Saturday, March 25, 2017

Carlyle's Assala Energy to Takeover Shell Gabon

Bloomberg reported:

Royal Dutch Shell Plc has agreed to sell its onshore oil assets in Gabon to a unit of Carlyle Group LP for $587 million.  Carlyle will buy all of Shell’s onshore oil and gas operations and related infrastructure in Gabon.

Carlyle’s unit Assala Energy Holdings Ltd. will also take on $285 million of debt from Shell’s Gabon unit and will make an additional payment of as much as $150 million depending on production performance and commodity prices
Assala Energy will be funded by Carlyle International Energy Partners, a $2.5 billion fund, and Carlyle Sub-Saharan Africa Fund, which has $698 million under management.
Assala Energy's website states:

"Our purpose is to provide positive returns on investment to our shareholders (two Carlyle Group funds) and our host countries"
Africa is renowned for corruption and bribery.  Carlyle has a history of hiring government insiders and using political power.  A number of Carlyle affiliates crossed the legal line, ARINC--procurement violations, Synagro--bribery and Carlyle itself-NY pension fund pay to play settlement.

The Securities and Exchange Commission investigated Carlyle's Cobalt Energy for its oil dealings in Angola.   Carlyle's ordeal ended last month.  FT reported:

US prosecutors have dropped their corruption investigation into Cobalt International Energy five years after the Houston-based oil explorer’s local partner in an Angolan deal was revealed to have been secretly owned by top officials from the African nation.
Houston Business Journal stated:

The U.S. Department of Justice recently closed an investigation into Houston-based Cobalt International Energy Inc. (NYSE: CIE), the company and its law firm, Houston-based Baker Botts LLP, announced Feb. 9.

The DOJ was conducting a Foreign Corrupt Practices Act investigation into Cobalt’s operations in Angola. 
Carlyle took Cobalt public so concerned shareholders also had the opportunity to take action.

Back to Gabon, a fellow OPEC country with Angola.  Gabon is north of Angola and both sit on the West Coast of Africa.

Gabon had a hotly contested Presidential election last year/  The Guardian reported:

The Bongo family will extend its 50-year rule over Gabon after the country’s constitutional court ruled Ali Bongo was the rightful winner of last month’s contested election.

The court said it had retallied all the votes from the poll, though it could not do a full recount because all the votes were burned immediately after they were counted at the polling stations. 

Each night since the election, the internet has been shut down, something the communications minister put down to mere “disruptions” in the network. Twitter, Facebook and WhatsApp have also been blocked.
This is the stable political environment that enables Carlyle to make grand returns on Gabon oil. The election aftermath includes:

With another seven years of Bongo family rule secured, progress on reducing Gabon’s income inequality is unlikely.
Time may show how Carlyle's profiteering aids government officials.  Then again, it may not.

Wednesday, March 22, 2017

Palantir Founder and Funder Thiel Ready for New Zealand

Founders Fund and Clarium Capital Management's Peter Thiel made billions from Palantir, a company named after a seeing rock. Not long ago Palantir's value was trumpeted at $20 billion.

The company gets an estimated 40 percent of its revenue from government sources who include the FBI, the CIA, the Defense Intelligence Agency, the Securities and Exchange Commission, Immigration and Customs Enforcement and the military’s Special Operations Command. 
Thiel used his partially publicly funded riches to buy New Zealand citizenship.

The billionaire investor and vocal Trump supporter was able to secure New Zealand citizenship after "categorically" declaring that he has "found no other country that aligns more with my view of the future than New Zealand." 

That was in 2011, the year he was granted citizenship by the New Zealand government even though he did not fulfill the residency requirement and had no immediate plans to live in the South Pacific island nation.
New Zealand served as the movie set for the home of the Lord of the Rings trilogy.

PEU news from January revealed:

Peter Thiel’s Mithril Capital Management has stormed to an $850m final close for its latest fund, it has emerged.

Mithril, named after the silver material stronger than steel mined by dwarves in the Lord of the Rings trilogy, targets businesses which “use technology to solve intractable problems, often in traditional sectors long overdue for innovation."
Note that technology is not being used to reduce decades of growing income disparity or attack the greed of Peter Thiel's PEU peers.   Health care is not the least bit more affordable due to technology.  I'd love to have my health insurance coverage and cost from 2011, the year Thiel became a New Zealander.

Back to Peter.  After making billions from defense contracts Thiel has a man inside the Pentagon to steer business to Palantir and warn when he should flee to New Zealand:

Palanatir Technology’s Justin Mikolay, formerly a chief in-house lobbyist for the company who worked to win over billions of dollars in Army contracts, was quietly appointed to serve as a special assistant in the Office of the Secretary of Defense.
Should Thiel need to move to avoid populism New Zealand awaits.  Until then Thiel has a prime section in the Trump Swamp.

Thursday, March 16, 2017

Greed at Top Unabated

Greed is an economic fractal, a pattern that repeats at varying levels of perspective.  MarketWatch reported on the long term growth in Wall Street bonuses.

Since 1985, Wall Street bonuses have soared 890%, seven times the rise in the federal minimum wage.
MIT Economist Peter Temin captured America's middle class decline:

...the incomes of goods-producing workers have been flat since the mid-1970s.

“We have a fractured society,” says Temin. “The middle class is vanishing.”
Oddly, President George W. Bush's administration lectured the world that democracy required a rising middle class.  His years in office were marked by the rise of private equity underwriters, whose business model sent middle class jobs overseas and prioritized PEU fees/profits.  The Bush years saw much greed induced financial behavior.  That recklessness carried few consequences after the crisis hit.  

W. recently resurfaced as a "folksy wise man," which is only appropriate in that he had no role in the proliferation of greed the last eight years.  Bush does bear responsibility for the growing plight of the middle class during his two terms in office.  

I have seen so many people -- particularly those in their 50s - 70s -- taken apart by what has happened in their industry as greed has hollowed out the economy. These are people took pride in their jobs and held themselves to this invisible standard that we all just took for granted, but is being wiped out.
President Donald Trump refilled the D.C. Swamp with the PEU/Wall Street bonus class.  They will take care of their own.  As for the rest of us?  Sorry.  They've trained us for three or four decades to accept our lot. 

Sunday, March 12, 2017

Blackstone City Backed by Fannie Mae

What if the federal government started a new town with 48,431 private equity owned homes.  Uncle Sam would back the rent on 46,010 homes if times got tough.  The private equity firm would be at risk for the rent on 2,421 homes.  That's the case with Blackstone's Invitation Homes, only the homes are spread across the country. 

Invitation Homes, the 2012 buy-to-rent creature of private-equity firm Blackstone, and now owner of 48,431 single-family homes, thus the largest landlord of single-family homes in the US, accomplished another feat: it obtained government guarantees for $1 billion in rental-home mortgage backed securities.

The government agency that has agreed to guarantee the “timely payment of principal and interest” of these “Guaranteed Certificates,” as they’re called, is Fannie Mae, one of the government-sponsored entities (GSE) that has been bailed out and taken over by the government during the Financial Crisis.

This is the first time ever that a government-sponsored enterprise has guaranteed single-family rental-home mortgage-backed securities, issued by a huge corporate landlord.
This is one Obama administration act that President Donald Trump won't undo or fire.  Blacktown, a distributed modern Pottersville, lives thanks to our federal government's actions via Fannie Mae.  It's not the first time Fannie Mae looked after the monied vs. the people they are charged with helping, potential low income home buyers. 

Fannie Mae committed accounting fraud from 1998-2004.

by shaping "the company's books, not in response to accepted accounting rules but in a way that made it appear that the company had reached earnings targets, thus triggering the maximum possible payout for executives."
Fannie Mae settled without admitting or denying guilt.  Fannie Mae's board at the time the fraud started included Ken Duberstein, Stephen Friedman, Jamie Gorelick and James A. Johnson.  Politicians Red and Blue love PEU. 

Americans have the current Fannie Mae board to thank for fostering PEU home buying so they can rent worry free to struggling citizens.  Board member Hugh Frater knows why Blackstone needs Fannie Mae's backing.  Bloomberg shows Frater receiving $162,339 in Fannie Mae board compensation.

Hugh Frater helped found Blackrock and its commercial real estate arm Anthracite Capital.  When Frater's Antracite Capital got into financial trouble in early 2009 he jumped from the board of directors.  Frater had another two years left in his board term when he exited Antracite.  At the time Forbes stated:

Anthracite invests in high-yield (read: junk) bonds and loans that finance commercial real estate. The company on Wednesday announced a mammoth fourth-quarter loss, financial problems ranging from busted loan covenants to unpaid margin calls, and a warning by its auditors that it might not be long for the world. 
Frater later went on to mortgage servicing giant Berkadia.  A story on Frater's leadership noted Berkadia's significant status with Fannie Mae.

Last August, the Mortgage Bankers Association ranked Berkadia among the industry leaders in a wide range of primary and master servicing categories: third in overall loan portfolio ($184.2 billion), third in Fannie Mae and Freddie Mac loans ($27 billion)...
One Fannie Mae board member had seen a company he founded implode from evaporating rents and declining commercial real estate asset valuations.  Fannie Mae will prevent the same thing happening in the residential home rental market.

Hugh Frater also sits on Spearhead Capital's board.  Their website describes Spearhead as "a boutique financial services firm exclusively focused on providing customized solutions for ultra high net worth investors, family offices, and asset management firms."  What if they could steer their clients to tax free, risk free returns?   

It appears another public service organization has been co-opted for the landed gentry.  

Saturday, March 11, 2017

Oil Exports to Rise with U.S. Production Increases

ZeroHedge reported:

Rising production in the Permian, coupled with cheap pipeline and railway transport fees to the Gulf of Mexico, will enable the U.S. to significantly raise its already record-high crude oil exports, Mike Loya, head of the Americas business at oil trading giant Vitol Group, told Bloomberg in an interview published on Friday.

We will see a lot more growth in U.S. crude exports,” said the manager of Vitol, the company that handled the first U.S. cargo after restrictions on oil exports were lifted at the end of 2015.

According to Loya, the Permian crude production would increase by between 600,000 bpd and 700,000 bpd by the end of this year, and “a lot of that is going to be exported”.

Should exports keep their pace, they could help alleviate some of the record-breaking inventories piled up in the U.S. 
Vitol is a joint venture partner with The Carlyle Group in Europe, where Vitol's CEO sees U.S. oil export expansion.  It also has a joint venture with PEU Helios Investment Partners in Africa.  Carlyle lost nearly $400 million on a North African oil deal.  I'll venture Carlyle Capital Corporation investors understand how an investment can disappear in a stressed financial market.

What's fueling exports of WTI?  The price spread between WTI and Brent crude.  When U.S. production could not be exported the spread reached $28 a barrel.   Carlyle's east coast refinery Philadelphia Energy Solutions entered dark times when the spread narrowed.  Carlyle can refine oil domestically or in Europe until they decide to monetize the lot.

U.S. record breaking inventories look to go overseas instead of dropping prices at home.  It's the PEU way.

Wednesday, March 8, 2017

PE Buying Companies: Inflation on Horizon

Bloomberg reported:

What do private equity firms and Oliver Twist have in common? They're generally always hungry for more....  there's Carlyle Group LP, which is attempting to raise $100 billion in four years.

These eye-popping figures come as the industry's dry powder -- the amount raised by firms that isn't yet invested --  hits new highs ($820 billion as of Dec. 31, according to Preqin).
That means more money chasing potential private equity affiliates.

“When you have a lot more money than you did before, generally you bid prices up a little more than you would if you did not have competition,” Mr. Rubenstein told Handelsblatt. “And higher prices probably produce lower rates of return.”
Bingo.  Higher prices lead to higher multiples of earnings which leads to lower PEU returns.

Update 3-13-17:  It appears some want to use new PEU money to buy old investments by the same PEU. 

Monday, March 6, 2017

Carlyle's Citi Presentation

The Carlyle Group presented at the 2017 Citi Asset Management, Broker Dealer and Market Structure Conference.  I took the liberty of combining aspects of Carlyle's private equity performance into the image above.

1)  Carlyle has $17.5 billion in PEU dry powder to deploy in a market with elevated valuations.

2)  Carlyle's carry fund performance is in a four year decline falling from 30% in 2013 to 11% in 2016

3)  It's fee earning PEU assets under management is the second lowest for the six year period shown.

Embarking Carlyle plans to raise another $100 billion.

Update 3-7-17:  Carlyle's presentation made no mention of its legal efforts to force Lloyd's to pay for nearly $400 million of stolen Moroccan oil.

Update 3-8-17:  The Citi presentation fit with co-founder David Rubenstein's prediction that PEU returns would drop but remain attractive enough to draw more capital.  How might that change with Carlyle's purchase of Golden Goose?