called E Capital Management LP had about $3.7 billion invested in its funds of funds at the end of January.

A spokeswoman for Magic Johnson, the former point guard for the National Basketball Association’s Los Angeles Lakers who is enshrined in the Hall of fame, confirmed that he is an investor in one of Ehrenkranz’s funds. The family office of Donald Marron, the former chairman of the New York brokerage Paine Webber Group Inc., has about $52 million invested with the E&E Advisors through an entity called Chestnut Partners LP, filings show.

To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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Companies Mentioned

  • MS
    (Morgan Stanley)
    • $36.73 USD
    • 1.21
    • 3.29%
  • EL
    (Estee Lauder Cos Inc/The)
    • $74.0 USD
    • 1.01
    • 1.36%
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