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.  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. 

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? 

Sunday, August 17, 2014

Carlyle Targets Treasury

The headline brought to mind The Carlyle Group's Boston Private taking $153 million from Treasury's TARP program.  However this Treasury is an Australian company with global wine holdings.  Brands include 19 Crimes, Sledgehammer, Squealing Pig, Black Grape Society and Fifth Leg.

Two other PEU's are in the running for Treasury Wine Estates.  KKR and TPG have bid on the company with a bland name but distinctive product offerings.  Which PEU in the Greed/Leverage Society will win?

Thursday, August 14, 2014

Billionaire "Just Us"!

One billionaire got his bribery charge dropped by bribing the legal system, while another got to keep his good name, despite being the middleman in a longstanding bribery scheme by Alcoa.

The Guardian reported:

The Formula One boss, Bernie Ecclestone, is to make a $100m (£60m) payment to end his trial on bribery charges, a district court in Munich has confirmed.

This echoes "settlements" by The Carlyle Group and Riverstone on hiring middlemen to push pensions to invest Carlyle's way. 

The United States Justice Department only referred to Alcoa bagman as "Consultant A."  Bloomberg reported:

Not named and not charged in the case was the person who made those payments, whom the Justice Department identified in court only as “Consultant A.” 

Bloomberg believes this to be billionaire Victor Dahdaleh, a London-based businessman.

“In the Middle East, there is a concept called wasta -- ‘connectedness’ -- a trust network that these intermediaries are part of,” says Bishara, whose research focuses on Middle Eastern business ethics. “You traditionally use middlemen to avoid accountability and transparency, especially with this kind of large corporation, such as Alcoa. You use intermediaries to keep everything at arm’s length.” 

At arm's length used to mean an uninfluenced deal, struck at an ethical distance.  How does one bribe someone at arm's length?  It happens in a world redefined by the greed and power boys. 

This "Just Us" crew delegates responsibility for ethics to underlings.

"Managers (not executives) are the day-to-day interface with employees and the carriers of culture.  Unless they are effectively and properly trained, organizations will struggle to meet their top training objective of building an ethical culture.”

The buck stops nowhere, as evidenced by Consultant A.  The system, driven by money, is insular and protective of its own.

Ack!: Pershing Square IPO Looms

CNN Money reported, i.e. gave billionaire investor Bill Ackman free media space to sell his latest venture:

In a letter to investors Wednesday, Ackman said he plans to take one of his funds -- Pershing Square Holdings -- public later this year

That means regular people across America could get a stake in his fund that has only been open to the wealthy and connected.  
Regular people, those with 36% lower net worth the last decade?  Thbbft!  Only as the last mark.  The billionaire race to the top requires federal government giveaways and equity monetizations.

Wednesday, August 13, 2014

Dukes Join 'Em: PEUKES 'a coming

Bloomberg reported:

Issuance of securities linked to offbeat collateral has been rising as central banks around the world suppress interest rates, pushing investors toward riskier deals with higher yields. Sales of esoteric asset-backed deals, which encompass transactions that aren’t tied to traditional consumer lending, reached a record $30 billion in 2013.

Moonshiners in Southwest Virginia issued debt where interest payments vary based on the proof of alcohol they distill.  J.D. "Uncle Jesse" Morgan brought the tax free securitization to market through his partnership with PEU Boss Hogg.  Uncle Jesse decided to join Boss Hogg in his get rich quick schemes.

Uncle Jesse said "I initially gagged on the deal, but everyone's gunning for return and their no faster way to make green than to join the get rich quick boys.  They're going to give me millions and all I have to do is promise to pay it back.  Ha!  Boss Hogg gave me his word that he'll stand 100 proof behind our Series B debt.  After some of our 100 proof he won't be standing."     

This might be the next movie out of La la land.  Everyone's intent on making private equity the savior of our planet, Africa included. 

Disclosure:  Other than the Bloomberg quotation this piece is parody.

Tuesday, August 12, 2014

PEU La La Times

PEU La La, PEU La La...  It's the beat of our times and that of the Los Angeles Times, now run by a former private equity underwriter with the Blackstone Group and Evercore Partners co-founder.  If PECKER and The Carlyle Group can't improve private equity's image, then PEU La La might.  If they can sell to Hollywood, big entertainment can foist PEU memes onto to the unsuspecting public.