Friday, September 12, 2014

Billionaire Power Player List Lacks Rubenstein

A new list assessing billionaire political power is out and it's missing Carlyle Group co-founder David Rubenstein.  How is #12 Mark Zuckerberg more politically influential than Rubenstein, a man who's call is taken at any time by U.S. Presidents, Cabinet members and Congressional leaders?

Carlyle located their private equity firm in Washington, D.C. precisely for the purpose of exercising political power. After thirty years on the Potomac Carlyle is now so synonymous with dirty political water it cannot be seen.

"Obama had reached out to the business community, they just haven't liked all of his decisions and some of his rhetoric. But generally, I think the administration is quite open and accessible." (David Rubenstein)

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."
(John Kenneth Galbraith)

"One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back.”(Carl Sagan)

It wouldn't do to put David Rubenstein, a PEU and Brookings board member, in a poor light.

Update 9-14-14:  The billionaire list on Naked Capitalism is also missing a Rubenstein.  The Carlyle co-founder is famous for saying, "All I'm doing is I'm filling out my tax returns - or my accountants are, and I'm paying whatever I'm supposed to pay, though I'm giving away a large amount of the money and that probably lowers my tax rate because I'm giving away so much money. But change the law, but don't blame me for the law. I'm not writing the law. I didn't write the law." No, but he lobbied Capital Hill numerous times to keep his preferred carried interest taxation. 

Tuesday, September 9, 2014

Fed Favors PEU Funding of Public Infrastructure

Washington's Blog reported:

In an inscrutable move that has alarmed state treasurers, the Federal Reserve, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, just changed the liquidity requirements for the nation’s largest banks. Municipal bonds, long considered safe liquid investments, have been eliminated from the list of high-quality liquid collateral. assets (HQLA). 
Who has trillions on the sidelines marked for public infrastructure, normally financed by municipal bonds?  Private equity underwriters (PEU's) do.

By disqualifying municipal bonds from the category of liquid assets, the biggest banks are likely to trim back their holdings in munis which could raise the cost or limit the ability for states, counties, cities and school districts to issue muni bonds to build schools, roads, bridges and other infrastructure needs. This is a particularly strange position for a Fed that is worried about subpar economic growth.
It's not strange for a Fed favoring the billionaire PEU class. This would dramatically shift infrastructure funding to the private sector, where PEU's have replaced banks by securitizing huge chunks of corporate debt.

A second stressor is coming for municipalities, GASB requirements for public pension fund accounting.  Government pensions will need to get greater returns to stitch the gargantuan hole in their balance sheets from 2015 pension fund liabilities.  That means rolling the dice on PEU investments.

What if cities could invest public pension funds in PEU's and have the PEU finance their public infrastructure?  The PEU gets 20% annual return on equity and the public gets addicted to external, vulture funding   You get the Fed picture.

Just as human resources became a tool to treat people inhumanely, regulation and accounting have become tools for the greedy and arrogant.  It's a PEU world, where politicians red and blue love PEU.

Sunday, September 7, 2014

Eric Cantor Investment Wanker

Forbes reported:

Moelis & Co., announced on Tuesday that it had landed a high-profile new employee: Former House Majority Leader Eric Cantor. Moelis & Co.’s new vice-chairman and managing director will get a $3.4 million pay package between September and the end of 2015.

Moelis' SEC filing stated that Cantor will become a member of the board of directors. The press release was disturbing as Eric Cantor has been anything but "conflict free."

Virginia voters ousted Eric Cantor because they're sick from what we've become. Cantor's absurd negative ads backfired, making people want to vote against him and his cocky, hyper-competitive, arrogant ways. 

So America, this is the face of globalism.  And we wonder why the world's problems are growing in magnitude?  The Moelis-Cantors have offered the world greed and control by any means (including violence).  However, they do it with discretion:

We believe our discretionary approach to compensation leads to exceptional advice, strong client impact and enhanced internal collaboration.
Moelis will steer a discretionary $3.4 million to Eric Cantor for the next 16 months of work.  How much will Eric get in retirement and other benefits from his years of public service?

Here's a message to people around the globe:  if you see Eric Cantor coming, bar the door.  Don't vote for what he's selling (or any other ex-public, now self servant)..

Congress is less popular than zombies, witches, dog poop, potholes, toenail fungus, hemorrhoids, cockroaches, lice, root canals, colonoscopies, traffic jams, used car salesmen, Genghis Khan, Communism, North Korea, BP during the Gulf Oil Spill, or Nixon during Watergate
Eric Cantor is a key part of American's disgust in Congress.  How far can he drag down the already low regard the public has for Wall Street, investment banks and private equity underwriters (PEU's)?  Yes, when I think of Eric Cantor, dog poop does come to mind.

Monday, September 1, 2014

Carlyle Group: Best of America?

A Carlyle Group press release stated:

Global alternative asset manager The Carlyle Group L.P. (NASDAQ: CG) today announced that its Co-Chief Executive Officer David M. Rubenstein will present at the UBS Best of America’s Conference in London on Thursday, September 11, 2014 at approximately 3:50 PM BST (10:50 AM EDT).

Rubenstein's talk will occur on the thirteenth anniversary of 9-11 and occur roughly twenty minutes after the North Tower collapsed.   President George W. Bush closed U.S. airspace but allowed the Bin Laden family, attending the Carlyle Group annual investor meeting, to leave via private plane. 

When George W. Bush was elected Carlyle had $3.3 billion in assets under management.  Today it is over $203 billion and Carlyle is a global juggernaut.  PEU billionaires reshaped the world for 30% annual returns.  While they won big, others suffered greatly.  Greed and violence can reshape the world, but it brings with it countless victims. 

Carlyle's Image Maintenance Cost $115 Million

The Carlyle Group's signature aim is to control the narrative by "maintaining its good name."  The private equity underwriter (PEU) recently challenged five expert witnesses in the longstanding price-fixing collusion lawsuit brought by investors. 

Law360 reported:

Carlyle moved to strike five expert witnesses that the plaintiffs — a proposed class of shareholders of companies bought out by the private equity firms — said they planned to rely upon at a November antitrust trial in the case.

Carlyle's defense was seemingly based on principle:  Fortune stated:

Carlyle had been holding out largely because its co-founders — David Rubenstein, Dan D’Aniello and William Conway — were said to be personally offended by the notion that they had been involved in an illegal act, and who felt that any settlement would be a tacit admission of wrongdoing.
Tacit admission it is:

The Carlyle Group has agreed to pay $115 million to settle its part in a massive private equity collusion case, Fortune has learned from a source close to the situation.  A Carlyle spokesman declined comment.
How can this be?  Name maintenance.  Since companies are people for the purposes of election funding, they can also be people with damaged psyches.

The implicit goal of any primary narcissist is to maximize their image in each and every present moment.  There is no other criteria.  Anyone looking for core beliefs or fundamental truths will be driven crazy by their ability to say the exact opposite position from five minutes ago and treat you with complete and total disdain for suggesting they said anything otherwise.

A Labor Day weekend news release should help that story sink to the bottom of the news ticker.  Image maintenance achieved!

Tuesday, August 19, 2014

Hertz Bad Dream: PEU Legacy?

Consider that Hertz withdrew guidance for its 2014 financial performance and will restate financials for 2011 and revise those for 2012 and 2103.  This is huge news for the former private equity affiliate, controlled until 2011 by The Carlyle Group, Clayton-Dubilier-Rice and Merrill Lynch.

How did executive incentive pay impact confessed "accounting errors" the last three years?

In June, the company said it needed to review and correct financial statements from the last three years because an audit had uncovered accounting errors. Earlier this month, Hertz delayed filing its second-quarter results because of that review.
Hertz ceased to be PEU controlled on March 21, 2011 but that left little time for a different board slate in the April 6, 2011 Def-14a proxy statement.  Clearly the Hertz caravan rolled through 2011 with significant PEU momentum.

Hertz 2011 Definitive Proxy Statement dealt with restated financials and its potential impact on executive incentive pay:

Effective as of January 1, 2010, our Board approved an amended and restated Standards of Business Conduct applicable to our employees, including our named executive officers, on a prospective basis, in order to include a "claw back" policy for all executive officer annual incentive, long-term incentive, equity-based awards and other performance-based compensation arrangements. Specifically, a repayment obligation is triggered by an award of compensation based on achievement of financial results that were the subject of a restatement, if the Compensation, Nominating and Governance Committee determines that the executive officer's gross negligence, fraud or misconduct caused or contributed to the need for the restatement and the need for a restatement is identified within three years after the first public issuance or filing of financial statements. The Compensation, Nominating and Governance Committee retains discretion as to implementation and interpretation of all matters relating to the "claw back." In addition, Section 304 of the Sarbanes-Oxley Act of 2002 provides for the forfeiture of certain bonuses and profits by our CEO and CFO in connection with certain accounting restatements. In 2011, these "claw back" policies will likely be revised, as necessary, to reflect the SEC's rules promulgated under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
How much is there to potentially clawback?

Executives earned over $25 million as a group for 2011.  It's rare any C-suite exaggerators are asked to pay funds back.

I wonder how much Carlyle et al made in later equity sales based on fudged finances.  (Goldman Sachs purchased 50 million shares in March 2011 and JP Morgan bought another 50 million shares in December 2012.)  That's what should be clawed back.

Hertz was PEU led and directed through 2011.  I imagine the culture of equity optimization stuck through the next few years.

Lying, cheating and stealing to get the prize is a core part of extrinsic motivation schemes.  It will be interesting to hear more of the "accounting error" story, however I don't expect any investigating firm to honestly state behaviors or causes.  Covering for the board room boys garners much more future business than being truthful with the public or shareholders.

Update 8-20-14:  Carl Icahn announced his increased stake in Hertz. Forbes reported "Icahn said he intends to have discussions with representatives of Hertz’s board of directors about “accounting issues, operational failures, underperformance relative to its peers” and “lack of confidence in management.” 

PEU Assets Hit $7.4 Trillion

FINalternatives reported:

Hedge funds registered with U.S. regulators managed $8.9 trillion at the end of May, the Securities and Exchange Commission said. That amounts to a 22% increase—or $1.6 trillion—from just a year earlier.

Private-equity firms grew even more, with assets rising 23% to $7.4 trillion.
Which PEU will hit $1 trillion in AUM first?