Wall Street’s big banks advertise themselves as full-service shops, boasting that they can offer a range of services to institutional clients. But one new investment bank is taking the opposite approach.
The Kimberlite Group, a boutique firm that will open its doors on Tuesday, says its specialized focus is a benefit. The firm plans to offer only advice and merchant banking services, without underwriting, lending or trading businesses. And it plans to focus on two areas — real estate and financial institutions.
The business model is heavily dependent on the combined Rolodexes of the four founding principals, led by Thomas F. O’Neill, a founder of the investment bank Sandler O’Neill, and Michael D. Coster, who once ran the real estate fund advisory group at Lazard. By taking a narrow focus, they hope to avoid the possible conflicts that can come with bigger firms.
“It gets to be a little unwieldy,” the 66-year-old Mr. O’Neill said. “We felt we could be of better service to our clients by being independent.”
The founders — who also include Kenneth B. Hamlet, a former chief executive of Holiday Inns, and Alan J. Pomerantz, a senior counsel at Pillsbury Winthrop Shaw Pittman — started Kimberlite by buying the real estate advisory unit of Ranieri Partners, where Mr. O’Neill and Mr. Coster most recently worked. That deal closed in September.
Mr. O’Neill, who ran the financial services group at Ranieri Partners after 22 years at Sandler O’Neill, said that he was splitting from Ranieri because of a desire to move to a smaller operation and that the separation was amicable. Lewis S. Ranieri, the chairman of Ranieri Partners, who is known on Wall Street as a pioneer of mortgage securities, will be a senior adviser to Kimberlite.
In the years since the financial crisis, boutique investment banks have gained market share by emphasizing their specialization. By refraining from publishing research or trading for their own account, their argument goes, smaller banks can avoid conflicts of interest.
The giants of Wall Street rule the rankings of deal advisers, but small banks have had prominent roles in some big deals this year, including the $23 billion sale of H.J. Heinz, in which Lazard was the lead adviser to the buyers, Berkshire Hathaway and 3G Capital. Lazard currently ranks 10th this year in worldwide mergers and acquisitions by value, according to Thomson Reuters.
Two small banks that have sprung up in recent years have climbed to formidable positions in the league tables. Moelis & Company, which was founded in 2007 by Kenneth D. Moelis, a former UBS banker, ranks 13th worldwide, while Centerview Partners, founded in 2006, is in 14th place, Thomson Reuters data shows.
To stand out as a small bank, it helps to be narrowly focused, said Joel Jeffrey, an analyst at Keefe Bruyette & Woods.
“The firms that focus primarily on the advisory side of the business are likely to be more successful than ones that do more of a far-reaching and comprehensive brokerage platform,” Mr. Jeffrey said. “People are valuing advice that is independent from where they get the financing.”
At the same time, big banks have shown that there remains plenty of demand for the full-service model. JPMorgan Chase, which is ranked third in the Thomson Reuters league table, said in its 2012 annual report that its “scale and broad cross-market capabilities,” like offering both advice and financing for deals, were useful for clients.
But Kimberlite’s role is different from that of the big banks, said Mr. Coster, who is a co-chief executive of the new firm along with Mr. O’Neill. Catering to institutional investors, real estate companies and financial firms, Kimberlite is aiming to act as a trusted adviser.
“Nobody can distribute product faster or more efficiently than Wall Street. But it’s still a product,” Mr. Coster, 52, said. “We’re helping clients think through what the right product is.”
Kimberlite — whose name refers to the volcanic rock in which diamonds can be found — has more than a dozen active engagements with clients in its real estate and financial groups, said Mr. Coster, who runs the firm’s real estate practice. Mr. O’Neill runs the financial institutions group, and Mr. Hamlet is chairman of the firm.
Mr. O’Neill, the most senior banker in the room, isn’t the only Kimberlite founder to have started a small bank in the past. After leaving Lazard, Mr. Coster co-founded Occom Capital Partners, which was sold to Ranieri Partners in 2011.
With just 14 employees including its founders, Kimberlite is settling into office space in Midtown Manhattan that it is subletting from Ellis Lake Capital. A paper sign with the firm’s name was hanging last week from the office door.
But the firm is more established than its spare environs suggest. A table in the office was cluttered with Lucite tombstones, a visual reminder of the many deals done by the founders over the years.
“This is not a start-up,” Mr. O’Neill said. “It’s an old business, just a new company.”