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Lehman Recruit Trades I-Banking for Shale Wildcatting

Stocks in this article: AR CHK

By 2012, Guindo was preparing to stake out on his own after gaining support from colleagues at Ospraie, personal friends and some of his contacts on Wall Street. After sketching out plans for a first investment, Guindo raised capital in early 2013. In the summer, Drill Capital closed on its Carrollton Wyndham project and Guindo expects the hotel will open its doors in the spring of 2014.

If the project is successful, Guindo aspires to raise as much as $100 million for a next slate of investments in the second half of 2014.

The Strategy

What is interesting about Drill Capital is the firm's reluctance to invest directly in firms that Guindo might have become familiar with as either a banking or hedge fund analyst. Instead, Guindo thinks private shale infrastructure investments are currently a better risk-reward opportunity than direct investments in publicly traded firms.

Shale drillers continue to struggle with overly expansive drilling plans and a commodity price environment that is lowering the returns of drilling projects. Put simply, firms are continuing to manage their way through a supply scare. However, infrastructure investments may benefit where drilling plans remain irrational as workers flock to new basins. For now, that's where Drill Capital is putting its money to work.

Guindo, however, is also preparing to become more engaged with the stock picking in the energy sector. In January, Drill Capital launched a research arm that provides a few energy-based stock picks. Currently, the firm sees opportunity in Antero Resources (ARAR), Comstock Resources (CRK) and Bonanza Resources (BCIE), while recommending a short of the Oil Exploration& Production Index and the Energy Select SPDR (XLE) as hedges.

At first, Drill Capital hopes its research arm can get the firm's name out and illustrate its shale energy-focused strategy. That research arm could also be helpful if Drill Capital ever decides to begin investing in publicly traded energy stocks.

"The problem with Farid was his timing," Mark Emrich, a former director of institutional equities at Scotiabank and a Drill Capital investor, says of Guindo's time on Wall Street.

Emrich, however, has been impressed with Guindo's ability to manage what amounts to a real estate construction project on time and on budget. "He was able to put a project together without any help whatsoever... Farid's a young kid, but he doesn't act like that at all in his dialogue with investors," he says.

Emrich, a handful of Guindo's other contacts on Wall Street, and a Chicago-based family office have invested in Drill Capital. The firm expects to break ground on a second hotel this year and funds its projects on a deal-by-deal basis.

"We got into finance in a weird time," Guindo says of his experience as an analyst in the post-crisis years on Wall Street. "It was really about making the best of what you got," he adds.

For now, Drill Capital has a half built hotel in Carrollton, Ohio. If the firm hits pay dirt in its strategy to fill small gaps in the infrastructure of a shale drilling boom, bigger deals may lie ahead.

-- Written by Antoine Gara in New York

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