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Ties to Romney ’08 Helped Fuel an Equity Firm

About a month after Mitt Romney ended his bid for the Republican presidential nomination in February 2008, his eldest son, Tagg, and Spencer Zwick, the campaign’s top fund-raiser, met with a beef company executive who had been a major campaign donor over dinner at the posh Torrey Pines resort in San Diego.

Republican presidential candidate, former Massachusetts Gov. Mitt Romney and his son Tagg Romney
Getty Images
Republican presidential candidate, former Massachusetts Gov. Mitt Romney and his son Tagg Romney

This meeting, however, was not about politics. Instead, the younger Romney, who had been a senior adviser to his father, and Mr. Zwick presented the executive, John R. Miller, with a business proposition: the opportunity to invest in a private equity fund they were starting, Solamere Capital.

Neither had experience in private equity. But what the close friends did have was the Romney name and a Rolodex of deep-pocketed potential investors who had backed Mr. Romney’s presidential run — more than enough to start them down that familiar path from politics to profit.

Two years later, despite a challenging fund-raising climate for private equity, Solamere, named after a wealthy enclave in Utah’s Deer Valley where the Romneys have a winter home, finished raising its first fund. The firm blew past its $200 million goal, securing $244 million from 64 investors, including a critical, early $10 million from Mitt Romney and his wife, Ann, and hefty commitments from wealthy supporters of the campaign.

The small firm, including Tagg Romney, 42, Mr. Zwick, 32, and a third partner they brought in, Eric Scheuermann, 47, the only one with a private equity background, is in line to collect at least $16.8 million in fees over the first six years of the fund, according to a filing with the Securities and Exchange Commission. The firm has earned a 20 percent return since 2010, despite having invested only about half of its money so far.

It is not unusual for start-ups looking for investors to approach friends and relatives. But the overlap between the elder Romney’s political apparatus and Solamere adds a different, potentially nettlesome dimension, given the widespread presumption since the last presidential election that the former Massachusetts governor was next in line for the Republican nomination.

Solamere’s founders dispute any notion that they have cashed in on their political connections, arguing that Solamere, like any fund, has had to persuade investors on its merits.

“No one we went to as an investor said, ‘Oh, your dad is Mitt Romney, I’m going to give you $10 million,” Tagg Romney said, noting that his father’s political future was uncertain when the firm began. He added, “Our relationships with people got us in the door, but that did not get us investors.”

Even so, Mitt Romney was the featured speaker at Solamere’s first investor conference in Deer Valley in January 2010. Mr. Romney, who made his fortune in private equity at Bain Capital, also gave early strategic advice.

Building Solamere

While Solamere has not operated exactly as a subsidiary of the Romney campaign, it has seemed that way at times. The firm shared its first address with the Romney campaign headquarters in Boston. Later, the company was located in the same building as Mr. Romney’s leadership PAC, Free and Strong America, before moving to trendy Newbury Street in Boston.

When Mr. Zwick was leading Solamere’s fund-raising in 2008 and 2009, he was also raising money for the leadership PAC, which paid his finance consulting firm, SJZ, LLC, more than $425,000 during those years.

Solamere began sending offering memorandums to prospective investors in May 2008, around the time the leadership PAC began collecting checks, raising the possibility that Mr. Zwick was soliciting some people for both ventures.

Mr. Zwick insisted there was no conflict, explaining that the work he did for the political committee was relatively low-key. He said the payments to his firm went to other contractors, and that he was a volunteer.

Mr. Zwick was not the only one from the Romney finance shop who decamped to Solamere. One of the firm’s early employees, Mason J. Fink, was Mr. Zwick’s deputy during the 2008 campaign and had previously worked as a private equity analyst. Mr. Fink left Solamere in 2010 and runs day-to-day fund-raising for the Romney 2012 campaign, reporting to Mr. Zwick, who splits his time between Solamere and the campaign.

Laura Coleman, the director of donor relations for the Romney 2008 campaign, also joined Solamere for several months in 2008, according to her résumé on LinkedIn. Simultaneously, she worked for Mr. Zwick’s consulting firm, where he said she was an administrative assistant.

Kaitlin O’Reilly is another employee who pulled double duty. At Solamere, she researched potential investors, helped coordinate the investor conference, and lined up a $1 million investor, according to LinkedIn. At Mr. Zwick’s consulting firm, she tracked donors and helped coordinate finance events for Free and Strong America. She later became a finance coordinator for the Romney 2012 campaign.

The plans for Solamere came together rapidly after the 2008 campaign ended. Within a week, Tagg Romney and Mr. Zwick were having breakfast with Mr. Scheuermann, whom they knew through a mutual friend. He had spent 14 years at Jupiter Partners, a New York-based private-equity firm. The three decided to take the plunge together.

The Principals

Solamere settled on a strategy tailored to wealthy individuals, requiring a minimum $10 million investment, with some exceptions. Unlike many private equity funds that specialize in scouting out companies to invest in directly, Solamere is a “fund of funds” that invests in 22 other private equity funds. The firm has also made eight co-investments, which give its investors the option of putting additional money into deals arranged by other firms.

Like many private funds, Solamere does not publicly disclose its portfolio. The co-investments appear to be mostly in smaller companies, including one that makes napkins and another that sells collectibles.

Mr. Zwick, who focused on the firm’s fund-raising, has sometimes been called the Romney’s “sixth son.” He worked as a personal aide to Mitt Romney at the Salt Lake City Olympics while still a student at Brigham Young University and then held various roles in Mr. Romney’s governor’s office and campaigns. Solamere’s Web site describes him as the youngest person ever to serve as national finance director for a presidential campaign.

Tagg Romney has more business experience. A graduate of Harvard Business School, he had recently worked as a marketing executive for the Los Angeles Dodgers, as well as at Reebok.

When the partners drew up a lengthy list of potential investors, many were political acquaintances, they said, but others were not. “I discussed our fund with people that I had a relationship of trust with, people I had either worked with or knew personally,” Mr. Zwick said. “Of course I cast the net far and wide.”

Mr. Miller, who attended the dinner at Torrey Pines in March 2008, was one of Solamere’s first targets. The chief executive of National Beef Packing until 2009, Mr. Miller had been a national finance co-chairman for the 2008 Romney campaign. He has homes in Deer Valley and the La Jolla section of San Diego, near the Romneys’ vacation homes, and is a longtime family friend.

Mr. Miller signed on with the firm in May 2008, as an investor and an operating partner. That same month, he also became among the first to donate $5,000 to Mr. Romney’s leadership PAC.

Two other Solamere investors are Scott Frantz, a venture capitalist and fund-raiser for the Romney campaigns in 2008 and 2012, and Mark Chapin Johnson, a former health care executive who donated $73,000 to state political action committees affiliated with Mr. Romney in 2006.

Another investor was Meg Whitman, the former eBay chief executive and a national finance co-chairwoman of the 2008 campaign. She invested more than $1 million, according to financial disclosures, and was a featured speaker at Solamere’s investor conference last year.

Matt Blunt, the former Missouri governor who backed Mr. Romney in 2008, is a senior adviser to Solamere, as is Mitt Romney’s brother, Scott, a lawyer.

Despite the web of associations with his father’s political world, Tagg Romney said he and Mr. Zwick knew only five of Solamere’s investors solely from the campaign. He said other investors — including two N.F.L. quarterbacks, several Nascar drivers, nine heads of private equity firms, the father of one of Tagg Romney’s former girlfriends, and Lee Scott, the former head of Wal-Mart — came from introductions or acquaintances beyond politics.

Mr. Romney acknowledged that some might have also backed his father, but insisted they did not view their investments as another way to show political support. “The reason people invested in us is that they liked our strategies,” he said.

Yet, several private equity executives said that what the Solamere partners accomplished — given the tough economy and their limited experience — would have been nearly impossible without their connections. Antoine Dréan, founder of Triago, which raises money for private equity firms, said that given Mitt Romney’s success at Bain, “even without the politics attached to it, the name opens doors.”

The Romneys’ $10 million investment in Solamere came through Ann Romney’s blind trust, which was set up when Mr. Romney became governor.

Brad Malt, a Boston lawyer who administers the trust, said he invested in Solamere without consulting Mitt Romney. Mr. Malt said he liked Solamere’s diversified approach and while he could have invested in more-established funds, his decision came down to knowing the founders. “I had confidence in their talents, integrity and intellect,” he said.

A New Venture

Since the firm’s investment decisions are not publicly disclosed, they are difficult to assess. But in mid-2009, when the three Solamere Capital founders and some of their investors made a $100,000 personal investment in a North Carolina financial advisory firm, a news release announced the deal. It quoted Tagg Romney lauding the “all-star lineup” of financial advisers at the new firm, which took the name Solamere Advisors.

All but one of the firm’s 11 employees, however, had come from the Charlotte office of Stanford Financial Group, which federal officials had closed earlier that year for selling sham certificates of deposit financed through a multibillion-dollar Ponzi scheme. Solamere’s executives said that Solamere Advisors’ employees had been with Stanford only briefly and knew nothing about the fraud.

The court-appointed receiver for Stanford, however, has filed a federal lawsuit contending that former Stanford employees ignored warning signs of the fraud, and seeking to recover money from more than 300 of them, including three Solamere Advisors founders. The three, Timothy Bambauer, Deems May and Brandon Phillips, were at Stanford just over a year and received incentive compensation derived from proceeds of the bogus C.D.’s, according to court filings.

Mr. Bambauer, who was a managing partner of Solamere Advisors but left the firm last year, earned commissions and bonuses totaling more than $210,000 from actually selling the C.D.’s. Records show that he sold at least 48 fraudulent C.D.’s to 37 customers, totaling more than $13 million, said Kevin Sadler, the lead lawyer for the receiver.

Herman Stone, 70, a Charlotte businessman, said he put $2 million into a C.D. after Mr. Bambauer and his assistant, Mr. Phillips, vouched for it. “They said, ‘Mr. Stone, this is so safe,’ ” he said, adding that he plans to sue.

Mr. Bambauer declined to comment through a lawyer. A spokesman at Solamere Advisors said Mr. Phillips “had absolutely no involvement in the recommendation or sale” of Stanford C.D.’s. Mr. May did not return a call.

Tagg Romney emphasized that his father did not invest in the advisory firm. But the potential for fallout illustrates the double-edged nature of Solamere Capital’s ties to the Romney world.

“We don’t want to get the campaign mixed up with other things,” Tagg Romney said. “We’ve done our best to separate the two, because they’re separate.”

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