After 15 years as an investment banker, Peter Nolan, managing director and co-head of securities brokerage Donaldson Lufkin & Jenrette's busy Century City office, has hopped the fence he's joined Leonard Green & Partners L.P., the big league leveraged buyout firm on the Westside.

So instead of designing, brokering and arranging financing for deals, Nolan will actually be a principal in buyouts.

"I never really expected to stay in investment banking as long as I did," said Nolan, who worked for Drexel Burnham Lambert Inc. before DLJ. "But I enjoyed it so much I stayed awhile."

It was Leonard Green & Partners a few years back that purchased drugstore chain Thrifty Corp. from a chastened Los Angeles-based Pacific Enterprises Inc., after the gas utility giant discovered that successful retailing was a tad tougher than getting regulated profits okayed by the state public utilities commission.

Pacific Enterprises, for decades a dependable dividend-type company, bought Thrifty in 1986 in a diversification move.

The chain flopped immediately under the utility's tutelage, and Pacific Enterprises' dividend was halved, never to recover.

In 1990, Green bought Thrifty, and later merged it into Payless Drugs, another chain. Green then sold the combined entity to drugstore chain Rite Aid Corp. for $2.5 billion, making whopping profits.

More recently, Green bought Leslie's Poolmart Inc., the publicly held pool supplies retailer based in Chatsworth.

Industry insiders credit Green with eyepopping 70 percent annual returns. "Green is a legend in this industry," said Nolan. "That's one of the reasons I joined."

In addition to its own capital, Green manages $500 million for pension funds and corporate investors, said Nolan.

Big returns

No doubt Green has amassed a spectacular record, but whenever tremendous annual returns are bandied about, I am reminded of Bill Mason, veteran money manager with Cullen Fortier Asset Management Inc., a $100 million shop in Woodland Hills, and also a Pepperdine prof.

Mason has pointed out that, through the miracle of compounding, those managers who acheive spectacular returns if they sustain them will control all the money on the planet within a generation.

For example, if Green & Partners have $1 billion under management today, they will have $40.6 trillion under management in just 20 years, given sustained 70 percent annual returns.

By way of comparison, the U.S. gross domestic product this year is well under $8 trillion.

Viewed from another perspective, if I drive by Green's office today, and toss a Benjamin Franklin over the transom to invest, then when I go back in 20 years, I'll have $40.6 million to retire on. It's nice to know I can have such comfortable golden years for so little initial sacrifice. I might leave them only $50, so I can have some fun over the weekend.

Of course, neither Mason nor I expect Green, or anybody else, to maintain such hefty returns for long. It just can't be done literally.

No knock on Green, but investors should always be careful of expecting super returns, or even just great returns, to continue for sustained periods.

Merrill Money

When you think of Merrill Lynch, you probably think "stockbroker" and a place that can get your savings invested into stocks, bonds and whatever else is hot this year.

That's only partly accurate anymore, says Richard Capalbo, sales manager in the downtown office of the major brokerage.

"In the last four or five years, the firm has realized that our client base, often small business owners or high net-worth individuals, need as much assistance on the liability side as on the asset side," said Capalbo.

That means Merrill Lynch clients often need cash for seasonally lean times in their businesses, or to make acquisitions, or to even buy homes.

"Let me be honest with you you have to have a good business for us to get involved. But if you have a good track record, and the financials add up we want to help you manage your liabilities," said Capalbo.

Through the Merrill Lynch business financial services group, the brokerage makes available lines of credit to businesses.

Money management accounts can be set up with trigger points, so that when cash is plentiful, it is automatically invested in higher-yielding assets, and when cash is tight, it is drawn down, or even reverts into a line of credit, said Capalbo.

Merrill Lynch recognizes that dollars saved on financing are just the same as dollars earned in investing, said Capalbo.

Brain Trust

In past columns, we have complained that the Silicon Valley and Northern California out-do us southerners when it comes to venture capital action, and initial public offerings.

That's not going to last forever, said Greg Martin, executive vice president with Marina del Rey-based ICE Holdings Inc., a publicly traded firm.

Two big research outfits, with ties to USC and the entertainment industry, are just part of a coalescing multimedia network that will outshine the Silicon Valley shortly, said Martin.

"Silicon Valley is really just one product. Computers. But multimedia is much broader, with applications in communications, entertainment, and even manufacturing," said Martin.

The two research groups touted by Martin at USC are the Information Sciences Institute, which is administered by the college, and the on-campus Integrated Media System Center, which is sponsored by the National Science Foundation.

The Integrated Media System Center has been tabbed by the federal government to look at the "interface" between computers and people, perhaps using virtual reality to make computers work more easily for us humans.

The Information Sciences Institute, based in Marina del Rey, is a research group that looks into all forms of computer technology, from silicon chips to artificial intelligence.

Martin said that these two research outfits are just part of a bigger high-tech Los Angeles picture that will emerge soon.

"Plus, we have Hollywood. We have content. Silicon Valley doesn't have that," said Martin.

In the future, as it always has in the past, content will be the most important aspect of any media, said Martin, who is looking to invest in cash-starved start-ups.

Senior Reporter Benjamin Mark Cole covers the investment community for the Los Angeles Business Journal.

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