Thursday, April 27, 2017

Trump Tax PEU-palooza


President Domald Trump's PEU stacked White House did look out for its own in tax reform.  

Key point: Trump's plan would tax pass-through entities at 15%, whereas they currently are taxed at individual rates. This basically makes the carried interest debate irrelevant. 

Result: This is officially aimed at small businesses, but pass-through treatment also applies to a lot of hedge funds and real estate funds (e.g., ones structured as LLC's). Moreover, funds organized as limited partnerships likely would restructure to qualify as pass-through entities for tax purposes (or at least firms would be sure to raise the next one that way). In short, such fund managers could pay a flat 15% tax on all of their income, including annual management fees on which they currently pay individual rates. 
Apparently Trump and Mnuchin helped billionaire PEUs without mentioning their name or their preferred carried interest taxation.  It's a Trump PEU tax-palooza.  David Rubenstein and Stephen Schwarzman will be able to add to their personal billions with a Trump tax break!

Owners Sell PPD to Themselves


WilmingtonBiz reported:

Hellman & Friedman and Carlyle bought PPD in 2011 for about $3.6 billion and returned it to a privately held company.

The new deal, which values PPD at more than $9 billion, is expected to close in the second quarter of this year.

Hellman & Friedman and Carlyle will maintain joint ownership of PPD, with Hellman assuming majority ownership. Both will invest equity from new funds into the company, according to the release.
Monetize to self and bring in tertiary PEU owners.     The Abu Dhabi Investment Authority (ADIA) is part owner of The Carlyle Group.  Fortune reported:

GIC is a major limited partner in Hellman & Friedman.
Hellman Friedman invested with GIC in Universal Underwriters Group, Allfunds Bank, Multiplan
These are hardly arms length deals.  It's all in the PEU family.

This will not bring down healthcare costs.  Flipping health care companies for billions in profits helped ruin healthcare for the average citizen..  

Wednesday, April 26, 2017

Trump Tax Reform Impact on Carried Interest?


BusinessInsider reported on President Trump's tax reform plan:

An open question is what kind of treatment will be given to so-called carried interest. That allows managers to pay a tax rate as low as 20 percent, a loophole that Trump has railed against in the past. 
Government of and by the private equity underwriter (PEU) will be hard pressed not to advantage themselves yet again.

Tuesday, April 25, 2017

Sing of the PEU Times


Irish Times reported:

There are more than 3,000 US private equity firms. They manage about $825 billion in assets, up from $80 billion in 1996. Two of the largest companies – the Carlyle Group and KKR – each have more than 720,000 employees in their portfolio companies. 
While Carlyle and fellow private equity underwriters (PEU) grew tenfold worker pay stagnated and employers shifted cost and responsibility for healthcare and retirement to the employee.

PEU miserliness applies only to employees and taxes.  Affiliates are very generous with interest expense and grand payouts to executives and sponsors.

President Trump's tax plan is expected to be a PEU boon.

Commerce Secretary Wilbur Ross said that the combination of changes on taxes, trade and regulations being pushed by the administration would accelerate the pace of economic gains.
"There is no reason that we should not be able to hit that — if not beat it," Ross said at the White House news briefing.
Ross came from private equity to the White House, as did many other Trump PEU appointees.  It's billionaires looking after billionaires minted after 1980.

In 1980, there were only 24 private equity firms and deal volume only modestly exceeded $1 billion. 
PEUs grew from 24 to over 3,000.  Now every retired politician can be employed by one. Who needs a think tank or university?  Politicians Red and Blue love PEU.

Sunday, April 23, 2017

Trump's Tax Plan: Impact on PEU


PressTV reported:

"Big TAX REFORM AND TAX REDUCTION will be announced next Wednesday," the president announced in a tweet Saturday.

According to David Rubenstein, a co-founder of The Carlyle Group, Trump “will no doubt have some principles that he'll set forth soon and no doubt there'll be corporate tax cuts in those and repatriating money from offshore.”
It will be interesting to see the impact of President Trump's tax plan on private equity underwriters, especially as his administration is peppered with them.

Bloomberg reported in early March:

When it comes to the proposal to replace interest deductibility with immediate expensing -- a move that could meaningfully change the leveraged-buyout calculus -- the final result is likely to be more muted, said Rubenstein, who co-founded Washington-based Carlyle in 1987.
Just days to find out who President Trump serves.  Government by the PEU for the PEU.

Saturday, April 22, 2017

Troubled Carlyle Group Affiliate to Reform Scottish Social Security


The Carlyle Group purchased PA Consulting in December 2015.  The UK's Parliament released a report on an investigation of PA Consulting.  It found:

PA showed a serious lack of due care for its client in a number of ways: it failed to tell UKTI it was procuring the wrong thing; it failed to provide a full and clear explanation of its costs to UKTI when asked; and it described passing extra back-office costs to UKTI as being in UKTI’s interest. PA has told us it accepts it could have been better at communicating and providing explanations to UKTI. However, its inconsistent and unclear submissions and explanations, to us and the National Audit Office as well as to UKTI, seem to us to be more designed to obfuscate and confuse than to provide clarity

PA’s repeatedly inconsistent explanations are indicative of poor record keeping and a lack of corporate understanding of what happened. It beggars belief that this would have got through proper quality assurance and management review processes. We are also concerned that PA’s bonus scheme for its partners risks incentivising poor behaviour in the absence of proper controls. PA has acknowledged that the team negotiating with UKTI did not have the right skills to undertake a commercial negotiation or to make fair representations to UKTI. It has also acknowledged that the issues with the UKTI contract should have been escalated sooner internally. 
UK officials escalated these concerns such that the contract was cancelled in January 2016.  Interestingly, PA's CEO explained why they sold 51% of the firm to Carlyle:

1)  PA is net-asset valued so acquisition and growth by bolt-ons was not easy
2)  PA has a sizeable pension scheme looking after large numbers of folk expecting considerable creature comforts in their retirement. This reduces its agility. The money brought to the table by Carlyle has enabled Middleton to insist that the substantial number of PA shares still owned by former employees are cashed-in, which helps incentivise existing and future staff. 
3)  It gives PA favoured access to Carlyle’s 200 portfolio companies. A virtuous circle of Carlyle using one portfolio member to nurture others. 
4)  For a small, family-like organisation it was high time for some growth especially in the United States where PA has little traction. 
I'll add a fifth.  PA knew it needed more political gravitas and Carlyle provided.  Proof is PA Consulting has a new gig focused on modernizing Social Security for Scotland.  PA Consulting will "work on the development of a new trial Scottish social security system." 

Carlyle has long wanted a piece of social security and individual retirement accounts.

Five years ago, Carlyle Group's David Rubenstein predicted a future where ordinary savers would be able to invest in private equity, an industry limited to wealthy individuals and institutions.
PA wants growth in the US and President Trump recently floated eliminating the tax that funds Social Security.

In a parallel story consulting giant PwC helped the government of India select 75 cashless townships

To qualify as a less-cash townships, the conditions included the township must have completed deployment of a payment acceptance infrastructure, and all the families residing there would have to covered under training programmes. Also, more than 80 per cent of the total number of transactions must have been done through digital modes of payments during the review period.
Social Security and cash may soon be things of the past.   Governments and consultants will have conspired to make this happen.  Rest assured private equity is driving both and has plans to profit every step of the way.

Monday, April 17, 2017

Booz Allen Issues Debt to Pay Sponsor Carlyle

SeekingAlpha reported:

Booz Allen Hamilton Holding Corporation (NYSE:BAH) announced the launch of $350M aggregate principal amount of unsecured senior notes by its wholly-owned subsidiary, Booz Allen Hamilton Inc.
Funds will be used for multiple purposes, including:

"repayment of a portion or all of the outstanding deferred payment obligation established in connection with the acquisition of Booz Allen by The Carlyle Group in 2008."
SEC filings show the deferred payment obligation at $158 million when established on May 15, 2008.  On December 11, 2009 BAH took on debt to repay Carlyle $100.4 million, $78 million of the deferred payment obligation plus $22.4 million in accrued interest.   The current amount owed Carlyle under the DPO is $81.3 million.

Booz paid Carlyle a one time $20 million for investment banking, financial advisory and other services.  It also pays Carlyle $1 million per year in advisory fees.

PEU affiliates have the honor of paying, paying and paying sponsors.  Carlyle loves cash, especially when the PEU notices early seismic economic shutters.