Twenty-five years ago, Kneeland Youngblood took his first trip aboard a private jet and realized he was in the wrong business.
The young emergency room physician had been appointed to a high-powered tax reform committee by former Texas Gov. Ann Richards. Fellow committee member Don Williams, who was CEO of Trammell Crow Co., invited him to hitch a ride down to Austin aboard his Falcon 10 along with Dan Cook, then head of Goldman Sachs in Dallas.
Youngblood was awestruck. “I was like, ‘Oh my God!’” he recalls. “I had no idea that world existed. I thought, ‘I want to do what these guys do.’”
Now he does.
With $1.1 billion under his control, the 60-year-old founding partner of Pharos Capital Group LLC is one of the most influential black private equity managers.
You’ve probably never heard of Youngblood — mostly because he’s avoided the spotlight even as he played key roles as a Democratic fundraiser and private equity rainmaker.
But having turned the big Six-Oh last month, Youngblood figures it’s time to make an example of himself.
“I’m trying to understand my larger role,” he says in 13th floor (his lucky number) office. “I have consciously avoided visibility. But I also feel an obligation and a responsibility, particularly for younger people, to show that people like me exist. We’re making it happen. And just because we’re not out front and center doesn’t mean we’re not changing the world.”
By “people like me,” Kneeland Conner Youngblood means “hardworking, a strategic risk-taker and committed to making the world a better place,” and, yes, successful. He does not define himself as black, although that is an integral element of his soul.
“It’s limiting to look at Kneeland through a black-white prism,” says best bud and former Dallas Mayor Ron Kirk. “Kneeland was one of the first people I knew of any color who was fascinated by the dynamics and the politics of the Middle East. As much as I love and admire him as a friend, a great father and businessman, I love his intellectual curiosity, and it extends to everything.”
The reception area of Pharos features a large photograph of Jackie Robinson stealing home with the New York Yankees’ Yogi Berra at the plate — giving the Brooklyn Dodgers the first win in the 1955 World Series.
“It’s a metaphor for our business about risk and reward,” he says. “Sometimes you have to take bold actions to achieve great returns. To steal home is an extraordinary act of courage. It’s also what I have to keep in mind personally as well.”
In 2000, Youngblood raised Pharos’ first institutional fund of $155 million. That was followed by a $400 million fund in 2005 and a $525 million fund in 2014, invested primarily in health care and business services.
Youngblood is majority owner, chairman, strategist and networking conduit. Co-founder Bob Crants is chief investment officer. They focus on companies they think will grow at a compounded rate of 20 percent a year and where their expertise and networks can add value beyond dollars.
Investors pay Pharos a management fee of 1.5 percent to 2 percent every year for 10 years and get rewarded as soon as a company is sold for a profit. Pharos takes 20 percent of any profit from a sale and eats any loss.
Happily, Youngblood says, there have been more winners than losers.
“Kneeland has a remarkable, inquisitive mind,” says Williams, one of Youngblood’s first investors. “He’s always learning, reaching out, listening. He has an extraordinary range of capabilities. Some people can develop a strategy but can’t implement it. He’s able to do both.”
Youngblood made local headlines and a bit of a stir in early 2014 when he became the first black full-fledged member of the lily-white Dallas Country Club. Youngblood’s application took an inexplicable 13 years to make it through the approval process.
“One reason I joined the Dallas Country Club was because my father waited tables there,” says Youngblood. “I know it would have made him proud.”
What didn’t make news that summer was a $200 million profit that Youngblood and TPG Capital chairman David Bonderman split for themselves and their investors.
That’s why they call it private equity.
In 2008, Youngblood, Bonderman and two smaller investors bought the investment firm American Beacon Advisors from American Airlines — making it, with $45 billion in its portfolio, the largest minority-owned asset management firm in the country. The partners held on to it for dear life during the financial bust, built it to $65 billion in assets and nearly doubled their money in June when they sold it.
The “private equity game” has made Youngblood rich. But he won’t say how rich.
Bonderman, 72, the co-founder of TPG, helped launch Youngblood’s wheeler-dealer career in 1998 but takes little credit for his friend’s financial ascension.
“Kneeland is a self-made guy. I’ve counseled him from time to time, but he’s done this himself,” Bonderman says. “He’s a very smart guy. He’s a strategic thinker. But he’s a sweetheart. He gets things done because people respect and like him. If he says he’s going to do something, he does it.”
In Youngblood’s eyes, breaking the color barrier or adding to his sizable fortune doesn’t come close to winning the prestigious 2015 Father of the Year Award, a local nonprofit that raises funds for charities benefiting children and families.
He and Sharon, his wife of 30 years and a retired immunologist, have five daughters and a son who’ve graduated from or are still attending Stanford, Harvard, Princeton or Yale universities.
Their children have divergent pursuits — including being a money manager in London, a singer/songwriter in Nashville, Tenn., and a varsity rugby player at Harvard.
“No question, my family is the thing I’m most proud of,” Youngblood says.
He comes by that naturally.
Kneeland and his six siblings grew up in the segregated confines of Galena Park, a small town outside Houston. All seven earned college degrees. Two, including Kneeland, became physicians. Two are lawyers.
His father was an optometrist and his mother was a medical technologist, and yet the family of nine was dirt poor. “People in the ghetto — poor people — don’t get glasses,” Youngblood says.
In 1965, Kneeland’s paternal grandfather refused to loan his father $500 to keep their home from being foreclosed on. “It forced my father to figure it out, and he did.”
To make threadbare ends meet, Theodore Youngblood spent the next seven years commuting by bus every week to Dallas, where he worked at the downtown Lee Optical during the day and waited tables at the Chaparral Club and Dallas Country Club at night.
He’d be home on Sunday to watch the Cowboys on TV and back in Dallas to see patients on Monday morning.
Sometimes, his father had to hide his face at the clubs so that patients wouldn’t see him waiting tables.
The family moved to Dallas in 1972, and Kneeland finished his last two years of high school at Jesuit College Preparatory School. He chose Princeton — counselors told him he was Jesuit’s first-ever to do so — because it was focused entirely on undergraduate studies and would give him a strong base to get into either law or medical school.
“All I knew was doctor, lawyer, preacher, teacher,” Youngblood says. “Teacher wasn’t ever going to pay enough. And I wasn’t going to be a minister. So that left lawyer, doctor.”
Like nearly everything in his life, Youngblood tackled his education like a chess game.
Before registering his freshman year, he talked with upperclassmen to find out what he could take as easy A’s to mix in with rigorous courses. His plan called for working really hard his first two years and then studying abroad for a year as a reward.
He spent his junior year at the University of Stockholm and a small college in Oxford, England, studying international aspects of health care, which would be applicable to either law or med school.
“But the idea really was I needed to get away,” he says. “I needed to decompress. And I needed to think about my future.
“I don’t believe anyone worked as hard as I did at Princeton — anyone. I knew I couldn’t afford to fail. I had too many people pulling for me. I never did drugs. Never smoked dope. I couldn’t let my parents down.”
But he did risk expulsion his senior year, when he joined a sit-in to protest Princeton’s investments in apartheid South Africa.
“It was a moral issue that resonated with me,” Youngblood says. “Princeton should not support, through its investment policy, the suppression and oppression of people — in this case based on race.”
Medicine won out because Youngblood didn’t know any black attorneys, and he’d be following in the footsteps of his father and maternal grandfather, Beadie Conner, who’d finished medical school in 1930.
Ironically, Conner had been turned away at the gates of Princeton decades before Kneeland graduated because he was black. He vowed he’d be back — which he was for Kneeland’s graduation.
Youngblood helped transform a parking lot into a plaza at those gates in honor of his grandfather.
Youngblood picked emergency medicine over neuro or thoracic surgery because ERs were “fun, fast-paced, interesting and immediate gratification,” he says. “Generally you only worked 15 days in a month and usually not more than three days in a row. And if I ever wanted to leave medicine, I could just walk out the door.”
In January 1998, that’s just what he did.
He founded Pharos with two former executives of Goldman Sachs and quit being a doctor even in title.
“M.D. is not on my business card or my website,” Youngblood says. “I wanted to suppress my ego and remind myself that I was nothing special as a businessman. Physicians often try to take that M.D. halo into the business world. It doesn’t work.”
Youngblood had been living in a parallel world of medicine and politics since 1986 when he raised money for fellow Princeton alum Bill Bradley’s senatorial bid, tapping fresh money from his circle of doctors and young professionals.
“Ann Richards called me in 1989 and said, ‘Forget this guy from New Jersey. I’m running for governor of Texas. Help me,’” he recalls. “So I put the band back together.”
“It was a broad mix of whites, Hispanics, Asians, East Indians, in addition to black professionals,” says Youngblood. “But the point is black folks were in charge. That was a rarity. It was (businesswoman) Nancy Nasher and (her husband and businessman) David Haemisegger giving me money as opposed to (Democratic party kingpin) Jess Hay.”
Former Mayor Kirk, 61, an attorney with Gibson, Dunn & Crutcher, remembers those early days of fundraising. “Our goal at the time — it sounds laughable now — was to raise $50,000 for Ann Richards. We ended up raising much more.”
As a thank you, Richards appointed Youngblood to the Tax Reform Committee headed by John Connolly and Henry Cisneros in 1991 and to the board of trustees of the Teacher Retirement System of Texas two years later.
Youngblood, an emergency room doctor, chaired the huge pension fund’s real estate committee in restructuring its troubled $1.4 billion portfolio. At one point, the fund controlled much of downtown after foreclosing on several properties.
“All of a sudden, people started returning my phone calls and people started calling me who would never have called me before,” Youngblood says. “I began to understand power.”
In 1995, Youngblood approached Richard Rainwater after a business luncheon and told the billionaire that he wanted his advice about getting into the brave new world of private equity.
Rainwater, who died in 2015, invited Youngblood to his office in Fort Worth.
“Richard was incredibly gracious. He didn’t hesitate to pick up the phone and say, ‘Hey, I want you to meet this kid,’” says Youngblood, who was 40 at the time. “Richard made me believe I could do it.”
Rainwater protege Bonderman, who’d gone out on his own in 1992, reinforced Youngblood’s confidence by writing a $1 million check to invest.
“It wasn’t the amount,” Youngblood says. “It was that David was on board. That gave me instant credibility.”
And even more important in a world where who you know is more important than what you know, Bonderman gave Youngblood a personal stamp of approval. He invited Kneeland and Sharon on a two-week cruise of the Marquesas Islands aboard his yacht with a group of longtime close friends.
As Youngblood’s business reputation solidified, he calculated which boards would give him credibility outside of medicine and also came with personal perks.
“I figured if I could only be on one board, the best one would be an airline because they let you fly for free,” he says.
That’s initially how Youngblood got involved with American Beacon Advisors, which was the investment subsidiary of American Airlines. Board membership came with free first-class travel on American for him and Sharon.
Youngblood joined Starwood Hotels and Resorts in 2001 because he got cheap room rates, Burger King in 2004 and Gap in 2006 because, hey, he’s got six kids.
Youngblood currently serves on the board of UK-based Mallinckrodt Pharmaceuticals, which pays for his travel to meetings. So he gets to visit his daughter who works for the gigantic investment firm BlackRock in London.
Youngblood also serves on the board of Energy Future Holdings Corp., which he joined in 2007. He doesn’t get a discount on electricity.
Youngblood wasn’t technically Dallas Country Club’s first black member. It previously had accepted an out-of-town black businessman as a nonresident member. But that was largely viewed as an appeasement to members pushing for diversity.
Trammell Crow ex-CEO Williams, founder and chairman of the Foundation for Community Empowerment, sponsored Youngblood’s membership, as did insurance executive Tom Dunning and health care executive Leonard Riggs Jr. Williams resigned from the club in 2003 after Youngblood’s application was put on indefinite hold.
“They kept stiffing him year after year after year. I made a big protest over it and resigned,” says Williams. “Tom and Leonard wisely stayed in, and Kneeland finally got in. He was so good-natured about that. I was more upset than he was.”
Youngblood doesn’t play golf or tennis and has a swimming pool at his home.
So why did he want to belong to a country club that obviously wasn’t thrilled about making him a member?
“You sound like my kids and my wife,” he chuckles.
He wanted to come full circle with his father’s waiter days and be among Dallas’ business movers and shakers. “It’s all about access,” Youngblood says. “If you’re not in the room — as my wife likes to say — you don’t get served.”
Youngblood has been told that his membership was hung up by his association with Jesse Jackson.
“Of course I have a relationship with Jesse Jackson,” says Youngblood. “But I also have relationships with (U.S. Rep.) Pete Sessions, (former U.S. Sen.) Kay Bailey Hutchison and a whole bunch of other people.”
Williams says the worries were ludicrous. “Kneeland believes in human rights. But he’s certainly not a firebrand guy.”
So how have the Youngbloods used their membership in the past year?
Kneeland hosted a breakfast with Mike Milken that fellow businesspeople T. Boone Pickens and Lyda Hill attended. Sharon, who sits on the board of the World Wildlife Fund, hosted an event to introduce the organization there.
“There were certainly a few people who were opposed to me at the Dallas Country Club,” says Kneeland. “But that’s not a reflection of the whole community of the Dallas Country Club. So many people have thanked me for joining.”
As for how Youngblood gets around, he mostly uses NetJets. “I don’t have my own yet,” he says. “But I’m working on it.”
Title: Founding partner and chairman, Pharos Capital Group LLC
Raised: Galena Park, Texas
Education: Jesuit College Preparatory School, 1974; bachelor degree from Princeton University in 1978 with an A.B. in Politics/Science in Human Affairs; M.D., the University of Texas Southwestern Medical School, 1982.
Personal: Married to Sharon for 30 years. They have five daughters and a son.
Corporate boards: Energy Future Holdings and Mallinckrodt Pharmaceuticals
Pharos Capital Group LLC
Founded: January 1998
Majority owner: Kneeland Youngblood
Focus: Later-stage funding in growth, acquisitions and recapitalizations in health care and business services.