Twiggy’s mate ‘Bud’ and the Fed’s ‘Randy’ pitch a new style of private equity

afr.com:

One is the guy who ran due diligence on Andrew Forrest and Fortescue Metals that pulled off one of Australia’s best deals, while the other is recently departed Federal Reserve vice chair and member of an influential family that helped developed a large chunk of the modern-day United States.

Together, Herbert “Bud” Scruggs and Randal “Randy” Quarles have been quietly doing the rounds with Australia’s family offices in the past week or so, trying to find like-minded investors and investment ideas for what they pitch as a new style of private equity investment.

Randal “Randy” Quarles, left, and Herbert “Bud” Scruggs, had little trouble grabbing family offices’ attention this week.  Louie Douvis

The unlikely double act has been quite a hit. Scruggs, the Fortescue guy, is self-deprecating and funny. He came to Australia in 2006 and flew to the Pilbara in a four-seater plane with Forrest to run due diligence on both Fortescue’s founder and his potential iron ore miner.

When he got to the Pilbara, all that was at what would become Fortescue’s Cloudbreak and Christmas Creek mines was a drop station, so they could see how the ore would crush.

But he helped convince his then employer, investment group Leucadia National, to invest $US300 million ($463 million) equity for a near 10 per cent stake and another $US100 million in zero-coupon notes that would earn a 4 per cent royalty should Fortescue start producing. Iron ore was fetching about $US40 a tonne, they thought it could go to $US50 and Fortescue would do well, Scruggs says.

That stake and those notes helped Fortescue borrow $2.7 billion to build its port, railroad and mines, and get off the ground. It is now a $60 billion company, recording $10 billion to $15 billion earnings