Saturday, October 25, 2014

Carlyle, JP Morgan, China & Corruption

WSJ reported:

After years of expansion (in China), some are scaling back. Carlyle Group , the alternative asset management company, is laying off about 10 people working on its China growth fund, according to people familiar with the matter. It closed the growth fund’s Chengdu office last year and is going to trim the growth-fund team in its Shanghai office and consolidate it with the Beijing team.  A spokesman at Carlyle declined to comment.

Almost half of the American firms surveyed believe foreign companies have been singled out in a string of pricing or anticorruption campaigns that have hit pharmaceutical, tech and auto companies recently, according to the American chamber. 
The Chinese told a different anti-corruption story.  Xinghau reported:

Since the 18th National Congress of the CPC in late 2012, the CPC Central Committee has been strictly governing the party, and improving the party's style of work, building a clean government and combating corruption, he said.
"All these efforts have gained the support of the general public," Wang said.
"This is just the beginning," he said, adding that the party's anti-graft campaign requires consistency, intensified supervision, discipline and accountability.
A clean government and a healthy and fair market offers the best soft environment for investment, he said.
Wang called for the overseas advisors to integrate international resources to give guidance for Tsinghua University's School of Economics and Management, and contribute to the development of China's education cause.
Advisors, including David Rubenstein, chairman of the Advisory Board and co-founder and co-CEO of the Carlyle Group, said they would continue to make positive efforts for China's economic and educational development.

Mass layoffs are prohibited in China, unless the firm has lost money for three straight years or been unable to pay employees for eight months.  I'll venture Carlyle's elimination of ten jobs isn't considered a mass layoff. 

One has to love that Carlyle is helping China with anti-corruption, which it's tainted ethical history.  Carlyle's gaffes include Synagro (bribes), Semgroup (bad energy bets), LifeCare (blaming doctors and FEMA for 25 patient deaths post Hurricane Katrina), Connecticut and New York pension fund (pay to play settlements in the tens of millions of dollars), Brintons (dumping pension onto public) and ARINC (banned from World Bank for bribery).

Add that J.P. Morgan CEO Jamie Dimon wants a safe harbor for influence purchasing and things get more interesting.  

I can envision Carlyle, J.P. Morgan and China holding hands in anti-corruption.  Can they ignore the facilitating payment or the employed ex-government official or well connected offspring.  They're staring everyone in the face. 

Monday, October 20, 2014

Carlyle's Global Jet Capital

AIN Online reported:

Global Jet Capital (GJC), a new source of leasing and lending options for business jet transactions, starts operations this week. The company has been launched with an initial $2 billion fund with the backing of three investment firms: GSO Capital Partners, The Carlyle Group and AE Industrial Partners.

The new venture’s backers have been evaluating the market for around the past 36 months. “We see an opportunity in the market because the traditional sources of financing, such as the banks, took a step back and others have placed significant hurdles in the lending process so that the provision of lease financing or debt financing has proved to be challenging,” he (Shawn Vick) said.

[In recent years] many businesses and individuals who have a requirement for large cabin and long-range aircraft have had to use their own capital to buy these, and then find financing [after the purchase],” explained Vick. He believes that GJC has a “significant opportunity” to help clients finance their aircraft in a more flexible way and free up capital for their own businesses.
How many Carlyle sponsored jets will be at the Republican and Democratic National Conventions in 2016?  It's our PEU world, where politicians Red and Blue love PEU.

Sunday, October 19, 2014

Carlyle's Investors Pay for Collusion Settlement

The epic shamelessness of private equity underwriters (PEU's) can be seen in The Carlyle Group's passing on the cost to investors for settling its role in illegal collusion with other PEU's on club deals.

Carlyle agreed to pay $115 million in the settlement. But the firm didn’t shoulder those costs. Nor did Carlyle executives or shareholders.

Instead, investors in Carlyle Partners IV, a $7.8 billion buyout fund started in 2004, will bear the settlement costs that are not covered by insurance. Those investors include retired state and city employees in California, Illinois, Louisiana, Ohio, Texas and 10 other states. Five New York City and state pensions are among them.

I've written about private equity for seven years and found numerous other fees and costs PEU's charged affiliates and investors.  Investors didn't collude.  Carlyle's management did.  NYT reported under Retirement (not DealBook):

Also blacked out in the Carlyle V agreement is a section on who will pay legal costs associated with fund operations. First on the hook are companies bought by the fund and held in its portfolio, the unredacted agreement says. That essentially makes investors pay, because money taken from portfolio companies is ultimately extracted from the funds’ investors.

But if for some reason those portfolio companies cannot pay, the Carlyle V document says, investors will be asked to cover the remaining expenses.
I wish the following were true:

“Fees are not trade secrets,” he said. “It’s entirely reasonable for us to know what we’re paying.”

Not in today's PEU world where politicians Red and Blue love PEU.

Saturday, October 18, 2014

Wake Up Vietnam!

Toi Tre News, a Vietnamese news source, reported:

The Ministry of Finance has proposed that the government increase the proportion of investment by foreign investors in the Vietnamese stock exchange, Deputy Minister of Finance Truong Chi Trung said at his meeting with David Marchick, the managing director of the U.S.’s Carlyle Group on Friday.
Will Vietnam openly welcome private equity underwriters (PEU's). like Carlyle? 

French colonization of Vietnam had the goal of economic profitThe Vietnamese either collaborated with the French or remained poorly paid laborers. Collaborators joined the lower levels of the French bureaucracy, made a decent wage, and benefited from the partnership.
The PEU-ization of Vietnam has a similar aim.

Friday, October 17, 2014

Carlyle to Siphon RAC Debt for Dividend

Bloomberg reported:

RAC Ltd.’s planned 1.2 billion-pound ($2 billion) loan is the biggest deal to be offered in the U.K. currency with limited lender protections, according to data compiled by Bloomberg

The roadside assistance company is seeking to raise the money through covenant-light loans, which don’t curb the ratio of debt the borrower can have compared with earnings and cash on its balance sheet and lack testing requirements on other performance metrics

RAC's PEU owner Carlyle Group plans to take a chunk of the $2 billion in dividends.
(T)he new debt will refinance existing facilities and pay a dividend to the private equity firm. 

Ka-ching!    RAC offers automotive breakdown protection.  Their paying customers need protection but not the company's debt holders.

Carlyle announced the sale of 50% of RAC a month ago.  It will now siphon off a significant portion of RAC's new $2 billion in debt.  Add management and deal fees and Carlyle is likely way beyond free shares. Let the PEU Times roll!

VP Cleanup Guy Now Ebola Czar

Recently a government representative went on and on about how the Obama team needs to get ahead of images on the Ebola story.  Rather than ask why someone was on the tarmack in sleeves while everyone else wore full hazmat suits, this official said such images needed to be kept from the public.

President Obama shared his willingness to appoint an Ebola Czar.

"The truth is, is that up until this point the individuals here have been running point and doing an outstanding job in dealing with what is a very complicated and fluid situation."

Obama will appoint Ron Klain, former chief of staff for Vice Presidents Al Gore and Joe Biden.  Klain is currently president of Case Holdings and general counsel at Revolution LLC, a technology-oriented venture capital firm.  Let's consider the outstanding job of running point to date:

Sept. 26, 2014 - Duncan goes to Texas Presbyterian Health Hospital in Dallas with a fever and tells a nurse he has been to Liberia. But he is sent home with antibiotics and Tylenol.

Sept. 28, 2014 - Duncan returns to the hospital in an ambulance and is isolated.

Sept. 30, 2014 - The CDC confirms that a the first patient -- who would later be identified as Duncan -- has been diagnosed with Ebola on U.S. soil.

Oct. 8, 2014 - Duncan dies at Texas Health Presbyterian Hospital.

Texas' experience with Ebola reveals how much public health is now a paper exercise, with little real capability.  The CDC looks just as bad.   The first case of Ebola in the United States resulted in error after error after error.

1)  The case was not recognized in the Emergency Room.  This gave the patient two days to potentially infect more people.

2)  Nurses did the best they could without appropriate personal protective equipment and with no training on how to function, much less provide proper care and treatment of Ebola, even if it's strictly supportive care.

3)  New cases of Ebola arose, not from family or friends, but from health care workers not on the list of people being monitored by the CDC.

4)  Several ill or potentially exposed health care workers traveled on planes or a cruise ship.  One called the CDC to share they had a slight fever and should they take their return flight home to Dallas from Cleveland.  The CDC said it was okay to fly, while the public heard CDC Chief say it was appropriate for the nurse to have taken a trip.  A hospital lab worker is in voluntary quarantine aboard a cruise ship off the coast of Belize.

What does Ron Klain bring to the table?  Image management, not substance.  He lacks any background in public health, infectious disease management, or epidemiology. He has not managed the response to any outbreak of disease in any part of the world.

As President of Case Holdings and general counsel for Revolution LLC Klain is a corporate executive.  American management, with it's incessant call to do more with less, resulted in the gutting of our public health resources, reducing them to paper exercises.  It brings to mind FEMA's Hurricane Pam disaster drill for New Orleans.  The drill occurred a year before Hurricane Katrina struck.

Ronald Klain's Revolution LLC shows major holdings in two companies, Everyday Health and GAIAM.

Everyday Health, Inc. (the “Company”) operates a portfolio of health and wellness websites and mobile applications that provides consumers, healthcare professionals, advertisers and partners with content and advertising-based services.

Gaiam Inc. -  We are a leader in the design, creation, and marketing of products and media for consumers who are interested in yoga, fitness, and wellbeing. Additionally, we operate a subscription video on-demand service, Gaiam TV, which is dedicated to creating, acquiring, and delivering conscious media. Through our business activities, we seek to position our brand as a trusted source for information and products that are relevant to our consumers’ active lifestyles and transformational journeys. Our broad distribution network includes retail, online, and digital channels. At the end of 2013, our brands were carried by over 38,000 retail stores worldwide. Our business is vertically integrated from product design and content creation through product development and sourcing, to customer service and distribution. This efficient supply chain enables us to provide quality products at competitive prices for all of our channels. We intend to build upon our authenticity and heritage in the yoga, fitness, wellbeing, and conscious media sectors. We believe that the size of our end markets is growing as a result of growth in yoga participation, greater awareness of health and wellness, and the success of our retail and online partners. We intend to leverage our product development, supply chain, and retail relationships to continue to expand and innovate our brand’s offerings enabling us to capitalize on the growth in our end markets.

Klain will be able to draw on Everyday Health's expertise in advertising and image management.  Gaiam products can be an Ebola stress reliever. 

Klain's appointment symbolizes what's happened to public health in our country.  Obama appointed someone to get ahead of the story. It would've been preferable to have someone with subject knowledge, experience in epidemic disease management and character.  Instead we get the man who cleaned up after Joe Biden's and Al Gore's gaffes.

Update 10-24-14:  Texas’ top health official said Thursday that most hospitals can’t handle Ebola patients and that they should instead be treated at specialized care centers.  “Not to throw stones, but the overall response from Centers for Disease Control and Prevention has been slow,” said William Sutker, infectious disease chief for Baylor University Medical Center at Dallas.

Update 10-25-14:  An Ebola vaccine never got off the group due to low incidence of the disease in mostly poor countries. 

Wednesday, October 15, 2014

CDC Worries: Carlyle Axes North Africa-Middle East Fund

(Persian) Gulf News reported:

Carlyle has shelved plans to market a second private equity fund targeting the Middle East and North Africa.

CDC Chief Tom Frieden said just days ago:

“I’ve spoken with business leaders who’ve emphasized to me that there’s so many misconceptions about Ebola that they’re already seeing things like a reduction in investment in parts of Africa that are not in any way, shape or form involved in the Ebola outbreak.” 
Timing of the cancellation is interesting in light of Carlyle's returns on its first Middle East North Africa fund.

Carlyle’s first $500m (Dh1.8 billion) private equity fund for the region was raised in 2007 and ran out of money earlier this year. It was generating a 35 per cent cumulative gain as of September, before fees, according to investors.
Carlyle's logic in targeting the region is:
We believe the MENA region is large, growing rapidly and ripe for private equity investing:
  • Economy has world’s fifth largest GDP (growth projections through 2010 are 55% higher than rest of the world and 76% greater than the U.S.)
  • Population is world’s third largest at 426 million
  • Capital markets are maturing and large enough to provide exit opportunities
  • Liberalizing state agendas creating opportunities for large scale transactions (increasing large scale privatizations)
  • Low private equity penetration
  • Carlyle’s regional presence provides opportunity for cross-country investments and M&A within the MENA region
Carlye stubbed its toe with the bankruptcy of Carlyle Capital Corporation.  Kuwaiti investors sued Carlyle for selling the highly leveraged mortgage backed security fund as virtually risk free.  That case is yet to be heard.  

It interesting the timing between Frieden's Ebola investment concern and Carlyle's cancellation.  Was there a White House intermediary?