Mr Kroll plans to start a business to challenge the big three credit rating
agencies in the first quarter of next year.
The company, which aims to have $100m in annual turnover by the end of its
third year, will specialise in giving second-opinion ratings on complex
securitised products.
Investigative skills
While it will employ quantitative experts much like those used by rivals
Standard & Poor’s, Moody’s and Fitch, Mr Kroll also intends to bring his
well-known investigative skills to bear. His analysts will not only
construct models to predict the likelihood of failure, they will examine the
underlying investments.
For a mortgage-backed security, this might mean finding out how many borrowers
failed to make their first payment or spot-checking whether property
valuations are in line with nearby homes.
Big guys
Newly released from a noncompete agreement with his old firm, Mr Kroll is
funding the start-up with some of the money he made from selling it to Marsh &
McLennan. But he is also seeking between 10 and 20 large institutional
investors to put in some seed money and give the as-yet-unnamed agency
credibility and punch.
“I have no illusions about replacing the big guys,” he said. Rather, he hopes
discerning investors will demand a Kroll-backed rating as an additional
guarantee.
“What I am telling institutional investors is you basically have to take
charge. This is your money. When people come to sell you products and offer
you ratings from the oligopoly, you say to them you want a Kroll,” he added.
Just as the original Kroll attracted a higher calibre of investigator by
paying bigger salaries, Mr Kroll hopes to hire top experts out of hedge
funds and buy up specialist research houses.
He said: “The people who are selling these things are PhDs from MIT. If I
can’t put the same kind of talent on the field [to challenge their
assumptions], I can’t compete.”
The agency will be affiliated with K2 Global Partners, the risk consulting
business that Mr Kroll opened last month in New York and London with his son
Jeremy and Alan Bernikow, a former senior Deloitte & Touche executive.
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