Colony Capital, the $44 billion firm that has seen its market value cut almost in half this year, plans to pivot to asset management in what amounts to a repudiation of the company’s calamitous 2017 merger with real estate investor NorthStar.
“The growth is in the asset management, investment management portion of the business,” founder Tom Barrack said in a Bloomberg Television interview on Thursday. “With $2bn of liquidity in these equity markets, leveraging that for third-party capital and fees is exponentially better.”
Barrack resumed his role as chief executive on Wednesday after Colony’s board ousted longtime deputy Richard Saltzman as chief executive. The moves follow a tie-up with NorthStar that swelled Colony’s balance sheet while failing to generate a corresponding increase in earnings. A long-time ally of President Donald Trump, Barrack spent much of the 2016 campaign and the months following Trump’s inauguration as a frequent television guest defending his close friend.
The merger with NorthStar ended up being “much more complicated” than Colony anticipated, Barrack said. “We just missed it.”
Much of the problem stems from the “deceptive” nature of the return on assets the company holds on its balance sheet, Barrack said. “Sometimes it looks as though it’s return on capital, but it’s return of capital,” he said. “So you have to go to a more actively managed format, and for us that’s asset-light.”
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Barrack believes that sovereign-wealth and pension funds are eager to invest alongside Colony. Barrack has recently done deals with wealth funds in Saudi Arabia and the United Arab Emirates.
The company also could deploy its existing cash to “take positions in value-added product, create a magic elixir over fixing that or creating better value, and sell those pieces off to third-party investors,” he said.
Colony’s shares have fallen 46 per cent this year, and more than 55 per cent since Trump’s January 2017 inauguration. The decline in the company’s stock price represents “a great opportunity for me,” Barrack said on Thursday.