(FORTUNE Magazine) – Private equity has always been the glam part of finance. It's where rock-star venture capitalists like Kleiner Perkins swoop in, bestow their millions, and make some little startup into a billion-dollar behemoth. In the '80s, it was where ruthless leveraged-buyout firms like KKR won lasting notoriety by terrorizing huge companies. It's where everything new and big in business is happening.

In other words, it's not where you'd expect to find an elephantine bank like Chase Manhattan. Yet Chase Capital Partners, or CCP, as Chase's private-equity business is called, has quietly become one of the biggest such funds in the world, and one of the best. CCP's portfolio has a market value of $20 billion (including debt investments), and its annual return over the past 16 years has averaged 40%, placing it in the top tier of funds.

Unlike most private-equity funds, which tend to concentrate on a single industry or country, CCP is an enormous octopus with tentacles everywhere. Some 25% of its money is invested outside the U.S., in businesses ranging from an automotive company in Asia to a bank in Latin America to an Internet company in India. In the U.S., CCP funds both the old economy (retailers like Guitar Center and Gymboree) and the new (GeoCities, Stamps.com, Cobalt Networks). CCP is even the world's largest owner of airport parking garages.

CCP is a major force not just in the world of private equity, but in its parent's financials. In 1999, CCP earned $1.4 billion in profits--nearly as much as all of Lehman Bros.--and accounted for 26% of Chase's total operating profit. That makes CCP Chase's biggest business unit. "It's a real jewel," says Chase CEO William Harrison. "I wish I could talk about everything the way I talk about this business." And CCP, which made a staggering $2.3 billion in new investments this year, more than double 1997's $900 million, plans to get even bigger.

If CCP has emerged as a pivotal business for Chase only in the past few years, it has been quietly building strength for 16 years. Back in 1984, before everyone knew that there were trillions to be made in private equity, a 28-year-old employee of the old Chemical Bank, Jeff Walker, talked his bosses into starting a fund. Immediately, Walker made $6 million buying and selling a radio station. "Make sure your first deal works," he chuckles.

Walker is not one of the larger-than-life characters who populate the private-equity world (think Kleiner's John Doerr or KKR's Henry Kravis). He's mild-mannered and bespectacled, an accountant by training. You can't see him making a hasty decision. Executive recruiter Brian Sullivan of Heidrick & Struggles describes Walker as a "gentleman" and "one of the smartest, most productive people on Wall Street."

One of Walker's best moves was ensuring that, from the start, CCP was its own entity. It never needed parental consent to make investments, and its professionals are compensated like their private-equity peers--in other words, unlike bank employees, they make fortunes. Still, CCP isn't like other funds, partly because of laws (repealed only last year) that prohibited CCP as a bank subsidiary from owning 100% of any company. So CCP had to partner with other investors--which does not come naturally in the cutthroat, greedy world of private equity. "You've got to have every bit the capability and one-tenth the ego" of your competitors, says partner Steve Murray.

CCP's partnering system has evolved into a network of affiliates--some 25 outside funds that operate under their own names, but are entirely backed with Chase money. Polaris, an Israeli firm run by the son of the country's former Prime Minister, Shimon Peres, is funded by Chase, as are Penske Capital, run by Roger Penske of automotive fame; Flatiron Partners, New York's leading Internet investor; and TechFund, a Silicon Valley firm run by former Intel executive Gordon Campbell. Dealmaking today is all about the size of your network--whom you know, whom that person knows, and so on through the six degrees of separation--and CCP's web of affiliates gives it one of the biggest of all. Is this entrepreneur a good guy? Don't know? Someone a few phone calls away does.

Flatiron and CCP have invested in some of the hottest Internet deals going, including GeoCities, StarMedia, and iXL. Their teamwork gave StarMedia, which is now one of Latin America's biggest online networks, its start. During 1996, StarMedia's CEO, Fernando Espuelas, pounded on the doors of some 30 venture capital firms, racking up rejection after rejection. But Susan Segal, CCP's resident Latin American expert, thought the idea was a slam-dunk. "Everything happens in Latin America a few years after the U.S.," she says. Flatiron's Net experts, Jerry Colonna and Fred Wilson, knew the portal business. So during 1997, Chase invested $27 million. StarMedia's successful IPO has turned that into $440 million.

CCP makes it a point of pride to keep its distance from its parent. It has its own offices, at 380 Madison Avenue instead of 270 Park Avenue, and its culture is khakis-casual rather than suit-and-tie. Employees point with pride to the cappuccino maker in their kitchen. But these guys (it is mostly guys) are no cowboys. Quite the opposite. They all talk about "process"--by which they mean turning the art of investing into something akin to a science.

That process is most evident on Mondays. Monday begins Saturday morning, when a foot-thick packet of material about deals CCP is considering arrives on everyone's home doorstep. The meeting starts at 8 A.M. every Monday, and circles the globe via teleconference, from London to Hong Kong to Sao Paulo. (How much software could India export by 2008? What is the credit quality of an Indonesian bank?) At ten, some 50 people press into a huge conference room to ponder U.S. deals; they might range from a $3 million investment in a biotech company to a $120 million buyout of an old industrial firm. Decorum prevails: Voices are not raised, and no one attacks the lunch spread until Walker leads the way.

Part of the reason for the calm, almost serene atmosphere is familiarity. Most of CCP's top lieutenants have worked together forever--at least as forever is defined on Wall Street. Like Walker, many of them grew up at either Manufacturers Hanover or Chemical Bank. Others, like partner Mitchell Blutt (who was a part-time practicing M.D. until April), began working with the group as long as 14 years ago. "They've all been part of the family forever. The people in there are homegrown," says an almost misty-eyed Bill Harrison.

Indeed, for all its independence, CCP is also very much part of the Chase family. In addition to its profits, CCP generates fees for Chase, as when its companies use the bank to issue debt. The ties will become tighter with Chase's acquisition of Hambrecht & Quist. Before H&Q, when CCP-funded companies went public, Chase had to hand the lucrative business off to another firm, like Morgan Stanley. That has been a sore point. Witness two of December's hottest deals, those of wireless telecom companies Triton PCS and Telecorp PCS. Both saw their stock prices surge on the first day of trading, and both were funded by CCP, yet poor Chase was entirely left out of the underwriting process. That will change.

What's also changing is CCP's profile in the outside world. Investors other than its parent want in. So in late 1999, CCP sold a $350 million stake to three pension funds (including a Dutch fund that's the world's largest). Chase still plans to provide some 75% of CCP's funding, but as Walker says, "This pretty much gives us unlimited capital."

Ironically, CCP's biggest problem may be the size of its success. Private-equity returns generally fluctuate with the stock market, which won't rage on forever. (Really.) Some investors argue that CCP's earnings will be volatile and so deserve a lower multiple than other Chase businesses. Says Tom Finucane, a portfolio manager at John Hancock: "When you need it [CCP's earnings] the most, you'll have the least."

Mention that to Walker, and his always-level voice rises a notch. He argues that CCP's exhaustive investment process gives it staying power, and points to CCP's 16-year record of outsize gains through good and bad markets. (It has never had a down year.) "We produce extraordinary gains consistently, not occasionally," says Walker. Dan Orlow, an analyst at Lord Abbett, agrees, calling CCP an "absurdly undervalued asset." Orlow points out that CMGI--the public company most like CCP--has a market value half that of all Chase Manhattan, or $30 billion, despite the fact that it's smaller and less diversified than CCP.

That debate will probably get louder, but there won't be an answer until the next bear market strikes. In the meantime, a few things are obvious. Private equity has been one of the most fantastic moneymakers of all time--and thanks to CCP, Chase is billions of dollars richer.