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March 2012
The Chapter & Verse of Investing
By Barbara Fagan

     In retrospect, all the chapters of Barnes Hauptfuhrer’s career dovetail in the perfect-bound “book” of his professional experience, but Hauptfuhrer is the first to say that was not by any plan on his part.

     Hauptfuhrer is the CEO and portfolio manager of the unique, Charlotte-based investment firm, Chapter IV Investors, LLC. The firm’s name has special significance; Hauptfuhrer marks its 2006 founding as the start of the fourth chapter of his professional career.

     Going back to his college years, Hauptfuhrer admits, “I had no idea what I wanted to do.” What he did know was that he loved sports, something he came by easily since his mother was a skilled athlete and his father had been the first pick of the Boston Celtics in the very first NBA draft.

     When offered opportunities to play college basketball at Duke University and Princeton University, Hauptfuhrer had a difficult choice: “My mother was raised on the Duke campus—both her parents taught there—so I was inclined to go to Duke. But at the time Duke’s basketball program was somewhat uncertain, so I ultimately decided against it.”

     At 6 foot 8 inches, Hauptfuhrer became a Princeton Tigers’ forward. “It was a phenomenal period,” Hauptfuhrer says. “The Tigers were a Top 12 team my junior and senior years.”

     He graduated from Princeton in 1976 with a bachelor’s in politics and economics but career plans were put on hold when the professional sports world called. Hauptfuhrer was drafted by the Houston Rockets.

     “When I went to Houston it quickly became obvious that I didn’t have the talent to be in the NBA. It had always been obvious to me,” Hauptfuhrer says with a chuckle. “But it soon became clear to the Rockets and I was cut pretty quickly. Then I had to become serious about a career.”

     Hauptfuhrer’s father was a lawyer with the Philadelphia firm Dechert, Price & Rhoads and enjoyed the business aspects of the practice, so Hauptfuhrer decided on a joint J.D./M.B.A. degree, graduating from the University of Virginia in 1981.

     “Those years at UVA gave me a chance to try summer jobs, two at law firms and one on Wall Street,” Hauptfuhrer says. “I liked investment banking and in 1981, if you wanted to be in investment banking, you had to go to New York.”

 

The First Three Chapters

     “My first chapter began with Kidder Peabody and Company on Wall Street. I worked 80 percent of the time in Mergers and Acquisitions. It was the time when M&A took off and few people had joint degrees then. 1981 through 1988 was an important development period for me,” Hauptfuhrer recounts.

     It was a wonderful time in his personal life as well. In 1984, Hauptfuhrer married Cammie Robinson. Hauptfuhrer met Robinson while they were both studying law at UVA. After the birth of their first child in 1986, the couple agreed they wanted to raise their family in one of their hometowns.

     Cammie Hauptfuhrer, whose father, Russell M. Robinson II, is founding partner of the prestigious Charlotte law firm, Robinson, Bradshaw & Hinson P.A., had strong roots in Charlotte.

     “I’d always wanted to get to North Carolina,” Hauptfuhrer says. “I grew up in Philadelphia but my family had always vacationed in the North Carolina mountains, so in ’87 we moved to Charlotte.”

 

At the time NCNB and First Union Bank were starting up investment banking divisions and both were interested in Hauptfuhrer leading them.

     “I had some good conversations with Ed Crutchfield [then chairman and CEO of First Union],” Hauptfuhrer recalls, “and I agreed to come to First Union—not to run an investment bank or capital market business—but to start a principal investing business where we could use the bank’s capital to make private equity investments in companies and help them grow.”

     Hauptfuhrer describes it as the beginning of his second chapter.

     “Crutchfield was a big believer in entrepreneurial people and incentives and that allowed me to recruit an excellent team. As First Union Capital Partners, we invested about $750 million in a 10-year period, which not only earned about a 40 percent return annually for the bank but also initiated a number of broader relationships for the bank,” he continues, with satisfaction.

     But by the end of 1998, soon after First Union purchased CoreStates Financial, the bank experienced a setback. Hauptfuhrer recalls the period was difficult.

     “Crutchfield had moved on and the bank was weakened. I loved private equity and I loved my team, but I wanted to see the larger organization turn around and I felt compelled to do what I could to accomplish that.”

     So Hauptfuhrer turned over management of First Union Capital Partners to his colleagues, and, in 1999 began the third chapter of his career as co-head of Corporate and Investment Banking for First Union. In 2001, First Union merged with Wachovia, a move that Hauptfuhrer believes “created a lot of value for the bank.”

     But in 2002, when Hauptfuhrer turned 48, he approached his wife with a surprising plan. “I don’t want you to think I’m having a midlife crisis,” he remembers saying, “but if the bank gets turned around, I’m going to step down when I turn 50.”

     Some colleagues questioned his decision. They wondered why he wouldn’t remain to reap the rewards of his hard work.

     “The truth was, the reward was actually turning the bank around. It was about bringing together a team, improving performance and helping produce excellence in the division,” Hauptfuhrer says readily.

     Hauptfuhrer’s departure from Wachovia in 2004 preceded the banking crisis and many congratulated him on his good timing but Hauptfuhrer admits, “What ultimately happened to Wachovia wasn’t evenly remotely visible in 2004.”

     “I left because I wanted a better life balance. My daughter Dillon was a high school senior. My son Barnes had already gone off to Duke, but I was able to max out my time with both. Investment in family and in health was the way I wanted to transition into the next chapter.”

 

Life Balance and the YMCA

     His investment in health began with the YMCA. “Back in 2003 or so, the Greater Charlotte Y asked me to be on their board. I got involved with their ‘Promises for the Future’ campaign. At the same time, I was working out regularly at the Childress Klein Y with trainer Brian Manion. I credit Brian with helping me avoid back surgery. With Brian’s program, the back pain went away, I didn’t have to have the surgery and I dropped 35 pounds.

     “Through my one-on-one experience with the Y, as well as my board and capital raising experience, I got to appreciate the YMCA’s unique mission. It’s a wonderful mission. For me, the Y is all about the Four Fs: fun, fitness, family and faith. It’s all about engaging and connecting. Why wouldn’t I get into that mission?”

     Hauptfuhrer is greatly expanding his involvement with the Y’s mission this month as he has recently taken on the responsibilities of chairman of the YMCA of Greater Charlotte.

     “When I look at past chairs like Stick Williams, Pamela Davies, Ward Pritchett or Jim Morgan, I don’t view myself as in their league. By the same token, I have learned a lot watching their different leadership styles. I can take away something from what each of them have accomplished and hope to become a good steward of the Y in my own right,” he says.

 

Chapter IV

     More than a year after his departure from Wachovia, Hauptfuhrer decided to use the unique skills he’d acquired in the three previous career chapters and take on a new entrepreneurial challenge. In September of 2006 Hauptfuhrer began the fourth chapter of his professional life by founding his own investment firm: Chapter IV Investors.

     “I knew I was a long-term investor, a relationship-oriented investor,” explains Hauptfuhrer, “and I saw that the private equity world was paying too much for businesses and putting too much leverage on balance sheets.”

     With that in mind, Hauptfuhrer created the Chapter IV Special Situations Fund.

     “The Special Situations Fund is its own distinct animal,” Hauptfuhrer explains. “It’s a hybrid fund that can invest in public or private equity securities. This gives us the ability to pursue the best investment opportunities no matter where they originate.”

     Hauptfuhrer targeted 25 prospective investors for the fund but ended up with 27. “The fund was oversubscribed, so we closed at a higher level than we initially anticipated—$270 million.”

     Investors are confidential but Hauptfuhrer says the list includes institutional investors and high net worth individual investors. “I’m a major investor in the fund as well,” he adds. “I put my own money on the line so my investors know that I’m in it with them.”

     There are other qualities that make the fund different. “This is a very concentrated fund,” explains Hauptfuhrer. “We only hold eight to 12 investments at any time. In most investment firms, the mantra is to grow assets under management. If you grow assets, you grow fees. I have nothing against asset growth or fee growth, but we stay focused on one mission—serving the best interests of our current clients. That starts with preserving principal and includes taking prudent risks to achieve returns for them.”

     “Achieving acceptable returns has been plenty challenging given the financial crisis, housing crisis and the Great Recession,” Hauptfuhrer continues, “2008 was a difficult year for us. We’ve rebounded nicely since then, but the world was fundamentally shaken by 2008 and remains shaken today.

     “In the past, when we’d study an investment in Company X, we’d list 10 risks and 10 reasons to invest to determine how we felt about the risk/return balance.

     “Today the overwhelming risks associated with every investment have nothing to do with the actual company. They have everything to do with whether Europe is going to melt down, what the U.S. is going to do to arrange its financial house, and whether the politicians in Washington will stop behaving like children in a sandbox.

     “Those issues put at risk all categories of equity investing. You can pick any one of the top money managers in the world and I will tell you that they don’t know how those risks play out. You have to count on continued uncertainty and look for the best return propositions within that uncertainty.”

 

Investing Proactively

     “At Chapter IV, we focus on core investment criteria and themes,” Hauptfuhrer describes. “Investment criteria include a business’ cash flow generation and return on invested capital. Recurring themes include investing in businesses that have strong barriers to entry, high market share and excellent management. We think these are winning themes for the current uncertain environment.

     “But we don’t stop there. We stress test our investments regularly. We’re always doing research to find themes and companies that can go the distance.”

     “We’re a proactive investor. If we have ideas, we’ll interact with management. A good example is containerboard company RockTenn run by CEO, Jim Rubright. Rubright came into the industry without any paper or packaging experience but we realized he knew what he was doing.

     “Our team met with him and advised him, ‘Jim, you’re going to think this is crazy but we think you should acquire a company that’s about $5.5 billion.’ Given RockTenn was only worth about $3 billion at the time, Jim initially thought the idea was crazy. Six months later, though, he inked the deal, RockTenn became the No. 2 containerboard company nationally, and Rubright was subsequently voted the ‘Pulp and Paper CEO of the Year.’”

     The “we” of Chapter IV Investors is a team that has been together since the firm’s founding and, maybe not so coincidentally, numbers five. “Just like on the basketball court,” Hauptfuhrer says with a smile.

     Hauptfuhrer heads up the team which includes two other investment professionals: Robert Lesley Jr. and Ryan Jack. Kimberly Zeitvogel is CFO and Kathleen M. Buck is the office manager.

     “Each member of our team is critically valuable,” says Hauptfuhrer.

     It’s logical to question if there will be a Chapter Five for Hauptfuhrer.

     “I don’t know what the future will be,” he says, “but I know that it will include my most important priority—my family. Cammie and I couldn’t be more proud of our children. It will include community involvement and it will include investing capital.”

     And if the past chapters are any indication, it should be a real page-turner.

 

 

Barbara Fagan is a Greater Charlotte Biz freelance writer.
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