In the world of leveraged buyouts, where artful debt rigging is a paramount path to scoring returns, New York middle-market shop American Securities LLC has rung up extraordinary gains taking a less-traveled route.

"Theirs is the polar opposite of a financial engineering strategy," comments Erik Hirsch, chief investment officer of Hamilton Lane Advisors LLC, a Bala Cynwyd, Pa., pension fund consultant and longtime investor in American Securities' funds.

"They are very, very low users of leverage," Hirsch explains. "They make money the old-fashioned way. Their results have come from investing time and energy alongside companies' managers to improve earnings and make companies better." Moreover, American Securities' results, as Hirsch observes, have been "terrific."

According to Preqin Ltd., a U.K.-based research firm, American Securities' $2.33 billion fifth fund, raised in 2008, has notched the second-highest return among the myriad buyout funds raised worldwide from 2006 to 2008 at the peak of the LBO boom. Its 52.1% net internal rate of return was bested only by the 53.9% net IRR of the maiden fund of Australia's Anacacia Capital Pty. Ltd. Since raising its first third-party fund in 1994, American Securities' overall IRR has comfortably surpassed 30%, with no single fund posting less than a 19% IRR, sources say.

In light of that showing, the firm easily reeled in $3.64 billion in commitments for its sixth vehicle, which closed in March. The fund surpassed its $3 billion target and was the third-biggest fund to close in the second quarter. Amid straitened conditions in private equity, where elite players like Blackstone Group LP and Kohlberg Kravis Roberts & Co. LP have struggled to draw the vast sums they'd attracted in the past, American Securities topped its previous fund by 56%. And it did so without caving on terms or trimming limited partners' fees, as some rivals have been compelled to do.

Light leverage is only one element of American Securities' unorthodox style. The business is an offshoot of a brokerage and investment shop established in 1947 by William Rosenwald, whose marketing-genius father, Julius, cooked up the Sears catalog. In 1993, Michael Fisch, now American Securities' president and CEO, was recruited to start the third-party buyout-fund operation. And though the firm has grown markedly bigger since then, what hasn't changed a jot, Fisch says, is the company's undeviating adherence to its investing discipline.

It's a cautious, formulaic approach that has buoyed returns while shielding holdings from downside trouble. "We like to say we're always trying to get back to where we've been," says Fisch, a lean and engaging 50-year-old. "We want to keep doing the same thing over and over again, and hopefully it'll end up well for our investors."

A curtain of risk defenses in every deal has yielded this extraordinary result: Of the 39 portfolio companies American Securities has backed over the past 18 years, none has gone bankrupt or cost LPs money -- until now. The exception: ASP Westward LP, a Houston-based community newspaper publisher, which American Securities bought in 2002. The company's advertising sales have lately come under relentless assault from online publishers and job sites such as Monster.com. Even though ASP Westward has positive cash flow, American Securities' $50 million investment will be wiped out, Fisch says.

At the heart of American Securities' risk defenses is the sturdy makeup of the companies acquired. Healing ailing businesses is not the firm's game.

"We start with a stable platform," says Fisch. "We look to buy fundamentally sound businesses that are market leaders in a defined niche or sector. It's not unusual for our companies to have a 40% or 50% market share in their niche." Management continuity is also a must. Studies show a low average survival rate for CEOs of PE-owned companies, with more than half swept out within two years. By contrast, according to Fisch, CEO turnover at American Securities' portfolio companies is about 20%.

"It may be seductive to think that a new team that had success elsewhere can import that success to a new industry and company. Well, that may work some of the time, but we see that as risky," he says.

The firm is careful not to overpay. Emphasizing that American Securities nearly always "pays market-clearing prices" for its companies, Fisch notes that it has "never paid a double-digit Ebitda multiple" for any business. That's exceedingly rare in the trade.

As to the L-word, American Securities keeps leverage in its LBOs unburdensome and unfancy. Debt-to-Ebitda going into a deal is customarily 3 to 4 times, a turn or two below the industry norm. It also avoids the wedding-cake tiers of senior, sub and sub-sub debt that typify most LBO capital structures, routinely financing its LBOs with a single slug of bank debt and a revolver.

American Securities' most recent buyout is illustrative. Last December it paid $1 billion for Global Tel*Link Corp., which supplies telephone services to prison inmates. The target, a Moody's Investors Service report observed, is the "dominant player in the sector." The deal's valuation was a modest 6.7 times Ebitda. Funded debt consisted of a $605 million first-lien bank loan, 4 times Ebitda in size.

At times, the uncomplicated debt structure has saved American Securities' skin when trouble has struck. In 2002, for instance, when refrigerator door maker Anthony International's sales plummeted after it lost a major customer, lenders were persuaded to be patient.

"We had relatively simple conversations with our lenders," Fisch says. "If we'd had a more levered capital structure and had to deal with lots of creditors and bondholders, I'm sure we would have had a problem." Sales eventually rebounded, and American Securities went on to reap a fourfold return in Anthony.

Lastly and crucially, conservative leveraging gives American Securities latitude to reinvest the bulk of the Ebitda into companies' operations -- a key to enabling them to leap ahead and beget returns for the sponsor.

Most every portfolio company has an ambitious growth agenda. SpecialtyCare, which supplies blood-pumping equipment used in heart surgery to hospitals, as well as technicians who operate the machines, is working to boost the services it offers. Arizona Chemical Co., the world's biggest refiner of natural chemicals from pine trees, is formulating new products for the cosmetics and food markets. That company and Unifrax I LLC, which produces insulating linings for metal and chemicals refiners and power generators, are maneuvering to expand in Asia. The list goes on.

To make such ambitions a reality, and help companies fine-tune their organizational machinery, American Securities in 2002 set out to assemble an internal squad of function-specific gurus, known as the resources group. Bill Fry came to admire its prowess when he headed Oreck Corp., a vacuum cleaner company that American Securities has owned since 2003.

In 2007, team members mapped out the logistics of moving Oreck's manufacturing plant in Mississippi, which had been battered by Hurricane Katrina in 2005, to Tennessee. When that worked out well, Fry asked the group for help in sourcing components in China. Then he sought its help in charting a new strategic plan. "It was a good deal. I was three for three on my requests," he says.

In 2010 Fry accepted American Securities' offer to leave Oreck and replace managing director David Horing as head of the resources group. The crew of 23 is as big as the dealmaking team. Fry's people pitch in on everything from IT systems and human resources to price modeling, marketing strategy, operational troubleshooting and establishing beachheads in markets overseas. Seven of the 23 are stationed in Shanghai, American Securities' only foreign outpost, to work on Asian projects.

The financial benefits of these efforts, Fry says, can range from "a couple of hundred thousand dollars up to eight figures, depending on the project."

Unifrax CEO David Brooks, whose company Fry's group is assisting in China, gives it a qualified thumbs-up: "These guys are all specialists in what they do. We could hire McKinsey or Bain & Co. to do the same thing. But heck, [their services are] free and a lot easier to use. Time will tell whether the [in-house] approach provides better returns to shareholders. But we're nine months into working with them, and I think it'll help us."

The resources group is the only new arm American Securities has sprouted in 18 years. The funds have grown bigger, and so has the staff. What's less likely to change is Fisch and the company's time-tested, risk-averse formula for churning out profits.