I Do The Most Beautiful Job in the World: I Invest $30 Billion

By Pier Luigi Vercesi

His Egyptian pharaoh profile contrasts with the pinky blond of his wife, who seems she has just left from a Palm Beach Villa. In Costa Smeralda, you are revered the minute they see you have a word with him. His icon is not just in the air, it gets everywhere, sooner or later: in a hotel, a restaurant, a bar. He watches, shakes hands, shows a friendly smile, caresses shoulders and then whispers something into the managers ear. Then, everybody runs away in agitation. He keeps the store in order “as my father taught me”- smiles Thomas J. Barrack, 59, four children. Tom, as those who show they know him, call him. Now, as he starts talking, it becomes clear he is not an Egyptian pharaoh but a canny Phoenician merchant, like his ancestors who spread the first, archaic wave of trade globalization across the Mediterranean . Buying and selling, increasing the value of assets between transactions. A technique that these days, in the most sophisticated financial systems, is best expressed through private equity: when a company has an untapped potential, it gets purchased, reorganized and, once its value has surfaced, it is resold for a profit. Some call it looting, others company enhancement. Arbitrage? Who knows. What matters is you should never make the wrong choice.

Well, Tom Barrack in this respect is a master who expresses himself through parables. Two years ago, in front of a Fortune reporter with whom they were walking past 1,200 hectares in his estate near Santa Barbara, California, one of his statements became world famous. Among horses and vineyards, in front of a polo field, a metaphor of an elite approach to life, he sentenced: I am not afraid to play with other professionals, but when amateurs go into the game, someone gets hurt. Amateurs have more instinct than brain, they follow every single ball and they do not know when they should retreat”. Just that sentence was enough to make others understand that the booming American real estate market was over.

With his private equity, Colony Capital, Barrack is the biggest real estate investor in the world; he mostly owns hotel chains, casinos and resorts. His investment is worth close to $30 billion and his reputation as a tough, friendly guy who never makes mistakes, surrounds him across at least four continets.  More recently, just to land in the fifth continent as well, he shook hands with Colonel Gheddafi and got the majority of Tamoil from him. In Italy , where he is the emperor of Costa Smeralda and a contrasted owner of his kingdom because governor Renato Soru does not leave him any leeway, many begin suspecting that Barrack is preparing an elegant exit strategy from Sardinia .

Question: You have middle-eastern origins, are a billionaire and American: you really sum up all the international crisis themes. Does this have an influence on your life and business?

Answer: My family is the typical American story: back at the turn of the last century, my grandfather left with tears in his eyes as he was waving goodbye to Lebanese cedar-trees. He had initiative and a couple of dreams. He did not want to starve in one of the most beautiful places in the world and so decided to travel across the ocean; he lived in straits in the suburbs of a big American city.  But my father had already managed to get some success and pride, too: he opened a grocery store and could afford to send me to school. At home we have always stayed Lebanese, but I received an American education. I could say I have Phoenician instincts and heart but I make decisions like an American. I think it is a good mix.

Q: Are you religious?

A: I grew up as a Roman Catholic.

Q: and you grew up in a store..

A: Right. A typical neighborhood store. My father sold so many items, especially groceries. Among those shelves, I learned how to run a business. Every day, he would give me a marketing lesson. See those oranges, he said, they are worth nothing if everybody has got them. But if you have them when nobody can find one, then you make the price. And then the next day he would say: if you have to sell the same oranges that others have, then you need to turn yourself into the nicest seller or make up a service that your competition has not given a thought of. If you make it wrong, you won’t eat.

Q: Great lesson. But oranges just did not suit you.

A: It was natural for me to have some aspirations and, on the other hand, that was exactly my father’s lesson. I went to law school and specialized in international finance.

Q: Have you ever worked as a lawyer?

A: Yes, for a short time. School years were exciting, I learned to think about and analyze complex situations, but the daily legal practice was just boring. It was frustrating: I had to solve other people’s problems by focusing on just a tiny portion of the entire picture. However, being a lawyer gave me a sound foundation in international legal subjects and allowed me to travel all over the States, Europe and the Middle East . To me, life is like playing golf: to be on the best courses, you have to have the best golf clubs. Being a lawyer gave me many of the irons I carry in my bag.

Q: Was it in your father’s store where you planned to turn yourself into the number one real estate investor worldwide?

A: I never had this desire. I loved sports, competition, and my mother encouraged me to do whatever I liked. The rest has come by chance.

Q: The American myth is the first million dollars. How did you make it?

A: I do not know what to say. To me, money has always been secondary. I did with passion the things I liked and at some point I realized that if I moved the target farther and farther away, going to places where nobody wanted to go, addressing complex situations that others feared, I could be successful. This must be how I first became a millionaire and then a billionaire.

Q: To get where you are today, you also went through politics. You used to be a very loyal Reagan’s supporter. I do not believe this did not help you…

A: I was thirty. The world was a highway stretching out ahead of me. President Reagan was more than just a promise. I began loving him as a young boy, when I used to be with his political party in California . So, when I sold my first company, the President invited me over to Washington and offered to have me as an undersecretary. I served him with dedication for two years and I learned a lot about government and power mechanisms. But I was just putting another golf club into my bag as I realized something essential: politics was not for me.

Q: Why? What disgusted you?

A: Absolutely nothing. Quite simply, I am an entrepreneur and I do not like that way of working. I arrived in Washington in 1982, an incredible time for the world, with the rising star of Reagan and Margaret Thatcher. There were huge problems to address: the strike in the British coal mines and the American flight controllers’; the cold war that was then taking a  bad turn. It was extraordinary for a young man who loved complex situations. But this is not the entrepreneur’s job; an entrepreneur generally identifies a target, devises a strategy, a strategy-supporting tactics and then executes the plan. On the contrary, governing is a consensus-based process. It is the search for the minimum common denominator. When you reach an agreement, the decision-making level is very low. Reagan was outstanding, a true leader. Unlike the common historic recollection, he was a friendly, sweet man.

Q: Was politics of any help to surf the business world?

A: For my business, no; for my character, yes. It taught me to be patient, to have  a cultural sixth sense that makes the difference when you are into an international deal, it showed me the need to understand other people’s viewpoint, to make extremely complex decisions going through diverse cultures, languages, political systems. It did not help me in strict business terms. In America , politics does not marry with business: nor business with politics.

Q: In the early nineties, you established one of the first private equity, Colony Capital. What was on your mind, back then?

A: what I have done and everybody else in private equity have done. We seek inefficiencies on the market. When we find them in listed companies and we acquire them, we give them the opportunity to grow and improve, and we make a profit out of the newly emerging value. The development of private versus public equity has been phenomenal in the last decade.

Q: With Tamoil acquisition, you seem to take a different direction relative to your main line of investment. Is the wind changing?

A: Colony is an investment and a business company, not just real estate. In the last decade,  we acquired chains in the food sector, vineyards, offices, pubs in the UK , movie theaters. Other than energy and natural resources, Tamoil does have plenty of real estate assets: 2,500 gas stations, three refineries, pipelines, warehouses.  So, we are not that far from our traditional investment focus.  This is a good example to explain how we work: we want to make a fair profit, by taking some risks and going where others are scared to venture into. All in all, this has been a simple investment, if you follow my reasoning: thanks to its position in North Africa, Libya will be increasingly important for the European market and is a major oil supplier to Italy; these days, building a refinery in Europe is nearly impossible and just thinking to put together several different gas stations would be pure folly. So, try and analyze the market, make projections on the future use of fossil fuels, and then come to your conclusions. We will be on the same wavelength. We have purchased assets that are very hard to replace, so it is a perfect investment for private equity.

Q: Do you really believe that the Mediterranean is a dressed table?

A: So far, they ate in the North, now is the South’s turn. The northern coast of the Mediterranean has had a history of development, trade, market and tourism for centuries now. These more sophisticated civilizations have great advantages as well as huge drawbacks: higher cost of labor, unsustainable running costs, tourism permits impossible to obtain, a workforce that can be hardly retrained. I believe the Mediterranean is a large pool accessible to all; on one side, there is a stable society with an upper class that, most often, has built just too much concrete; just have a look at Marbella or Majorca . On the other side, there are wild places full of natural resources, less contaminated. In a while, they will all compete for the same clients: it would be a mistake to reproduce as many Marbellas in the south. The right model, instead, is the Costa Smeralda where, more than everything else, what matters is the hand of God.

Q: However, after Tamoil’s acquisition many now think that you are about to disengage from Costa Smeralda, also because the Region Sardinia does not seem to make your life easy..

A: Wrong. Every day, my passion for Sardinia gets stronger. It is not just a regular business. To me, this is a gorgeous necklace  that I shall return, sooner or later. But as long as I have it, I need to polish it, and maybe add some gems, just to make it even shinier. To do this, I need to find top quality gemstones. Politics is also part of this search of mine. As it happens everywhere, politicians need to find their role, give themselves a meaning. Now, the good thing is that, confusion aside, nothing has happened and this is good news. The competitive factor of Costa Smeralda is not what man has built, because this would make it just like any other place, but what man has not built. I do not want to expand the human work.

Q: You did two exemplary transactions: the sale and purchase of Plaza and Savoy hotels. How did it go?

A: Hotels are a complex business. When the economy slumps, they sell them for nothing, when the cycle recovers everybody wants them and prices skyrocket. We understood the right timing: we make the investment, we take care of them when they are ill treated and we sell them when the GDP rises again. This is the technique we followed with Savoy . The same happened with the Plaza. Later, we really did nothing else but applying the same model everywhere, from Singapore to Canada .

Q: Can you explain how one of your deals comes to life? How do you decide to buy Tamoil or sell Savoy ?

A: In private equity, our competitive arena, you need to assume that everybody else is capable, skilled, well informed and has plenty of resources. So, how can you get a competitive advantage? I look at my business quite simply: I am looking for a rockstar, I am not the rockstar, I am just the boy who carries the rockstar’s luggage. This means everything starts from people: you need to find unique people rather than grand stuff. Many investors spend months, years developing an idea. But if you become fixated on a thought you lose every other opportunity. So you have to identify the rockstar and position yourself through a method that we call ‘long line relationships’. We act like in the Renaissance: we learn things we are unfamiliar with, we frequent people we have nothing in common with, and when the rockstar needs something, generally money, there we are, ready and prepared to carry the luggage. We aren’t strategic, we simply catch the opportunities. We provide the money, experience and talent rockstars need to improve.

Q: What deal are you most proud of?

A: The deals I did when people would say: oh my God, he is crazy. When you prove you are right and you have looked where others did not even watch; then people start to hunt you, to give you some chances. Personally, there is something I am proud of: my ability to push others beyond what I call ‘the limits of comparison’, to be better, to go further, close to the limit, doing things that have never been done. When I manage doing this, I feel a strong emotion.

Q: and your worst regret?

A: Every time I did not follow my instinct. But, unfortunately, this is a tough game and you do not risk only on your own. When you identify an opportunity, you should load the boat, not diversify, you should heavily invest. But there is also something that slows you down. In the early nineties we used to have a strong presence in American, European and Asian banks. As soon as things began improving in the States, we should have bought all European banks, because we could predict what would then happen in France , Italy, and Spain . In America , things happen earlier, for good or for worse. Cycles are predictable, what you need is courage. When markets fall, you have to buy. And the other way around.

Q: Who is behind you?

A: A galaxy of great friends. But not those you are mischievously thinking of. There is my family, my kids. Colony, the partners I work with on a daily basis. A necklace like the one I was alluding to, made of great people all over the world. Partners and friends I have met in two and a half decades, in many cultures and countries that taught me to be tolerant. If I have to single out the qualities that made us successful investors, I would say flexibility, and the ability to understand different viewpoints.

Q: Do you administer the money of important people who trust you?

A: By and large, our shareholders include the most important company funds and state organizations. Our investment base consists of 450 institutions with whom I have personal relations, one by one. It is a nice world where to work.

Q: If you had the chance, what would you buy in Italy ?

A: Many things. But in Italy you can buy very little. Clearly, I am interested in the tourist business. Italy has 60% of the world antiques but has no scheme to allow hospitality facilities to relate with each other. Hotels, transport, airlines, railway, roads: I see criticalities everywhere. There is no global reservation system. Most businesses are family-run. The same is true for the other businesses, nearly always run by the second or third generation from the same family. Many stand still whereas the competitive environment is changing. I am optimistic, although the top banks keep having too much control here. You have to be aligned with them, establish personal relations, and in all family-run businesses there are fathers and children who work together while having different ideas about the future of their business. The rest of the world does not understand the system. This said, the economy works well despite politics. Italy is a country drawing upon its people. If you travel to Brunei and look for a place where you can eat well, they say: have you been to Luigi’s? Seven miles away, you go to Luigi’s and find an Italian who, in the middle of nowhere, has created an oasis. And everybody love and respect him. The same happens in Africa, Asia , everywhere in the world. The true dream for the Chinese and the Indians is Italy , believe me. So, if investing becomes easier, money will arrive. It takes time, patience, talent and two hands on your ears not to hear the gossip of politics.

Q: Is it true that you get up at 4.30 every morning?

A: To my luck, I do not need to sleep a lot. I try to be alert all the time: wherever I go, I sleep four hours a night, more or less. In the globalization era, we do business 24 hours a day.

Q: What is globalization?

A: Money that can freely, quickly and easily move towards the lowest cost suppliers all over the world. The true problem of globalization, however, is localization. It takes a local contact, local sensitivity, local fabric.

Q: Any fear for the future?

A: I believe one issue that should not be underestimated is excess liquidity. Banks generate loans after loans with thousands of billions flowing into the system. Should even a tiny problem occur, a tsunami would flood the market. Watch out.

Contact:
Lisa Baker
Owen Blicksilver PR, Inc.
+1 914-725-5949
lisa@blicksilverpr.com