Tuesday, May 5, 2015

Lord Browne Surfaces at L1 Energy


Gulfnews.com reported

Sarah Wiggins, a M&A partner at Linklaters, estimates there is $180 billion of “dry powder” ready to be deployed by funds including distressed equity investors. Wiggins points to $8 billion recently raised in the bond markets by ExxonMobil, the US giant, which has said it is “alert” to bolt-on acquisitions. 

Other possible energy company buyers include private equity groups such as Carlyle and Blackstone, while Russian billionaire Mikhail Fridman has launched a $10 billion fund, run by former BP chief executive Lord Browne, to hunt for acquisitions. 
The return of Lord John Browne is proof that past sins don't matter.  Browne's BP paid a $373 million fine   His company killed 15 workers and injured 170 more in the 2005 Texas City refinery explosion.  It also manipulated natural gas prices.

Here's how NYT referred to Browne in the Russian deal:

”It is a very interesting time to come back into the energy industry,” Mr. Browne said in a telephone interview on Monday.

Mr. Browne, known for his deal-making prowess during the years he ran BP, before leaving in 2007, plans to use Mr. Fridman’s cash to take advantage of falling oil prices and buy up companies cheaply for their company, L1 Energy. 
Browne's leadership resulted in loss of life, injury, destruction and criminal acts.  His prowess is in death dealing and not claiming responsibility.  Carlyle Group joint venture energy partner Riverstone provided Browne a safe place to run to.  Now it's Russian backed L1 Energy.  L1 is ironic in that Browne didn't have the spine to admit his role in BP's debacles while CEO.

PPACA Shafts Seniors, but Helps Corporations


MarketWatch reported:

It may not be exactly like being cast adrift on an ice floe, but today’s seniors and retirees are hurting nonetheless.

The advent of Obamacare has cost many retirees their company-sponsored health plan by taking away their firms’ tax deduction. It no longer pays for companies to subsidize the cost of their retirees’ health care, so many have exited these programs.

Now that they are in the open market, retirees and seniors are confronted by soaring premiums when they seek to purchase a health plan.
Exited.  That's the word private equity underwriters use when they've cashed in on an investment.  Benefit cuts for workers are not a new phenomenon.  Consider this 2011 story on rapidly disappearing benefits:

Employers have significantly cut many of the benefits they offer to workers over the past five years.  "The two biggest areas where cuts have come have been in health care and retirement because that's where costs have increased the most."

The time frame covered is 2006 to 2015.  Over this decade private equity underwriters became as common as cockroaches.   President Obama's health reformer, PEU Nancy-Ann DeParle, designed  a program that shifts the burden for health insurance from employers to individuals and a tapped out Uncle Sam. 

Not only do seniors and retirees face a greater financial burden, they enter an insurance and health care delivery system with overwhelming complexity.  Obama deforms health care with profiteering and distorting bribes/punishments.  The underlying goals and methods of PPACA are no different than Wall Street's incentive compensation which resulted in widespread criminal behavior.

While seniors and retirees are set adrift in a sea of mind boggling complexity, the investor class makes big bets on healthcare.   They'll happily pick seniors' pockets for their 30% annual returns.

A big round of applause for Obama's vulture investor class and PPACA's absurd architects.  The system is fulfilling its design.  Seniors are to suffer or die for their country's financial sector.

Profit optimization is the primary goal.  Everything else is secondary, including retirees and the elderly.

Sunday, May 3, 2015

CalPERS Doesn't Know about Twelve Year PEU Investment

NYT reported:

J. J. Jelincic, a member of the California Public Employees’ Retirement System board since 2010, has often raised the problem of fee transparency in the fund’s private equity investments. Mr. Jelincic, who before joining the board was on the Calpers staff for 24 years, said in an interview that being in the dark on fees created problems for the overseers of the $300 billion pension fund.

“You don’t think to negotiate on fees that you’re not aware you’re being charged,” he said. “As a trustee I’m really concerned about not knowing what we’re paying on private equity. We may be getting a really good deal, we may be getting a really bad deal. I just don’t know.”
 This doesn't ring true for CalPERS investment in one private equity underwriter (PEU).  

CalPERS invested $175 million in The Carlyle Group in 2001.  They purchased 5.5% of Carlyle, which fell to 4.2% by the time Carlyle went public in 2012. 
As a part owner of Carlyle one would expect CalPERS to clearly understand their investment, it's revenue streams and expense makeup.  I don't believe for one minute that CalPERS didn't understand how Carlyle made money, fees, charges, etc.  I'm sure they had to sign some super secret deal that they would never reveal the golden PEU fee goose hidden in the basement of 1001 Pennsylvania Avenue.  

Another reason CalPERS should understand Carlyle's fees for add-on nose hair trimming and blackhead removal is below:

Washington, D.C.-based Carlyle Group, the world’s second-largest private-equity firm, made $681.3 million of capital calls on the pension fund (CalPERS) in 2008. 
CalPERS saved Carlyle's backside in the financial meltdown, in addition to holding an ownership stake in The Carlyle Group for twelve years, finally exiting in 2013.  

I don't believe this putz saying he doesn't understand how private equity makes its money.  He was a trustee for four years of CalPERS ownership stake in Carlyle and an employee prior to that.  Flash back to 2010 the same year this yahoo joined CalPERS board:  Themes for a meeting between Carlyle, KKR, TPG, Avenue Capital and CalPERS included:

calls for a cap on fees, more disclosure and greater investor control for clients of private equity firms.
Five years ago the parties discussed resolving the issue of fee transparency and it still exists. This disturbing heel dragging is compounded by what CalPERS should have known as an owner of Carlyle.

If CalPERS did not understand their 5.5% investment in Carlyle for over a dozen years our public retirement system is incompetent and as morally bankrupt as the PEU greed and leverage boys.

Saturday, May 2, 2015

"60 Minutes" Finally Finds PEU Rubenstein


CBS News program 60 Minutes has been absent without leave for decades on The Carlyle Group.  It finally found Carlyle co-founder David Rubenstein.  The piece fawns over Rubenstein's patriotic philanthropy.

"Well, the government doesn't have the resources it once had," says Rubenstein. "We have gigantic budget deficits and large debt and I think private citizens now need to pitch in."
David Rubenstein did his part to ensure gigantic budget deficits and large debt with his annual pilgrimage to Congress to preserve his preferred taxation on carried interest.  The Carlyle Group is a virtual nonprofit and Rubenstein's pay from Carlyle is setup for tax avoidance.  Their recent 10-K states:

The Carlyle Holdings partnerships and their subsidiaries primarily operate as pass-through entities for U.S. income tax purpose. Prior to our initial public offering in May 2012, we operated as a group of pass-through entities for U.S. income tax purposes and our profits and losses were allocated to the individual senior Carlyle professionals, who were individually responsible for reporting such amounts.
60 Minutes had plenty of opportunities to tell investigative stories on The Carlyle Group.  There are several generations of pension pay to play scandals, sewage sludge bribery to a Congressman's wife, the implosion of Carlyle Capital Corporation and subsequent investor lawsuits, losing a pipeline firm to billions in bad energy bets, over 150 Carlyle affiliates based in the Cayman Islands, twenty five hospital deaths after Hurricane Katrina, dumping British pensioners, free use of Texas taxpayers' $35 million for six years without providing a single new job at Vought Aircraft, and the announced demise of two Carlyle Group mutual fund offerings.

Rather than self-made billionaire I would refer to Mr. Rubenstein as a tax preferred, government subsidized billionaire.  Don't believe me?  Look at how many Carlyle affiliates supply Uncle Sam and the number garnering direct government subsidies.  Boston Private received  TARP funds while the FDIC granted  BankUnited massive amounts of free money.

Here's another reason Rubenstein should be tarred and feathered, not lionized:

It estimated that more than half of private equity costs charged to United States pension funds were not being disclosed.

CBS News joins CNN, FT, WSJ, NYT and many more in offering puff pieces on a man that has done much to destroy America's middle class, increase our deficits, utilize offshore tax havens and send management theory back decades in the quality arena.

Greed is as greed does.  That includes smearing makeup on it so it looks like something else. Makeup hides Carlyle's second quarterly decline in assets under management.  Once over $202.7 billion assets under management are now $192.7 billion.  That last happened after the 2008 financial crisis.  Let's ignore the underbelly of the PEU beast and enjoy the roaring 2015's.  Bully, bully Mr. Rubenstein!    

Next Liquidity Crisis Has Multiple Candidates


Low interest rates make borrowing cheap.  The financial crisis was marked by mispriced risk, i.e. low interest rates relative to their underlying assets.  Investment quality declined as firms pushed cheap debt to individuals (subprime mortgages) and companies (covenant lite loans).  This boosted commissions and executive compensation soared. 

When poorly screened borrowers started going belly up and underlying asset prices fell, liquidity evaporated.  The cycle ramped up when investors began placing bets on who would default next, via credit derivatives.

Consider where we are today.  WSJ reported

The Federal Reserve is justified in keeping rates near zero for now, and should be cautious as it considers raising them later this year given the potential economic costs of prematurely tightening financial conditions, a top former Federal Reserve official said Monday.

Brian Sack, former head of the New York Fed’s markets desk and now senior vice president at hedge fund D.E. Shaw, told a conference sponsored by the National Association for Business Economics that despite recent strides in the job market, the economy was still far from fully recovered.

“I see plenty of reasons for rates to be at zero today,” Mr. Sack said. “We’ve had employment improvement but GDP [gross domestic product] growth is relatively moderate.

“Then you just have this calculus of the benefits and risks. When you’re at the zero bound it’s very costly to make a mistake in liftoff,” he said.

The Fed has left official borrowing costs near zero since December 2008 in an effort to jumpstart and support economic recovery from the deepest recession in generations.
Cheap borrowing, part of the cause of the crisis, became its solution.  Nearly seven years later the risks seem heightened as liquidity crisis warnings abound:

Financial engineering that preceded the last two financial crises is back, International Monetary Fund warns
Global
Investors across corporate bond markets are finding it harder to buy and sell company debt. And some investors are beginning to fear that the lack of liquidity will be the spark that ignites the next crisis in financial markets.   

Companies that have been flooding the primary market with debt have met voracious demand from investors hunting for yield in the low rate environment.  

The ultra-loose monetary policies pursued by the Fed, the Bank of England and the European Central Bank has resulted in a torrent of bond issuance in recent years from companies seeking to capitalise on rock bottom interest rates. “Now is the perfect time to borrow if you’re a company."

But the moment when bond investors change investment strategies and rush to sell bonds could soon be at hand. 

U.S. corporate debt market increased 44.5 percent to $7.82 trillion since 2008, spurred in part by low interest rates. During the same period, asset managers have increased their corporate debt holdings from $246 billion to $1.45 trillion while new regulations have restricted banks’ ability to provide liquidity to the market. In other words, when the holders of these assets go to sell, there may be no buyers
 
It is not just company bond markets that have been affected. Sovereign debt may also be hit

Puerto Rico
Puerto Rico's top finance officials said the government of the US territory will likely shutdown in three months because of a 'looming liquidity crisis' and warned of a devastating impact on the island's economy.

Puerto Rico is largely reliant on hedge funds for its financing needs.  

Greece
Faced with debt payments totaling about 1 billion euros to the International Monetary Fund on May 6 and May 12, Greece hopes there will be enough progress in the talks by next week to allow the European Central Bank to restore liquidity access for the country’s cash-strapped banks.

Greece will proceed this year with the sale or leasing of stakes in several strategic assets, including Piraeus Port Authority SA and 14 regional airports, according to Greek officials with direct knowledge of the matter.

I smell opportunity for private equity underwriters as stressed countries offload strategic assets on the cheap.  Other areas vulnerable to liquidity crises include ZimbabweLatin America, specifically Venzuela, Ecuador and Argentina.   China backstopped these countries, just as hedge funds once did for Puerto Rico.

Liquidity is supposed to dry up in a crisis, so a time out can occur and the market return at levels customers are willing to pay.  It becomes problematic when a corollary market exists with investors placing bets on your demise or survival.  That corollary investment option can cause big swings in the value of a country's debt or a company's debt/equity.

Something will happen to bring great joy or horror to debt and equity markets.  The question is when.  On that, I'm not betting.

Monday, April 27, 2015

We Are Hands Again: Under Slave Drivers, Overseers


"The companies we work for, the businesses we buy from, and the political system we participate in all seem to have grown less accountable. I hear it over and over: They don’t care; our voices don’t count."--Robert Reich 
Management has devolved to where people are but "hands" again.  It can have high tech accoutrements.

Note what all the technology and bureaucracy that wonderful, noble company has invested hundreds of millions in doesn’t ask her to do. Learn. Think. Reflect. Teach. Inspire. Lead. Connect. Imagine. Create. Grow. Dream. Actually…serve customers. Heaven forbid. It just beats her over the head, over and over again, three times a minute, every twenty seconds, with how much she hasn’t sold; hasn’t made; hasn’t produced. For her shitty .0003% commission. According to the quota that’s been set for her. By her boss. For his boss. For their boss. And so on all the way up the food chain.--Umair Haque from The Asshole Factory
Yet, it's foundation is as old as written history.  Consider the Pharaoh's demands to the Hebrews: 

Pharaoh gave this order to the slave drivers and overseers in charge of the people: “You are no longer to supply the people with straw for making bricks; let them go and gather their own straw. But require them to make the same number of bricks as before; don’t reduce the quota. They are lazy.  
Here's my take on our walk back in time:

We are but hands in the workplace.  The mind is teased into believing input is wanted, but once given, the system quickly discounts, even retaliates against those speaking out.

Our hands are to do the work, under a barrage of inspections and intrusions.  The mind is not capable of checking its own work, of giving input or feedback, of offering engagement and relationship.  Management is in control and their will be done. 

Our hands must be motivated by management with their "superior minds."  Management torments via a lowly duality.  One side has threats of consequences, the other enticement via offering of bribes.  Management commands, "meet the goal/target or else."  Fear consumes people to the point that 25 to 33% lie, cheat or steal to achieve petulant management's demands.  Yet, these supposedly intelligent managers cannot see the pattern they create. Society is incapable of detecting the harms of extrinsic motivators.  As a result America sends teachers to jail and leaves financial miscreants free to commit fraud again.

Our hands must beat our co-workers hands.  Whoever sells the most, delivers the fastest, has the fewest accidents, the least days off for sickness, wears the loudest tie, tells the best joke, makes the hottest burrito, donates the most to the boss' favorite charity gets the prize.  Everything is a contest and only "winners" or "incredibly insecure, hypercompetitive people" win.  Competition is the antithesis of teamwork.  Management wants our hands to willingly compete in whatever absurd, whimsical manipulation they devise.

We are but hands to pull the voting lever every two years.  Politicians of both stripes ignore our voices until roughly eighteen months before a Presidential election, ten to twelve months before an off-year election. Both Red and Blue team politicians tap the federal wallet to enrich their friends and funders, whose opinions and wants are courted year round. 

Our hands not only make corporate executives super-wealthy, they enable investment firms who own companies to profit even more handsomely.  Our hands are not to notice executive fingers dipping into the company treasury for obscene levels of executive compensation.  Our hands are to be happy with the meager droppings that fall from above.

Our hands matter as implements of production, nothing more.  The term hands came from an agrarian society which required human labor.  Serfs were needed to produce for the landed gentry.  The family farm survived by having a large number of children to help with chores.  The industrial revolution introduced production lines which required labor.  Workers were encouraged not to think, but to use their hands as told.  

Our hands deliver whatever level of "customer non-service" management requires to enrich themselves and any invisible ownership group bilking the company for dividends and fees. 
Our hands are not to notice the horrific, surreal darkness supplied in perpetuity by our corporate and political leaders.  Our hands are to be kept limp by our side.

What these chuckle-heads don't know is our hearts.  It pumps the blood that feed our mind and hands.  It stands up to their inhumane systems daily by observing their manipulations, calling them by name and refusing to bend or break.

How does a nation live with leaders interested only in themselves or serving a select few?  Said that way, the people can easily live without them.  But since they aren't going away anytime soon, render unto management, that which is management's.

Listen to your heart.  It will enable you to speak peace to violence, to speak love to greed, to stand in the face of anger, to hold your principle when all forms of retaliation are sent your way.   Your heart is what they really want.  Enough hearts aligned together can break the heart-eaters.  It has always been this way.

Live your heart, however it calls you.

Altegirty Executives Like Costa Concordia Captain


Few leaders go down with their ship anymore.  Most scamper to grab a few goodies and flee for the lifeboats.  WSJ reported:

Court records show that Altegrity Inc., a company linked to some notable U.S. security stumbles of recent years, shelled out $25.7 million to top executives the year before it filed for bankruptcy protection.
Bankruptcy is the sinking of a company.   Here's Altergrity's private equity underwriting journey:

USIS paid $125,000 to the former chairman of the Joint Chiefs of Staff, retired Adm. Michael G. Mullen, who was called on for advice around the time the unit’s government contracts began to slip away. Mr. Mullen is identified as an insider because he is a senior adviser to Providence Equity Partners, the Rhode Island buyout firm that owns USIS and Altegrity.

Providence, led by Jonathan M. Nelson, bought USIS for about $1.5 billion from the Carlyle Group in 2007. A year later, USIS combined with HireRight, and in 2010 Providence, which manages some $40 billion in assets, acquired Kroll from Marsh & McLennan Cos. for $1.1 billion.
Going back further President Bill Clinton privatized USIS, once an arm of the federal government.  The Carlyle Group first invested in USIS in 1998.

Providence Equity Partners and Altegrity Executives are like the captain of the Costa Concordia.  The poor quality of their work endangered lives.  As of now all remain free.  SkyNews reported:

A Florence court has rejected a public prosecutor's request for the immediate arrest of Francesco Schettino, the captain convicted over the Costa Concordia cruise liner disaster. The prosecutor claimed Schettino, who was found guilty of manslaughter over the deaths of 32 people killed in the 2012 sinking, was a flight risk, the Ansa news agency reported. 

 Schettino was sentenced in February to 16 years and one month in prison for his role in the shipwreck off the Italian island of Giglio. Under Schettino's command, the Concordia left its planned route and steered close to the island, where it hit rocks and partially capsized. There were 4229 people on board. 

The 54-year-old Naples native was accused of multiple counts of manslaughter and other serious charges including negligence, causing a shipwreck, mishandling emergency procedures, lying to authorities about the seriousness of the accident and abandoning ship
Increasingly people in charge abandon ship with their haul and little remorse, no matter how many little people are impacted.  It's hard to call them leaders.