Monday, December 11, 2017

Carlyle Hopes to Profit from PEU Bankruptcies


The Carlyle Group invested in Prime Clerk, a four year old company that helps bankrupt corporations with needed legal services.  PE Hub reported:

The company’s services include: pre-bankruptcy filing preparation, noticing solutions, claims administration, balloting and tabulation, secure disbursements, strategic communications and call center support, case specific websites and virtual data rooms.

"By leveraging Carlyle’s global network and providing the Company with growth capital, we will help take Prime Clerk to the next level of success. We are proud to partner with this management team."
Over one third of Prime Clerk's customers went bankrupt under private equity ownership.  

What does Carlyle see that leads them to believe their will be growth in the bankruptcy services sector?  How much of that might come from Carlyle's global network?

Sunday, December 10, 2017

PEUs Accelerate Future Scrooge Recruitment


Bloomberg reported:

The private equity recruitment cycle is starting earlier than ever, forcing firms and candidates into the frenzied process before Christmas.

While extending formal offers in recent years has started earlier and earlier in January, never has it come before Christmas.

Access to the best talent can go quickly, so the process works like a levy breach: Once one firm starts, the others flood in to follow suit.  

As the timeline moves earlier, the decisions get quicker. So-called exploding offers, which give candidates a day or even just hours to decide, have in some cases been replaced by a nuclear option: accept on the spot or pass it up.
 It's race to the top for future greed and leverage boys, also known as private equity underwriters (PEU).  The rise of PEUs corresponds to the death of America's middle class.  It's causation, not coincidence. 

Friday, December 8, 2017

Carlyle's Rubenstein Now Divorced


Carlyle Group co-founder David Rubenstein and his wife Alice Rogoff are officially divorced, according to today's WaPo

The couple, who married in 1983, was granted a divorce in Montgomery County on Friday morning. All financial and other terms were settled privately and will remain confidential, according to Rubenstein’s lawyer, Sandy Ain, and Rogoff’s lawyer, Linda Ravdin.
The divorce occurred nearly four months after Mrs. Rubenstein put Alaska Dispatch News into bankruptcy.  The article did not address how any divorce proceeds might go to make Alaska Dispatch News creditors whole.

Carlyle recently celebrated its 30 year anniversary as a private equity underwriter (PEU).  Mr. and Mrs. Rubenstein separated in 2005, when Carlyle was 18, a mere teen. 

The couple has three grown children and reports have David Rubenstein opening a family office with a daughter. 

Sunday, December 3, 2017

Billionaire Saudi Prince Detained 28 Days, Abandoned by Western "Friends"


Saudi Prince Alwaleed bin Talal hit four weeks in detention without word of his situation.  The billionaire prince, a frequent CNBC contributor, had few friends speak on his behalf since he was taken on November 4, 2017.  Prince Alwaleed bin Talal is being held at the Riyadh Ritz Carlton.

Fellow billionaires should know it could happen to them.   Like many of them Alwaleed bin Talal signed the giving pledge.  His Giving Pledge page states:

“It is our duty as philanthropists to harness the very best of human nature — generosity, innovation, creativity — to make the biggest possible difference in people's lives.” 
The prince's detention occurred right after Carlyle Group co-founder David Rubenstein suggested Saudi Arabia was safe for billionaire investment.

What value is there in being friends with the West?  We can ask Prince bin Talal if  he ever resurfaces.  Saif Gadhafi recently went public in Libya.  He may have advice for the world about his and his father's experience with the Western billionaire class.

Is it safe?  FT offered:

The Gulf state’s regulator has asked local and foreign banks to disclose if they have credit facilities and safety deposit boxes in the names of those arrested, including billionaire Prince Alwaleed bin Talal.
Nope.

Update 12-5-17:  Forbes shared the most substantive information to date on the plight of the billionaire prince. " the settlement offered to Alwaleed bin Talal requested that he hand over a large portion of his assets and agree to lifetime house arrest with no phone and no media interviews. Alwaleed has refused the offer, according to the source, and wants to go to court. The specific allegations against Prince Alwaleed have not been made public."  The story said some of quiet Western friends are worried about him.

Update 12-9-17:  NPR ran a piece on the missing prince and how it is making investors nervous.  It stated "detaining a key international financial player of Alwaleed's stature could harm potential investment in Saudi Arabia, some analysts say."  No word from Carlyle co-founder David Rubenstein if Saudi remains an attractive place to invest, a comment he made one week before bin Talal got taken.  Rubenstein has been busy ending a different relationship.  He divorced wife Alice Rogoff.

Update 12-10-17:  Saudi princes are moving money to Europe in the aftermath of the purge.

American Soul by PEU Bono

Blessed are the arrogant for theirs is the kingdom of their own company
Blessed are the superstars for the magnificence in their light we understand better our own insignificance
Blessed are the filthy rich for you can only truly own what you give away,  like your pain (pain)
Blessed are the bullies for one day they will have to stand up to themselves  Standup
Blessed are the liars for the truth can be awkward
Standup
Under Bono's superstar light can we understand our insignificance?  Paul Hewson is a private equity underwriter (PEU) for Elevation Partners and a special partner with TPG Growth'a RISE Fund.

Paul/Bono sits on the RISE board with TPG founders David Bonderman and James Coulter. 

David Bonderman:  "Europeans don’t care about growth, no matter what they say… Europeans only care about social stability. They care about the social compact."
Private equity is all about growth.  As for any implied social compact billionaire founders grew wealthier while worker pay stagnated the last two decades.


TPG's James Coulter spoke at a Delivering Alpha conference in September.

The meeting delivered over $2.2 trillion of investable assets represented by over 100 influential institutional investors.
A CNBC article on Coulter's talk mentioned the following:

Law firm Covington-Burling delivered a report to Uber with 47 recommendations to improve its culture, which has been plagued by criticisms of widespread sexism

TPG partner David Bonderman quit Uber's board in July after taking heat for a sexist remark. The ride-hailing company has been under investigation for its workplace culture. 
Bono's PEU peers are the self-serving, politically connected greed and leverage boys.  Their world is private and they run the board.  Any of their bad behavior will need a snitch, who can be bought off.

Bono intends to do good and make big money off the RISE fund, just as he did with a $43 million profit from Facebook.  Facebook has come under fire from insiders over its addictive design:

“It literally changes your relationship with society, with each other … It probably interferes with productivity in weird ways. God only knows what it’s doing to our children’s brains.”
Four years ago David Bonderman said:

The real problem with Africa is that the markets are small… The only two countries that really have markets of any size are Nigeria which has a whole set of problems and South Africa which has a whole set of problems. What is attractive with Africa is that it’s starting from a very low base.

A lot of these countries are moving the most and improving the most because they are the worst.
So TPG wants to help the worst rise while making bank

The Rise Fund is committed to achieving social and environmental impact alongside competitive financial returns.  
Competitive PEU returns is a definable metric.  The transparent RISE team refused to share their target figure.  Is that arrogant for filthy rich PEU superstars to not share their desired multiple of money?  Or does it make them liars and/or bullies?

Bono shows us those with the gold, platinum and double platinum can rule.  

Thursday, November 30, 2017

Carlyle's Newest NYC Retailer

Business of Fashion reported:

Carlyle-Backed Twinset Plots Expansion
The Italian fashion brand will open its first US store in New York, with plans to take on London in 2018.


Other Carlyle retailers in the Big Apple include Supreme:


Golden Goose Deluxe Brand:


And former holding Moncler:


Most are European imports.  American based Supreme went the other way to London, Paris and Japan.  Carlyle's dream is to expand affiliates, mine them for cash and flip them for a multiple of their original equity investment.  It's the PEU way. 

Wednesday, November 29, 2017

Double Digit PEU Raises


Bloomberg reported:

The most junior PE professionals saw base salaries increase by 14 percent to $125,000.
Private equity is now an employer of choice for former politicians, however they don't enter at the junior level.

As for the PEU pay survey, Bloomberg included a caveat:

And that doesn’t include bonuses and carried interest, or their cut of deal profits.
Private equity underwriters (PEU) fare well in tax reform, keeping their preferred carried interest taxation under both the House and Senate bills.   Are they looking after their supporters, their future income or both?

Politicians Red and Blue love PEU.

Update 12-9-17:  Jacobin reported:  "The Obama presidency was a disaster for middle-class wealth in the United States. Between 2007 and 2016, the average wealth of the bottom 99 percent dropped by $4,500. Over the same period, the average wealth of the top 1 percent rose by $4.9 million."

Monday, November 27, 2017

Carried Interest Remains!


Congressional' tax reform proposals carried water for private equity underwriters by preserving lower carried interest taxation.  Presidential candidates Barack Obama (Blue team) and Donald Trump (Red team) both ran on eliminating what's became known as the billionaire's loophole.  Under tax reform it remains large enough for PEU founders to fly their private jets through.

Washington would have it no other way as politicians Red and Blue love PEU.

Update 12-3-17:  The Hill reported more than 6,000 lobbyists worked to shape tax reform.  The story did not indicate how many were PEU lobbyists.

Update 12-10-17:  Trump's tax plan has Kansas roots.   Will it turn much of the U.S. into dust in the wind?

Saturday, November 25, 2017

D.C. based Carlyle Group Celebrates 30 Years


The Carlyle Group issued a video celebrating its teamwork and innovation after 30 years operating in Washington, D. C..  The video views more like a handoff from Carlyle's DBD co-founders to its next generation of leaders.

Not mentioned are Carlyle's stumbles, bankrupt investments (detailed above) or numerous failed ventures in the hedge fund and mutual fund space.

The video failed to mention core drivers of Carlyle's success as a private equity underwriter (PEU).  One of those is preferred carried interest taxation:

At a Credit Suisse forum in Miami, in 2013, Rubenstein said of private equity, “Carried interest is really what the business has historically been about—producing distributions for your investors from good sales and I.P.O.s . . . and getting twenty per cent of the profits for yourself.” He went on, “That’s how we’ve really grown our business.
At the end of the puff piece are several humorous bits.  Rubenstein closes the video exhorting rowers to "get into private equity, the highest calling of mankind."


Consider the above example of integrity:

"H.J. Heinz determined to pay all creditors back, although it would not be required legally.  His reputation and moral obligations had priority in his life.  He started a ledger of what was owed and to whom."  
Contrast Heinz's behavior with that of The Carlyle Group in its many failed ventures, where it simply walked away, refusing to put good money (which it had plenty of) after bad.  Integrity, one of Carlyle's espoused values did not get one mention in their video.

A different calling saved PEU core driver carried interest according to the New Yorker:

On June 8th, Rubenstein’s cell phone rang as he was speaking to supporters of the Economic Club, at the Phillips Collection. He left the stage to take the call. Among those in the audience was Gary Shapiro, the consumer-electronics lobbyist who was Rubenstein’s travel companion to Japan in the eighties. After a few minutes, Shapiro recalls, Rubenstein returned and said, “That was a senator. That one call just saved us on carried interest.”
And saved Carlyle's business.  The greed and leverage boys live on.  They know how much they are owed by politicians Red and Blue (who both love PEU). 

Update 12-3-17:  Tony Blair's wife launched a private equity fund, which later went belly up, like Carlyle Capital Corporation.  

Thursday, November 23, 2017

Carlyle Bullish on Saudi Arabia prior to Prince's Detention


Carlyle Group co-founder David Rubenstein said the following a week before the Saudi Prince purge began:

"I have been in Saudi Arabia for more than 25 years and I am already investing in Saudi Arabia, but the atmosphere is now more encouraging and will encourage more capital attraction."
The wealthy Saudi Arabian Bin Laden family began investing with Carlyle in 1995.

In 2000 George Bush Sr and John Major traveled to Riyadh to talk with senior Saudi businessmen (on behalf of Carlyle). 
In 1991 Carlyle landed one of Saudi Arabia's wealthiest Princes:

Prince al-Waleed bin Talal of Saudi Arabia pondered the notion of spending a spare half-billion dollars. Then last month, on the recommendation of American advisers, he used the money to buy up a sizable piece of America's largest banking company, Citicorp. 
The advisers were the Carlyle Group -- not a familiar name on Wall Street, certainly. In fact, its only New York connection is that it takes its name from the city's famed luxury hotel, a favorite of the Carlyle partners. 
The Carlyle Group, relatively new and based in Washington, is led by people with little experience in the investment business but with strong connections, especially in Washington. 
David Rubenstein is the consummate salesman.  He had this to say in 1991.

Whether the deal with the Saudi Prince will lead to further business for Carlyle remains to be seen. But Carlyle has hopes: "We were mostly interested in developing a relationship with him that might lead to other things in the future," Mr. Rubenstein said. 
It's not clear if Prince Alwaleed bin Talal is one of Carlyle's 1,750 investors from over 82 countries.
Rubenstein has not publicly said if he is worried about the billionaire Prince, however a $1.3 loan to Kingdom Holdings has been held up due to the Prince's detention.

A senior banker at a Saudi financial institution, said the loan deal would not go ahead until the situation facing the prince was resolved.
Also in October PwC and UBS referenced the billionaire prince in a study on the undetained super rich.  
The allegations against Prince Alwaleed, who owns 95 percent of Kingdom, include money laundering, bribery and extorting officials, a Saudi official has previously told Reuters. 
The question is how intertwined are Carlyle and the detained prince?   The Carlyle Group settled more than one bribery allegation in the past.  Will the Prince come out as unscathed as Carlyle?  Will he endure a purge like Libya's Saif al Islam Gaddafi, another Carlyle Group courtee?

Might The David Rubenstein Show on Bloomberg TV entertain any of these questions?  Only the host knows for sure.

Update 11-25-17:  NYT Columnist Thomas Friedman spoke to new prince in charge with a "firehose of new ideas."  Friedman sees changes in Saudi Arabia as their Arab Spring.  Friedman made no mention of Prince Alaweed bin Talal but he wrote. the mood among Saudis he spoke with was: “Just turn them all upside down, shake the money out of their pockets and don’t stop shaking them until it’s all out!”  Who will end up with bin Talal's Citi, Four Seasons and Kingdom Holdings shares?  How do those fall out of the pockets of someone hanging upside down?    I'm not sure how Friedman sees freedom arriving under a barrage of torture reference.

Update 11-26-17:  Bloomberg reported a second deal is held up as a different billionaire Saudi Prince is detained in the Ritz-Carlton.

Update 12-3-17:  CNBC noticed om 12-1-17 what PEUReport observed.  No friends of Prince bin Talal have spoken out on his behalf.

Update 12-7-17:  Bloomberg did a piece on the Saudi crackdown but no word yet from Bloomberg TV's David Rubenstein.

Update 12-9-17:  NPR noted "detaining a key international financial player of Alwaleed's stature could harm potential investment in Saudi Arabia."  Has David Rubenstein changed his mind on Saudi Arabia being an attractive place to invest?  He's been busy ending a different relationship, given his divorce from wife Alice Rogoff.  Did he divorce Prince Alaweed bin Talal as well?

Sunday, November 19, 2017

New Tax Break for PEU Billionaire Private Jets

Congress added a new tax break for private jets.  Carlyle Group co-founders David (D) Rubenstein, William (B) Conway and Daniel (D) A'niello each own a private jet.


Yipppeeee!

Core Drivers of PEU Riches


The Carlyle Group presented recently at the Future of Financials conference hosted by Bank of America Merrill Lynch.  The private equity underwriter (PEU) had a slide on core drivers of their performance.  I adapted the slide to show how billionaire PEU founders achieved their outsized wealth (pictured above).

Another slide showed Carlyle serves 1,750 investors from over 82 countries.  It is these people Carlyle co-founder David Rubenstein has in mind when he meets with President Trump, just as he met with Presidents George H. W. Bush, Bill Clinton, George W. Bush and Barack Obama.  Carlyle's pervasive political influence is not mobilized on behalf of the average citizen.  It is steered toward the international billionaire class.

Politicians Red and Blue love PEU.   That'sbecause the greed and leverage boys may be their next employer.  That's the world we live in.

Wednesday, November 15, 2017

Carlyle Says It's Not a Spent Force


FT reported:

The private equity model “is starting to look like a spent force” because more competition and record cash available is leading to lower returns as operators are forced to take on more risk, an adviser to the industry has said.
Carlyle Group co-founder David Rubenstein, ever the salesman, offered a different view:

Speaking at a trade conference in Amsterdam, David Rubenstein, the billionaire co-founder of the Carlyle Group, said the model of private equity had worked “pretty well” for both managers and investors and that was likely to continue for the next three decades, with minor adjustments.
Carlyle has roughly $100 billion to raise.  Carlyle knows when not to throw good money after bad, as it did with bankrupt Carlyle Capital Corporation (CCC).  The question is if and when investors decide PEU stakes are a bad deal.

The model of asset management charged no carried interest — the cut managers share with investors — for 200 years, he said, but private equity in the 1960s changed it because “money would be committed but not actually invested and more or less 20 per cent of the profits would go to the [manager]”.
The greed and leverage boys became ubiquitous in the last two decades.  The rise of the billionaire founders coincided with the decimation of the middle class.

Ironically, PEUs want to become part of that middle class retirement account, what's left of it.  Is more risk the tonic, or will it be toxic?    Ask the robot what you need to do the pay a management fee plus carried interest.  Surely, Carlyle funded artificial intelligence will give you an answer.  

Monday, November 13, 2017

Billionaire Report Highlights Detained Saudi Prince

The PwC-UBS billionaire report highlighted a joint deal between Bill Gates' Cascade Investment Group and Kingdom Holding,  directed by Prince Alwaleed Bin Talal, one of the world’s leading investors.  The pair bought out Four Seasons just before the 2008 financial crisis.

PwC-UBS released the billionaire report in October, before the corruption crackdown in Saudi Arabia that engulfed the Prince.  Money reported:

He’s the richest man in the Middle East.  And now he’s under house arrest.  Prince Alwaleed Bin Talal—best known for sporting a distinctive throwback mustache, trading in traditional Saudi garb for fine suits, and making a series of high-profile, brand-name investments—was detained this week as part of what the Saudis have called a corruption crackdown. It is not clear what specific charges have been leveled against the prince.
Four Seasons issued debt twice under billionaire ownership, according to Moody's.  The company floated $1.1 billion in debt in June 2013.  Part of those proceeds went to preferred shareholders.  It refinanced $950 million of debt in November 2016, with $36 million going to owners in the form of dividends.

Money noted the Prince's propensity for leverage:

Yet the New York Times also speculates that Prince Alwaleed may have gone bankrupt during the 2008 financial crisis—which might be connected to his detention. 

“He had been highly leveraged and somehow got elements of the government to bail him out, through his connections to then-King Abdullah and the finance minister, who is also said to have been arrested.
The United States rescued private money with trillions in public funds during the financial crisis.  Surely, the Saudi's did likewise.

Kingdom Holding Company: The World’s Foremost Value Investor 

Directed by Prince Under House Arrest in Corruption Crackdown
Billionaires, leverage, corruption and bailouts.  It can be a sordid tale.

Update 11-20-17:  A $1.3 billion bank loan for Kingdom Holdings is on hold pending the fate of  Prince Alwaleed Bin Talal.

Update 11-23-17:  Rumors have former Blackwater thugs tormenting and torturing Prince Alwaleed bin Talal while he remains in custody at the Riyadh Ritz Carlton.  The last fall of similar magnitude happened to Libya's Saif al-Islam Gaddafi when the west shifted from courting his father to ousting him.

Update 11-27-17:  Bill Gates publicly spoke about the plight of Prince Alwaleed bin Tabal, saying he only knew what he read in the press.  Gates called the detained Prince an important partner in improving health conditions around the globe.

Update 12-3-17:  CNBC noticed om 12-1-17 what PEUReport observed.  No friends of Prince bin Talal have spoken out on his behalf. 

Sunday, November 12, 2017

PwC-UBS Fawn Over Billionaires in Report


The Guardian reported:

Yet the 2017 billionaires report compiled by the Swiss bank UBS and the consultancy firm PwC finds that the clock would have to be turned back to 1905 – when the Russians were having a trial run for their revolution and Queen Victoria had been dead only four years – to find a time when wealth was so concentrated.

Josef Stadler, the author of the UBS/PwC report, said: “We are now two years into the peak of the second Gilded Age,” and he added that the 1,542 dollar billionaires around the world were concerned about how concentrated wealth has become. But not, it seems, concerned enough to do anything about it. The rich show real tenacity when it comes to holding on to their wealth and the system that generates it.
The newspaper piece missed the marketing nature of the PwC/UBS billionaire report.  First, it calls then "new value creators" vs. "systemic wealth concentrators."  Second, the intent is to advise more of the world's wealthy billionaires.

America's political system under Republicans and Democrats fostered the rich getting richer, as shown by a graph in the billionaire report. I added colored arrows and presidential names to the graph.  The growing of billionaires has been a bipartisan effort for decades.

PwC and UBS join politicians Red and Blue.  All love PEU, private equity underwriters. 

Interesting aside:  The report shows U.S. billionaire's preference for holding companies private (63%) vs. public (37%).  That fits squarely with the PEU meme.  

Sunday, November 5, 2017

Bloomberg Columnist Likes PEU Powell Nomination


Fed Chair nominee Jerome Powell has a strong supporter in the author of "Fed Up:  An Insider's Take on Why the Federal Reserve is Bad for America."  Danielle DiMartino Booth wrote:

The sheer breadth of Powell’s experience is refreshing compared to what we’ve had for the past 30 years. Powell has a deep understanding of the law and politics. 
At the Carlyle Group, Powell founded and ran the Industrial Group within the Buyout Fund. A separate missing characteristic among Fed leaders for the past 30 years has been a woeful lack of understanding as to how Fed policy effects corporations and the decisions CEOs and CFOs make driven by Fed policy, the most obvious of which has been debt-financed share buybacks at the expense of capital expenditures.
Future Fed Chair Powell's Carlyle Group executes a private form of the above strategy, debt financed dividends at the expense of capital expenditures and my addition, employee raises..  

Author Danielle DiMartino Booth and Carlyle co-founder David Rubenstein share frequent appearances on Bloomberg and CNBC.  Rubenstein has his own show on Bloomberg

DiMartino Booth is a full-time columnist for Bloomberg View, a business speaker, and a commentator frequently featured on CNBC, Bloomberg, Bloomberg Radio, Fox News, Fox Business News and other major media outlets.

Below is a core message of Fed Up, according to Amazon.

While easy money has kept Wall Street and the wealthy afloat and thriving, Main Street isn’t doing so well. 
America's new Fed Chair grew wealthy from his time with The Carlyle Group, a politically connected private equity underwriter (PEU).

In 2017, Powell reported that he had a net worth of between $19.7 million and $55 million, making him the richest member of the Federal Reserve Board of Governors.
I expect Jerome Powell to look after his wealthy peers as Fed Chair.  He should face easy approval as politicians Red and Blue love PEU.

Update 11-9-17:  Billionaire peer lover and corporate fan Trump's Fed will help whom?  Fed Chief Alligator Powell will govern one corner of Trump's D.C. swamp.

Wednesday, November 1, 2017

Fed Officially Goes Carlyle


God's favor for The Carlyle Group's co-founders continued with President Trump's appointment of another Carlyle alumus for Federal Reserve Chair, Jerome Powell.  As they turn their politically connected private equity underwriter (PEU) over to younger hands they will have two friends working on the macroeconomic scene.  The irony is the last few decades have been tilted toward the greed and leverage boys and not the average citizen. 

Monday, October 30, 2017

Carlyle Triumverate Has God's Favor


Private Equity News reported:

“Private-equity firms seem to be favored by God because the founders don’t seem to die early,” Mr. Rubenstein said.
"God's work" Lloyd Blankfein's son Alex works for The Carlyle Group.

Politicians of both stripes favor private equity underwriters.  How much richer can Carlyle's PEU founders get with both God and elected officials on their side?  It remains to be seen.

Wednesday, October 25, 2017

Carlyle Founders Elevated Out of Operations for 2018


Carlyle Group co-founders David Rubenstein, William Conway and Daniel D'Aniello took a step back from running their politically connected private equity underwriting (PEU) firm.  The DBDs, David-Bill-Daniel, started The Carlyle Group in 1987.

For all its glasnost, the genius of Carlyle may well yet rest with the unsettled dynamic among its leaders that has been there from the Marriott breakfast. 

“At the end of the day,” Akerson said, “it wouldn’t be the firm anywhere close to where it is if they were alone. It’s a complicated, synergistic relationship.”
And it's mostly done, as all three step back from their current roles starting January 1, 2018.   Axios reported:

Sources say that Rubenstein is planning to launch a family office, likely in partnership with at least one of his daughters.
That could be in competition with Carlyle for deals.  The PEU guard is changing.

Update 10-28-17:  Carlyle PEU Nolan Harte turned out for the Build Our Future PAC which supports conservative millennials running for office.   Surely, conservative millennials love PEU.

Sunday, October 22, 2017

Carlyle to Bid on Old Mutual Global Investors


FT reported:

US private equity group Carlyle has joined the heated takeover battle for Old Mutual Global Investors’ £25bn fund business, with four parties now bidding for the investment arm run by star UK manager Richard Buxton. Carlyle joins Challenger and Macquarie Investment Management, two Australian financial services groups, and TA Associates, a buyout specialist.
Assets under management fell by nearly £2 billion in the last year (from £26.9 billion in Q2 2016).  Like Carlyle OMGI knows how to proposition investors.  Both know how to move money offshore. 

Old Mutual said in September it would reorganize several divisions:

Old Mutual Global Investors will focus on its highly successful single strategy portfolio range and will continue to grow this attractive franchise under the leadership of Richard Buxton as CEO. Old Mutual Wealth is assessing, together with OMGI management, internal and external structures for the single strategy business to continue to develop it further.
Apparently, private equity underwriter (PEU) is the preferred structure for OMGI.   Old Mutual Global Investors, established in 2012, is a mere five years old.  To think it could soon have a new sponsor. 

Goldman Sachs is advising parent Old Mutual on selling its asset management offspring.  Which PEU will win OMGI?

Sunday, October 15, 2017

Carlyligarchy


The Guardian ran a piece on oligarchy.  It illuminated how a small number of greedy, power seekers can distort a democracy in their favor.  The story used ancient Greece but their practices brought to mind The Carlyle Group, a politically connected private equity underwriter (PEU).

At its core, oligarchy involves concentrating economic power and using it for political purposes. Democracy is vulnerable to oligarchy because democrats focus so much on guaranteeing political equality that they overlook the indirect threat that emerges from economic inequality.
Flashback to October 2001 in a piece titled "the Ex- Presidents' Club":
But what sets The Carlyle Group apart is the way it has exploited its political contacts. When Carlucci arrived there in 1989, he brought with him a phalanx of former subordinates from the CIA and the Pentagon, and an awareness of the scale of business a company like Carlyle could do in the corridors and steak-houses of Washington. In a decade and a half, the firm has been able to realise a 34% rate of return on its investments, and now claims to be the largest private equity firm in the world.
Carlyle managed $5 billion in assets in early 2001.  It manages over $170 billion today, a thirty four fold increase..

The next characteristic also brought Carlyle to mind:

They build a legal system that is skewed to work in their favor, so that their illegal behavior rarely gets punished. 
Carlyle settled a New York pay to play investigation for $20 million.

And they sustain all of this through a campaign finance and lobbying system that gives them undue influence over policy.
Private equity's preferred carried interest taxation is a perfect indicator of this undue influence. There has been no public will for billionaires to pay a lesser tax rate than a secretary, but that's been the case for over a decade.

On June 8, 2010 Rubenstein’s cell phone rang as he was speaking to supporters of the Economic Club, at the Phillips Collection. He left the stage to take the call. Among those in the audience was Gary Shapiro, the consumer-electronics lobbyist who was Rubenstein’s travel companion to Japan in the ’80s. After a few minutes, Shapiro recalls, Rubenstein returned and said, “That was a senator. That one call just saved us on carried interest.”
Oligarchs remain in power by maximizing their public image.

"Instead of public works projects, dedicated in the name of the people, they relied on what we can think of as philanthropy to sustain their power. Oligarchs would fund the creation of a new building or the beautification of a public space. The result: the people would appreciate elite spending on those projects and the upper class would get their names memorialized for all time. After all, who could be against oligarchs who show such generosity?"
And that's exactly what Carlyle co-founder David Rubenstein did.  Alaskan journalist Craig Medred reported on one Rubenstein relationship, that with his wife Alice Rogoff Rubenstein:

Some friends and former friends of Rogoff are angry at Rubenstein, who they believe could have cleaned up his long-estranged wife’s Alaska mess but refused to do so. Rubenstein is worth an estimated $2.5 billion. He spent $21.3 million to buy the Magna Carta in 2007.

In 2016, Rubenstein gave the National Park Service $18.5 million to help restore the Lincoln Memorial. In private, Rogoff has described those acts as publicity grabs and claimed all her financier husband really cares about is making money.
Mrs. Rubenstein's revelation fits with Greek oligarchic practices.

"the key to oligarchy is that a set of elites have enough material resources to spend on securing their status and interests. He calls this “wealth defense,” and divides it into two categories. “Property defense” involves protecting existing property – in the old days, this meant building castles and walls, today it involves the rule of law. “Income defense” is about protecting earnings; these days, that means advocating for low taxes"
President Trump's cabinet is chock full of PEUs.  They are in a unique position to protect their brethren.
The question is whether democracy will emerge from oligarchic breakdown – or whether the oligarchs will just strengthen their grasp on the levers of government.
The Federal Reserve board already has two board members from The Carlyle Group.  One is Vice Chair for Regulatory Affairs and other could be the next Fed President.  Carlyle co-founders dined regularly with Presidents from both the Red and Blue Team.  They have free access to Capital Hill and show up when their pocketbook dictates.

Former Vice President Joe Biden's recent defense of rich people suggest the billionaire grasp on government will strengthen with each crisis.  Politicians Red and Blue love PEU.

Saturday, October 14, 2017

Carlyle PEUwear to Become Hip on Capital Hill?


Highsnobiety reported:

Just two days following the announcement that Supreme had sold a 50 percent stake in its company to The Carlyle Group, some branded tees have cropped up online. Available in the firm’s corporate colorway of white and blue, each tee is $30 and features the nondescript company logo on the front.
Step right up.  This is an opportunity for politicians to show their Carlyle love for a mere $30.

Wednesday, October 11, 2017

Fed Chair Candidate & Vice Chair for Supervision Worked for Carlyle


Federal Reserve Vice Chair for Supervision Randall Quarles worked for The Carlyle Group overseeing the PEU's financial/banking investments.  The new Fed Chair may have Carlyle on his resume.  Carlyle could have two alumni at the top of the Federal Reserve Bank Board of Governors.  What might that unleash for the greed and leverage boys?  Politicians Red and Blue love PEU.

Update 10-21-17:  A Carlyle alum as Fed Chair remains a distinct possibility.

Sunday, October 8, 2017

Retail Rush for Carlyle: History Suggests Otherwise

The Australian reported:

A growing number of retail investors are joining superannuation funds, sovereign wealth funds and high net worths in moving money into private equity funds, as the sector looks to deploy record levels of capital, according to one of the world’s top private equity executives. 
Carlyle courted retail investors before with little success.

In May 2015 Carlyle closed Carlyle Global Core Allocation Fund, a mutual fund with $50 million in net assets.   The fund had a mandate to invest across equities, debt, real estate, commodities and currencies using exchange-traded funds.  It also ceased Carlyle Enhanced Commodity Real Return Fund, which had a mandate to invest in assets like energy and metals. (source: Reuters)

Carlyle's hedge fund clients took a bath across many offerings.  Carlyle closed most of those offerings in 2016.

Carlyle Capital Corporation retail investors lost big in March 2008 when Carlyle put CCC into bankruptcy.  FT's headline read "Carlyle fails to save $22bn CCC fund."  A more accurate title would've been Carlyle drowns CCC in debt. 

Carlyle co-founder David Rubenstein called for a PEU retail investor boom that hasn't materialized over the last four years.  Given how many Americans have been taken apart by the greed and leverage boys I am not sure it ever will.

Saturday, October 7, 2017

Carlyle Invests in Skate Culture


New York downtown cool has a new sponsor, the Carlyle Group, a politically connected private equity underwriter (PEU). Business of Fashion reported:

The deal marks the first time a top-tier private equity firm has invested in streetwear and underscores the power of the Supreme brand — often dubbed “the Chanel of streetwear” — and its innovative business model, rooted in cool but accessibly-priced product.
Carlyle's investment will fuel rapid expansion.  How long before Supreme opens a store in Washington, D.C.?   When will we see the DBDs wearing skater-inflected cool?


Update 10-10-17:  Highsnobiety ran a scattershot piece on Carlyle-Supreme.   It mentioned Carlyle's ownership of Synagro but not the bribery case involving the wife of Rep. John Conyers or Synagro's bankruptcy.  It drew an analogy to Carlyle's investment in Beats. 

Update 10-28-17:  Hip, high prices and scarcity are the Supreme shopping experience.

Sunday, October 1, 2017

Making Tax Reform Work for PEUs


House Speaker Paul Ryan visited Pennsylvania Machine Works to push tax reform.  The stated objective is to lower middle class taxes and corporate tax rates.  The framework proposes cutting the corporate tax rate from 35 percent to 20 percent  under the guise of growing American jobs.

Ryan ducked the carried interest taxation issue.  On Face the Nation he deferred it to the committee that will write the tax bill.  Carried interest taxation enables private equity underwriters (PEU) to pay a preferred, lower tax rate. 

Bloomberg list Penn Machine as a private company.   There is no evidence the company is private equity owned.

Foundry reported in May 2017 the sale of another Pennsylvania manufacturer similar to the plant Speaker Ryan visited:

Speyside Equity Fund I LP, a New York-based private-equity group, acquired Ashland Foundry and Machine Works Inc., a specialty steel foundry in eastern Pennsylvania. The foundry specializes in pump component and assemblies, for chemicals, mining, water, and industrial markets. The seller was Michael Bargani, an investor who also is listed as the owner of several other metalcasting businesses. The value of the purchase was not announced.. 

Speyside Equity is also the owner of Alcast Corp., Dalton Corp., Pacific Steel Castings, and Sawbrook Steel Castings. It has a range of other holdings in manufacturing, fabricating, specialty chemicals, and food ingredients businesses.
Owner Bargani purchased the plant in 2009 before flipping it to PEU Speyside Equity earlier this year.  Speyside's website states:

Speyside Equity is an operationally focused private equity firm that has been successfully investing in manufacturing-related businesses since 2005
A cut in corporate tax rates will increase corporate profits and enable PEU owners to siphon off more cash.  There's one major problem.  The PEU model is to load companies with debt which increase interest expense.  Interest is tax deductible, as are deal/management fees.  That means formerly tax paying corporations often don't owe taxes under PEU sponsorship.

Carried interest is the gift that enables billionaires to profit more when their PEU flips an affiliate.  It survived two runs in the last decade, thanks in part to Carlyle Group co-founder David Rubenstein and a complicit Congress.  Carlyle's 10-k (filed in May 2017) states:

We earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for transaction advisory and oversight services provided to portfolio companies of these funds. We also typically receive a performance fee from an investment fund, which may be either an incentive fee or a special residual allocation of income, which we refer to as a carried interest.
Carlyle achieved a net income of over $400 million in 2015.  It made a provision of $2.1 million for income taxes.  That's a tax rate of 0.52%.

President Trump, like President Obama before him, ran on eliminating the carried interest loophole.  Trump's team is waffling on his commitment.  President Obama made $400,000 from speaking to The Carlyle Group annual investor meeting.  Carlyle's founders have made hay off preferred carried interest taxation.

I expect Trump's tax reform will benefit the PEU boys, many of whom serve in his Cabinet.  The question is in how many ways?  Paul Ryan and Congress are expected to deliver yet again.  

Saturday, September 30, 2017

S&P Pushes Back Against PEU Unitholder Structure


While lenders kowtow to private equity underwriters (PEU) with low to no covenant debt one organization pushed back ever so slightly.  Barron's reported:

Most alternative managers have a dual-class or similar structure at the public entity level that confers limited or constrained voting rights on public holders, and S&P recently stated that they would no longer add companies with dual-class structures to their indices. This decreases the likelihood that alternative managers would be added to market-cap-weighted indexes such as the S&P 500.
The article added:

Alternative asset management firms such as Blackstone Group (BX), Carlyle Group (CG), and KKR (KKR) might consider converting to a C corporation status, which could make it easier for investors to own them.  
That might happen after founders cash in their billion dollar personal stakes.  PEU founding fathers won't give up control.  Amierica's dual class is exemplified in the world of finance. 

Monday, September 18, 2017

Carlyle Group LPs Treated to Yet Another U.S. President


President Obama continues to follow predecessor Bill Clinton's footsteps.  He spoke at the annual Carlyle Group Investor Meeting, the one reserved for limited partners (not lowly unitholders).  Obama's fee was nearly double Bill Clinton's.  The Carlyle talk was one of three that will make Obama over $1 million.

Obama ran as a populist then served the people he promised to hold accountable. He ran as a peace maker then made war after optional war. He said Hillary would continue his legacy and that's what scared many.

Ex-President Obama’s obscene speaking fees are from Wall Street and private equity underwriter LP events. This is what made the Blue Team like the Reds and turned many voters away from Hillary Clinton, who also spoke at Carlyle Group events.

Obama explained away his absurd payments by saying he will give $2 million to children's charities.  The logic is "it's OK to make the king's riches as long as the king is benevolent."  Carlyle Group co-founder David Rubenstein doles out his billions to historical charitable causes. Is Obama trying to imitate the most visible of his three Carlyle DBD hosts?

Obama would be wise to consider the perspective of Mrs. Rubenstein, with whom he dined during an Alaska visit as President.  An Alaska insider reported:

Rubenstein is worth an estimated $2.5 billion. He spent $21.3 million to buy the Magna Carta in 2007.   “He told reporters he was just a ‘temporary custodian’ of the historic piece of parchment. 

In 2016, Rubenstein gave the National Park Service $18.5 million to help restore the Lincoln Memorial.  In private, Alice Rogoff Rubenstein has described those acts as publicity grabs and claimed all her financier husband really cares about is making money. 
Crony capitalist birds of a feather flock together, especially at the Carlyle Group Annual Gathering of Limited Partners.  After 9-11 one of the first nonmilitary plane to hit U.S. airspace held attendees from Carlyle's investor meeting.  In 2014 Carlyle found it important to track LPs and their movements.

How might Brand Obama help a cash engorged Carlyle Group profit?  Obama made history, the PEU kind. 

Sunday, September 17, 2017

Pharma Patent Transfer to Native Tribes Latest Legal Scam

 NYT reported:

The drugmaker Allergan announced Friday that it had transferred its patents on a best-selling eye drug to the Saint Regis Mohawk Tribe in upstate New York — an unusual gambit to protect the drug from a patent dispute.

Under the deal, which involves the dry-eye drug Restasis, Allergan will pay the tribe $13.75 million. In exchange, the tribe will claim sovereign immunity as grounds to dismiss a patent challenge through a unit of the United States Patent and Trademark Office. The tribe will lease the patents back to Allergan, and will receive $15 million in annual royalties as long as the patents remain valid.
Allergan announced the deal in a press release.  This hearkens back to a time when corporations worked with Alaskan Natives to avoid taxes.  It became known as the Great Eskimo Tax Scam.

The Great Eskimo Tax Scam grew out of a brief, curious tax loophole that permitted Alaskan companies owned by Eskimos to sell their losses for hard cash to other American corporations. By offsetting the Eskimo losses against their gains, American corporations were able to avoid income taxes. All of a sudden there was a business in matching up profitable American corporations with Eskimos. (Carlyle Group co-founder David) Rubenstein and Norris spotted the window of opportunity and leapt through.
Since no one likes to pay taxes, finding the corporate buyers was easy. The trick was to flush out the loss-making Eskimos. Through a friend in Washington, Rubenstein plugged himself into a group in northern Alaska that had discovered a dubious technique for showing tax losses on idle property. (The Internal Revenue Service now challenges the validity of the Eskimos' accounting.) To persuade the Eskimos to deal with him, Rubenstein flew them to Washington and put them up in a fancy hotel on the condition that they listen to his pitch. In less than a year Rubenstein and Norris shuffled between $1 billion and $2 billion dollars of dubious Eskimo losses into profitable American companies, for which they took a 1 percent fee, or between $10 million and $20 million. "I wouldn't be surprised if they made more on that than they've made on everything else since," says a Carlyle associate. According to Rubenstein, "It gave me and some of the others here the confidence that we could compete in the investment world." Still, he only acknowledges his debt to the business of tax avoidance after the subject has been raised. 
It took Congress several years to close the Eskimo loophole.   How long will it take to close the sovereign immunity loophole for patent protection?  The dodge enables drugs to stay on patent, i.e. remain more expensive and hold off cheaper generic versions.

It's been ten years since Congress first attempted to eliminate preferred carried interest taxation for private equity underwriters, like Carlyle.  Congress hasn't done it despite overwhelming public support for billionaires to pay the same tax rate as their secretary.

Congress serves their funders.  Rarely do they serve the people.  I expect the Tribal Patent Protection Scam will live for quite a time.

Update 9-22-17:   The tribe filed for dismissal of the patent lawsuit. 

Saturday, September 16, 2017

Toys "R" Us: A PEU Return?


Bloomberg reported:

Some suppliers to Toys “R” Us Inc. have scaled back shipments to the retailer as it struggles to refinance debt and avoid a potential bankruptcy filing, according to people with knowledge of the matter.

The vendors are balking as Toys “R” Us continues talks with lenders over a new loan that would allow the company to stay open while it works out a recovery plan through bankruptcy proceedings, said the people, who asked not to be identified because discussions are private. The loan is being marketed by Lazard Ltd. to banks and existing creditors, said one of the people. 
Bain Capital owns Toys "R" Us alongside fellow private equity underwriter (PEU) KKR:

Toys “R” Us has vexed private equity owners Bain Capital, KKR & Co. and Vornado Realty Trust, which loaded the retailer with debt in a $7.5 billion buyout more than a decade ago. 

As doubts about the company’s health mounted, the cost for debtholders to insure against a default by Toys “R” Us surged in the past week to levels that imply a more than 60 percent chance it won’t meet its obligations in the next year. Credit-default swaps expiring in June were trading at 36 percentage points upfront, or $3.6 million for every $10 million of debt insured, according to data provider CMA. That’s up from $300,000 per $10 million at the start of the month.
Toys "R" Us bonds fell to 43 cents on the dollar on Friday.  CDS coverage rose to $4.6 million for every $10 million of debt insured.

Bain, KKR and Vornado won't throw good money after bad.  They are shopping for "a DIP loan to fund operations under chapter 11."  Will Toys "R" Us owners have gotten their money's worth from the company before they return it to debtholders?

Update 9-18-17:  Implosion is imminent.  Bloomberg reported "Credit default swaps expiring in December traded at more than 75 points upfront Monday. That means it would cost about $7.5 million to insure $10 million of Toys “R” Us debt.  Its 7.375 percent notes due 2018 traded for as little as 18 cents during Monday’s session."

Update 9-19-17:  Bain, KKR and Vornado returned Toys "R" Us to bondholders with its bankruptcy filing in Richmond, Virginia.  It's the second largest retail bankruptcy filing ever.

Tuesday, September 12, 2017

Vitamin World Files for Bankruptcy Post Carlyle


Former Carlyle affiliate Vitamin World declared bankruptcy according to CTPost

In a filing with the U.S. Bankruptcy Court for the District of Delaware, Holbrook, N.Y.-based Vitamin World blamed underperforming stores, above-market rents and unspecified disruptions in its base of suppliers.
Centre Lane Partner bought Vitamin World in February 2016 from Carlyle Group affiliate NBTY, also known as Nature's Bounty.   At the time of the sale the Carlyle team stated:

"With the shift of NBTY's focus in our US business to investing in and building our core brands, this sale of Vitamin World to Centre Lane Partners will ensure Vitamin World has the right investment and focus on its future as a stand-alone retail business." 
Centre Lane paid $25 million for Vitamin World

Vitamin World lists as its largest unsecured creditor The Nature’s Bounty Co., owed $21.5 million.
It's not clear how much of the amount owed is from the sale or from store inventory.  The bankruptcy filing shows the $21.5 million owed is debt from the sale plus trade.  The current obligation is 86% of the $25 million purchase price.  

In the Petition, Vitamin World reports $50 million to $100 million in assets and $10 million to $50 million in liabilities.  This statement does not fit with the filing document which shows a $125 million unsecured claim by 10th Lane Partners, LLC.  10th Lane is part of Centre Lane Partners.  Quinn Morgan heads both Centre Lane and 10th Lane.

Reuters reported last week the likelihood of a bankruptcy as a way to get out of leases on unprofitable stores.
I'll bet Vitamin World meets its $125 million financial commitment to its owners, Centre Lane and 10th Lane.

Update 9-13-17:  Store closures and renegotiating lower rent is the aim of the filing.