Friday, September 30, 2011

Carlyle's Rubenstein Submits Chinese OpEd

Carlyle Group cofounder David Rubenstein contributed an Op-Ed column, "Investment Focuses on Middle Class."  It ran in China Daily.  Rubenstein highlighted:

Carlyle's China investment thesis today is oriented toward domestic demand - led by a strong and growing middle class and rapid urbanization of rural areas. This is a shift from our initial investment focus, which emphasized export-oriented manufacturing businesses that capitalized on China's growing exports.
Rubenstein confessed that he and Carlyle exported manufacturing jobs to China, evidenced by Carlyle's long term ownership of UCI.  His focus of a strong and growing middle class echoed Condi Rice in Saudi Arabia, who cited it as a requirement for democracies.  China's middle class is strong and growing, while America's middle class implodes, courtesy of the David Rubenstein's of the world.

China's next export is private equity.  Rubenstein helped school China's fledgling PEU's.    Rubenstein predicted China would be become a huge PEU player.  Sure, China has the cash, but they need someone to train their future PEU's.  A former business reporter had this to say on private equity and China.

I can't tell if the PE guys are being insincere when they talk about China or they are actually stupid. There is no way that the Chinese govt would let American firms come in and strip cash out of Chinese companies the way they've been allowed to in the US! I imagine the Chinese welcome the PE guys because they see it as another way (through PE orchestrated mergers) to get hold of more American technology and companies and jobs.
China clearly wanted the keys to the PEU model.  Did China school on Carlyle during their three year struggle to buy Xugong?

Ironically, Chinese private equity may save American PEU's face by buying up accounting scandal ridden Chinese affiliates.  Carlyle's China Forestry and China Agritech are currently untradeable due to accounting problems.

"It's a matter of time before Chinese institutional investors make big allocations for outbound investments."
China can take its new PEU skills and take over the world financially.  Chinese quality brought the world deadly infant milk, toxic drywall and poisonous food.  Layer greed upon ignorance and what could happen?  American workers and consumers could know soon enough.

Thursday, September 29, 2011

Planet Clare


The Carlyle Group's Peter Clare spoke at the Dow Jones Private Equity Analyst Conference in New York.  Consider his words from the WSJ:

"... corporations are flush with cash and are hungry for growth."

The "lack of growth" speaks to a recession, the "flush with cash" not so much.

"Almost every time is a good time for private equity. When times are terrible, it's always good to be a buyer and when times are good, it's a good time to be a seller," said Peter Clare a co-head of Carlyle's buyout group.  
Carlyle monetized scores of affiliates in 2010 and 2011, leading one to believe those times were good.  Not so, according to Clare's boss, David Rubenstein.

The heads of two of the world's most powerful private equity firms issued a dire report on the U.S. economy on Wednesday, signaling problems for political leaders and their own firms' ability to realize profit on their portfolios.

"We never really emerged from the last recession," Carlyle Group co-founder David Rubenstein.
Carlyle is doing its part to extend the recession by dumping jobs and worker benefits.  This made Rubenstein's comment more galling.

"It will last a few more years before we get unemployment to a level that is tolerable," Rubenstein said.
How many pension and health insurance benefits will Carlyle affiliates have dumped by then?  Planet PEU sports the race to the lowest global common denominator on worker pay/benefits, taxes and regulations. 

While PEU's eliminate jobs, exporting many to China, Clare's other boss dangled $1 billion to address the chronically unemployed.  Carlyle co-founder William Conway failed to see the irony of his offer.  Add that Carlyle's Pee Wee Herman look-a-like pushed the idea on Fox News and things got darkly comedic.

Update 10-13-11:  Peter Clare added Carlyle made speedy, profitable exits from investments made in the 2008-09 financial downturn.  It turns out healthcare, Chinese and Indian, are attractive due to their growing middle classes.

Update 2-11-12:  President Obama will call for lower corporate income taxes.

Monday, September 26, 2011

Conway's Carlyle Spokesman Solicits Billion $ Ideas


D.C.'s Fox5 News helped spread the word on William Conway's offer to give half his fortune away.

  
Forbes 400 estimated Conway's wealth at $2.7 billion.  That number could grow substantially under Carlyle's IPO.  Here's how you can get involved:

Listen to Chris Ullman say "Give a man a fish and you feed him for a day.  Teach him to fish and you feed him for a lifetime." Forget all the fishing poles Carlyle yanked from workers' hands and pitched into the Pacific, while sending jobs to China.

Act like part of the $1 billion dollar giveaway could actually end up in your lap.  Submit your idea to supreme capitalists who helped fracture the global financial system.  Buy Montana drinking water.
Send your ideas to inquiries@carlyle.com.

Update 10-3-11:  The ideas are pouring in.   WaPo wants in on the idea action for providing jobs for the poor.  They might read their comments section.

Young Entrepreneurs Land W., Negroponte & Townsend


The Palm Beach Daily News reported:

Now (age) 25 and 23 respectively, Matthew Swift and Nicholas Logothetis have founded The Concordia Summit Group with a list of high-profile names on its advisory board. Among them: Frances Townsend, former Homeland Security Advisor to President George W. Bush; former president of Poland Aleksander Kwasniewski; U.S. Ambassador John Negroponte; and Thailand’s Minister of Justice Suwat Liptapanlop.

The goal of the group is to address pressing global issues through private/public partnerships.
The Concordia Summit was founded in February 2011.  How did two young entrepreneurs assemble a who's who list of world leaders in seven short months?

Their inaugural summit in New York City ( held September 20) tackles global extremism and has drawn more attention than they initially envisioned by landing President George W. Bush as their keynote speaker
The pair promoted themselves, "not as experts in counter terrorism or counter extremism, but as people who are able to get.., to organize, facilitate and get the right group of people into the room to make this happen."  Concordia's inaugural annual forum followed a Davos, Clinton Global Initiative (CGI) type forum.  The event was held the same time as CGI, which ran from September 20-22.   New York City hosted both CGI and the Concordia Summit.

Concordia hoped to establish a "Concordia Index" on terrorism to rate countries globally.  In addition they aimed to offer the "Concordia Audit," which would assess the impact of extremism interventions. 

Noble aims for sure, but it's hard seeing two young entrepreneurs as "expert facilitators."  Bolstering my doubt, the pair graduated from college in May 2010 after working part time. How many college grads can pull off such a goal?

Founded by Nicholas Logothetis and Matthew Swift in February 2011, Concordia will convene world leaders, former heads of state, security officials, and leaders of global corporations to analyze and discuss the respective roles of the private sector and government in tackling extremism..

These boys either have hudspah or the right political connections and family lineage. Furthering understanding, the basis of Concordia's name, I explored the pair's corporate connections.  The begin with Rupert Murdoch's News Corp, and various subsidiaries, which employed Swift and Logothetis through college.

The Concordia Summit's partners include The Libra Group and SyntheticsWorld.  Three Libra Group Board members made the speaker list, John Negroponte, Nicholas Logothetis, and George Logothetis, Chairman and CEO of The Libra Group.

The Libra Group was formed in 2003 and its subsidiary list looks PEU, like a private equity underwriter.  It has offices in New York, London and Beijing, big money centers.

Libra's has more affiliates, thirty one, than either Concordia founder has years of life experience.  When one doesn't know the sins of the past, which this duo freely admitted, those sins can and will be repeated.

Watch them "facilitate ways to help people around the world combat" extremism and terrorism issues.  I'm sure any facilitating will be done by SyntheticsWorld and not this pair.  The question is how much business will The Libra Group get as a result of Concordia activities?

Libra owns:

US Hotels operates a marina and a conference and banqueting centre at the exclusive Kennebunkport resort.

Concordia targets governments and corporations as potential buyers of their products.  Sharing information with the general public sounded limited, a small byproduct of this nonprofit's aim.    Understanding Concordia will likely take time, but they're off to a PEU start.

Update 10-10-11:  Heritage Foundation showed up at the boys' event.  They shot a video with Fran Townsend and Tom Kean.

Update 10-16-11:  Chris Wayne Associates produced the event.   CWA holds out the Clinton Global Initiative as a client.  Founder Chris Wayne worked in the Clinton administration, before joining a major PR firm.  CWA helped CGI become #1 event for CEOs.  Will Concordia Summit put a dent in GCI's CEO numbers?  Time will tell...

Sunday, September 25, 2011

Carlyle Group's Conway: Wants Jobs for the Poor

Carlyle Group co-founder and billionaire William (Bill) Conway wants to give his fortune away, a la Peter Peterson, Blackstone's co-founder.  Peterson gave $1 billion away to a foundation concerned about taxes, especially taxes on the super wealthy.  While Bill Conway hates taxes himself, he sees his foundation supporting a more noble goal.  WaPo reported:

“So much of what I do now is stopgap. Somebody’s hungry; we give money to the food bank,” Conway said in an interview in his Pennsylvania Avenue office. Although such help is necessary and worthwhile, he said, “It would be far better if we had a more permanent solution.”

Conway is intrigued by a recent suggestion from his wife, Joanne, to use his wealth to create large numbers of productive, self-sustaining jobs for the poor.

“More effective than giving away half my fortune before I die is finding a way to help people have a good-paying job,” he said. That would help not only the newly employed, but also their families and the rest of the community.

“If I’m going to create 1,000 jobs, or 10,000 jobs, or whatever the number is, wouldn’t we all be better off?” With jobs, he said, people “have a home; they go out to eat; they have a life.”

The Carlyle Group, a private equity underwriter with $153 billion under management, has owned more than 400 portfolio companies.   Conway had thousands of opportunities to give people, good paying jobs.  How did he do?

Take two Carlyle affiliates, automotive parts maker UCI and Vought Aircraft Industries, maker of aircraft aerostructures.  Under Carlyle's ownership, jobs at UCI fell from 6,900 to 4,350.  Between management fees and special dividends Carlyle siphoned nearly $50 million from UCI from 2003 to 2010.  As The Carlyle Group is currently bidding on TI Automotive, TI workers might want to explore Carlyle's UCI story.

Vought Aircraft Industries took $35 million from Texas taxpayers to add 3,000 new jobs in the Dallas area.  Governor Rick Perry's Texas Enterprise Fund gave Vought a $35 million check in 2004.  By 2010, Carlyle's Vought hadn't added a job.  Instead it cut 35 positions, meaning Perry gave Vought $1 million per job eliminated.  Perry renegotiated the deal in secret as Carlyle struck a deal with Triumph for Vought.  Neither Conway, nor his co-founders, made Texas taxpayers whole.


Carlyle's recent British deals point to future elderly needing assistance.  Carlyle acquired RAC and Brintons, while offloading both company's pension funds.  The move cuts worker pensions by one third.  

A former business news reporter, from a major media company, noted Carlyle's impact:

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.

WaPo's Conway piece even stated:

Needs are growing because of the slow economy. Government safety nets are shrinking because of tight budgets.  

Recall how much Conway hates paying taxes?  The wealthy's unwillingness to pay higher tax rates is a factor in tight budgets.


Conway's opportunity to grow jobs is every minute of every day. Count how many stay in a Carlyle company's country of origin and how many go to China.  There will be ghosts and angels in William Conway's future.  How will he account for his time racing his peers to the top of the billionaire list?

Update: A comment from justme39 on WaPo's article stated, "Most people aren't looking for a handout. Just a good job. Until recently I had one. Then the Carlyle Group bought my company as an 'investment'. I was laid off this past Monday after 8 years..... .  Perhaps Bill Conway as a co-founder should help his own employees first."

Update 4-14-14:  Carlyle co-founder David Rubenstein was on CNBC today pushing Carlyle's operating executives who grow jobs.  Mary Petrovich said she grew jobs from 500 to 1,000 while at one Carlyle affiliate.  She also drove "global sourcing to achieve material cost reductions," which resulted in how many U.S. jobs lost from 2005 to 2008, Carlyle's ownership period of AxleTech?

Saturday, September 24, 2011

Carlyle Group's Cheese Hedge: Franchisee vs. Franchisor


The Carlyle Group is in talks with Bank of America to buy NPC International, the largest Pizza Hut franchisee in the world.  BOA needs Tier 1 capital and Carlyle has lots of cash to put to work.  The deal price is reported around $800 million.

Carlyle owns Dunkin' Brands, which served as the franchisor for Dunkin's Donuts and Baskin-Robbins.  Carlyle's Dunkin' saw lawsuits against franchises soar.  Will Carlyle's lawyers have to change hats and legal tricks in the case of Pizza Hut?

NPC offered an interesting item in it's 10-K:

Commodity prices such as cheese can vary. The price of this commodity can change throughout the year due to changes in supply and demand. Cheese has historically represented approximately 30%-35% of our cost of sales. We are a member of the UFPC, and participate in cheese hedging programs that are directed by the UFPC to help reduce the volatility of this commodity from period-to-period. Based on information provided by the UFPC, the UFPC expects to hedge approximately 30% to 50% of the Pizza Hut system’s anticipated cheese purchases for fiscal year 2011 through a combination of derivatives taken under the direction of the UFPC.
Lehman Brothers failed due to "off balance sheet" derivatives gone sour and high leverage. 

Carlyle and NPC share a love for leverage:

NPC is “highly leveraged,” which could hurt the firm’s ability to raise capital or repay debt, the company said in a February regulatory filing. The operator said it had $402.4 million in loans at year-end, $44.2 million in cash and $58.1 million available under a credit facility. 
Oddly, NPC's 10-K stated the company had roughly $600 million in capitalization.  Total assets of $825 million include nearly $200 million of goodwill. 

Deal details remain to be seen, but rest assured Carlyle plans to make money multiple ways from any deal.  Might Chinese Yashili milk make Pizza Hut cheese?  Could CP Pokphand provide pizza toppings?  Might the crust be fortified with David Rubenstein's NBTY muscle builder?  Expenses must be cut to fund Carlyle's annual management fee.

Friday, September 23, 2011

Carlyle's Rubenstein up a Mere $100 million

The Forbes 400 2011 update showed Carlyle Group co-founder David Rubenstein gaining $100 million in net worth since March.  That move brought Rubenstein to $2.7 billion, a number last seen in 2008. 

Compare his chart to Carlyle's assets under management:


Carlyle lost $5 billion in AUM during the 2008 financial meltdown, falling from over $91 billion to $86 billion.  AUM rebounded, up nearly 80% since. 

Carlyle monetized every affiliate not nailed down that last year and a half, meaning Rubenstein's take of profits should be substantial.  Rubenstein can carry the interest but somehow it misses his net worth.

Oddly, two DBD Cayman Funds show the founders with a stake in over $7.7 billion.  The U.S. Treasury bolstered a number of listed affiliates, BankUnited, Boston Private Financial Holdings, CIT Group, Central Pacific Bank, and Hampton Roads Bankshares. 

The Carlyle Group's S-1, IPO documents filed with the SEC, should pull back the curtain on the founders' holdings and their projected value.  The first filing failed on this front. 

Will the SEC do better than Forbes in showing Rubenstein's net worth?  That remains to be seen.  The picture now is murky, at best. 

Wednesday, September 21, 2011

Carlyle Group: Pension Shredder or Savior?

The race to the lowest global common denominator on worker pay and benefits can be seen in The Carlyle Group's handling of Brintons Carpets, a British carpet maker.  The story begins in July, when Brintons' managing director said the company was in talks with a private equity underwriter (PEU). BBC reported:

He is expecting the deal to be finalised "within weeks" with the "lion's share" of any new investment going abroad.

Brintons Carpets has two factories in the UK, one in Portugal, one in India, and an unfinished plant in China.

PEU money enabled Brintons' jobs to shift to Asia.  BBC reported in August:

Brintons gave the news on its website and said later that 50 jobs were under threat as it restructures.

The company has been in existence for more than 70 years and 122 people work at the site
The company shed 41% of its workforce before Carlyle worked its deal.  Carlyle closed two weeks later.  BBC reported:

The deal involves the company taking on about £20m in debt and investing about £20m, Brintons said.


He added the deal would allow the firm to complete its "state of the art Chinese manufacturing site".
The Carlyle Group reneged on Brintons' pension, dumping it on Britain's Pension Protection Fund.  FT reported:

In early September, Carlyle Strategic Partners, a global fund, acquired the roughly £18m of senior debt of struggling Brintons and launched what is known as a pre-pack administration.

How much did it cost for Carlyle to buy Brintons' distressed debt?  How hard did Carlyle strong arm Brintons' creditors?  It made no deal with its pension trustee.  Carlyle simply jettisoned the plan.

Brintons is the latest company to have been tipped into, and out of, administration, minus the pension liabilities, through the acquisition of its senior debt by a private equity investor.

Discounted senior debt is an acquisition back door.  Carlyle entertained multiple strategies in shedding pension plans of new affiliates.  Here's the oxymoron, PEU's are supposed to save public pension plans by garnering high returns.  Don't look for any logical consistency in Carlyle's strategy.  Are they stronger publicly traded vs. privately held?  Is Carlyle the dumper or savior of pensions?  One factor underlies Carlyle's decisions.  Greed.

Update 1-30-14:  Carlyle plans to eliminate a handful of jobs at Brintons.  That's on top of 150 jobs cut in 2011 and 20 last year.

Update 6-28-15:  Naked Capitalism noticed PEU's predilection for pension shredding

Tuesday, September 20, 2011

High Net Worth: Carlyle Group Tied

Carlyle Group cofounder David Rubenstein said in April 2003:

We have an enormous amount of our own personal capital - about 90% of our net worth is tied up in these funds. My partners and I and all the other professionals have committed $700 million to our various funds throughout the world so we've got a lot of money committed to this and it's important to get it back. But it's more important that we not do anything that impairs the reputation of ourselves or our investors. So making money is nice but we're more worried about our reputation and concerned with ethics and that's first and foremost.

Rubenstein and his fellow cofounders stand ready to release a chunk of their net worth via Carlyle's planned IPO.  However, for an ethical firm, Carlyle has a number of blips.

1) Carlyle settled several pension fund "pay to play" investigations, Connecticut and New York.

2) Investors sued Carlyle over the implosion of Carlyle Capital Corporation, the canary in the Lehman Brothers coalmine.  Plaintiffs say Carlyle failed to disclose unrealized losses prior to an initial public offering.  Carlyle claimed "unprecedented tumult."

3) Carlyle's Semgroup, a staid energy pipeline company, went bankrupt due to billions in bad energy bets.  Investors sued, while Carlyle's lawyers entered a puffery defense.

4) Carlyle's LifeCare Hospitals had the highest patient death toll after Hurricane Katrina.  The company is vigorously defending lawsuits while claiming patients became wards of the federal government when FEMA evacuation teams set up in New Orleans.

5) Rubenstein joked about George W. Bush and his board slot at CaterAir, but failed to mention the role Carlyle and the Bush administration played in legitimizing Libya's Muammar Gadhafi.  The Carlyle Group solicited over $100 million of Gadhafi funds with the help of James A. Baker, III, Frank Carlucci and David Welch of Bush's State Department.  Welch went on to Bechtel, where he helped build a massive power plant east of Tripoli, Libya's capital city. 

Reputation, ethics?  Carlyle is about power, influence, and greed.   That makes the untold stories compelling.

Monday, September 19, 2011

Carlyle Group's Fall Theater


The Carlyle Group could laugh or cry about recent stories.  WaPo reported on the gag video of its three cofounders, nicknamed the DBD's:

The three co-founders were filmed “working” at Carlyle portfolio companies: Dan D’Aniello manning the counter at Dunkin’ Donuts, a scruffy Bill Conway retooling a truck at Allison Transmission and David Rubenstein pitching NBTY muscle-building supplement to a couple of ripped young men.

At least D'Aniello makes a living wage at Carlyle and didn't need to prostitute himself via the drive through window.  Conway could have been shown retooling U.S. Presidents and Presidential want-a-be's, who regularly grace Allison;s factory floor.  Rubenstein could pitch anything, even sell snow to Alaskan natives, which is roughly how he made his first fortune.  But enough levity, on to a Carlyle tragedy.

The National Law Journal's story may produce tears, given Carlyle's IPO designs:

Zoe Tillman reports that the Washington-based Carlyle Group is facing a slew of lawsuits that accuse them of misleading investors about mortgage-backed securities. The plaintiffs say the investment firm failed to disclose unrealized losses prior to an initial public offering.

The suits are in regard to Carlyle Capital Corporation.  Carlyle pleaded puffery as their legal defense in another case.

CGI Week

Political heavyweights spoke at The Carlyle Group Investors (CGI) meeting.  This year's crew included the familiar James A. Baker, III.  Baker helped court Saif Gadhafi on behalf of Carlyle in 2008.  Mr. Baker's name wasn't mentioned among those who legitimized the Gadhafi regime.

Joining Baker in this year's Carlyle soiree were:

Robert M. Gates
Erskine Bowles
Alan Simpson

Erskine Bowles is looking to grow another fortune.  Hopefully, his Carlyle paycheck will help.  Might Erskine invest in Carlyle or would that be a no-no for the Senior Advisor of Carousel Capital?

Carlyle's founders bragged on their performance:

The firm told investors that 2011 is shaping up as one of its best years ever.

Rest assured wealthy ex-pols and campaign donors won't stand for a tax increase on the rich.  President Obama can spout all he wants.  Congress sets tax policy.  This is a PEU Congress.  PEU stands for private equity underwriter.

I'm curious as to how many Carlyle Group investors/speakers end up at the Clinton Global Initiative, the other CGI.  Madeline Albright spoke at the 2010 Carlyle event.  She's a featured guest at the 2011 CGI.  There's a relatively small, well heeled crew jetting between D.C. and New York this week.  Rest assured, they're going by private plane.

There is no class warfare.  The rich and connected won, wallets down.

Sunday, September 18, 2011

PEU Xconomy

Xconomy's Randy Hawk reported:

Private equity general partners generated $120 billion from 300 exits in the second quarter (source Prequin).

Regarding the current IPO market, Hawk offers:

Most companies will be on the sidelines until deep into 2012.
Will that include The Carlyle Group and affiliate ManorCare, both slated for September filings? 

Global Elite's Calendar


The Economist stated:

The Clinton Global Initiative's annual meeting has become an important part of the global elite's calendar.

The global elite gather in New York City this week.  Featured guests include Wesley Clark, Madeline Albright, and Bob Rubin, all private equity underwriters (PEU's).

Political types include Tony Blair and John Podesta.  The recently savaged Michael Porter will attend.  Porter became the lightning rod for America's outreach to Muammar Gadhafi, while politically connected PEU's got no press.

UBS' Robert Wolf is going.  Will Bill Clinton call for donations to help UBS with their $2 billion trading nightmare?  The global elite seem fully capable of helping themselves. Tony Blair did.

Update 9-18-11:  UBS' trading loss is up to $2.3 billion.  How high will it be when CGI starts?

Update 10-1-11:  Tony Blair's consulting work comes under scrutiny 

Update 3-11-13:  The Podesta Group now lobbies for the Iraqi government.

Saturday, September 17, 2011

Carlye Bids on Swiss Hospital Chain


London South East reported:

Private equity firms Advent International and Carlyle Group are the last two remaining bidders for Swiss-German private hospital operator Ameos, sources closed to the deal said on Friday. 
Ameos, formed in 2002, operates 48 private hospitals and psychiatric clinics, mostly in Germany.

A club of banks are working on arranging senior loans for the potential leveraged buyout, with the debt expected to amount to around 4 times the company's 45-50 million euros ($62-469 million) earnings before interest tax depreciation and amortisation (EBITDA).  

This would be Carlyle's fourth hospital company, following LifeCare (U.S. -LTAC), Healthscope (Australia), and Medical Park Group (Turkey).  Carlyle also owns HCR ManorCare, a huge nursing home provider.  The Carlyle Group monetized ManorCare's physical assets and looks to cash in on the rest of the company, as well as Medical Park later this year.

The club of banks might want to read about CIT's PEU experience: WSJ reported:

CIT Group Inc. (CIT) is looking to rid itself of a $1 billion commercial loan portfolio.  The portfolio, which is being shopped by Houlihan Lokey Inc., comes from a problem loan book, although a number of the loans are making payments on schedule.

Most of the portfolio that CIT is selling consists of senior secured loans, with some junior secured loans, these people said. The loan positions are in about 72 companies, including ones sponsored by private equity firms, such as Welsh Carson Anderson & Stowe, Carlyle Group, MidOcean Partners and Thomas H. Lee. 
How much will European healthcare costs go up because of the deal?  U.S. health care costs rose over $2 billion annually when HCA sold out to KKR and CHS purchased Triad Hospitals.  White House Health Czar Nancy-Ann DeParle received $1.4 million for her Triad shares.

Privatization brings opportunity.  PEU's are happy to take government cash, but hate paying taxes. Somehow their management fees, partially paid by U.S. Medicare and Medicaid, are taxed as carried interest.  The racket continues, only globally.

Friday, September 16, 2011

The DeParle Census


White House Deputy Chief of Staff Nancy Ann DeParle is married to Jason DeParle of the New York Times.  They have a son.

When Nancy-Ann was appointed President Obama's health care czar, she filled a financial disclosure report which stated:

"Per Pilar all conflicting assets have been divestedKD  6-4-09"
Nancy-Ann gave a portion of her conflicting assets to her son, thus they remain in her immediate family, much the same way Florida Governor Rick Scott's Solantic stock did.

DeParle's 2011 filing showed a gain from her earn out from MedQuest, a medical imaging company.  Nowhere on her prior two disclosures did she indicate residual private equity stakes in MedQuest or any other healthcare firms, where she served as a board member.

DeParle's financial disclosure form indicated a cash account of $1 to $5 million.  Her health reform has private equity underwriters drooling.  Obama rewarded DeParle with a promotion to Deputy Chief of Staff.  Life is good for the DeParles.

Husband Jason wrote:

The discouraging numbers spilling from the Census Bureau’s poverty report this week were a disquieting reminder that a weak economy continues to spread broad and deep pain. And so it does. But not evenly
As the poor get poorer their health is at greater risk.  Not so with PEU's, who have insiders remaking markets and government statistics in PEU fashion.    

Wednesday, September 14, 2011

Rahm's Chicago Entices Rubenstein's JMC Steel


Cleveland.com reported:

Beachwood-based JMC Steel Group reportedly is considering moving its 50-job headquarters to Chicago, thanks to nearly $4 million in tax incentives.

Rahm Emanuel is the Mayor of Chicago

Formerly called John Maneely Steel, JMC was the creation of the Carlyle Group private equity company.

Carlyle co-founder David Rubenstein dined with Rahm at the Blue Duck Tavern in Washington, D.C. while Emanuel was Obama's Chief of Staff.

JMC already has received $2 million in assistance offers from the state of Illinois, and it has requested another $1.2 million from the city, the Chicago Tribune reported. A city board approved the additional incentives Tuesday, but Chicago's city council still must approve the deal.

In addition to those two sets of tax breaks, the city would forgive an early $600,000 grant of tax funds given to JMC subsidiary Atlas Tube in 2003. The subsidiary failed to meet employment requirements on that project and would have to repay some of those funds if the city did not agree to the new awards. 
The Carlyle Group failed to meet its Texas employment promises for Vought Aircraft Industries.  Fortunately for Carlyle, Governor Rick Perry renegotiated the deals in secret, saving Rubenstein and company millions.

Reds and Blues love PEU's (private equity underwriters). 

Monday, September 12, 2011

Schwarzman Report


What do sex and taxes have in common?  Both depend on the definition of the word.

Blackstone co-founder and billionaire Stephen Schwarzman chose taxable income to calculate his tax percentage.  Schwarzman arrived at a 53% tax rate, 36% federal and 17% state.  However, that only applies to his $350,000 salary, a micro-fraction of his private equity underwriting (PEU) haul.

Consider information from Blackstone's 10-K, page 162.

The Partnership’s effective income tax rate was (16.20)%, (4.33)% and 0.25% for the years ended December 31, 2010, 2009 and 2008, respectively.

Blackstone's -6.76% tax rate beats The Carlyle Group's 1% tax rate in their recently filed S-1.

While searching for Mr. Schwarzman's Blackstone compensation, I ran across:
The Blackstone Group L.P. is managed and operated by its general partner, Blackstone Group Management L.L.C., which is in turn wholly-owned by Blackstone's senior managing directors and controlled by Mr. Stephen A. Schwarzman, one of its founders.

Schwarzman holds roughly 190 million shares of Blackstone, worth $2.3 billion at today's closing price.

President Obama wants to go after PEU profits, although many PEU vehicles are parked offshore.  Blackstone's 10-K had this to say:

The Obama administration has indicated that it supports the adoption of the May 28, 2010 legislation or legislation that similarly changes the treatment of carried interest for U.S. federal income tax purposes. In its published revenue proposal for 2012, the Obama administration proposed that the current law regarding the treatment of carried interest be changed to subject such income to ordinary income tax (which would be taxed at a higher rate than the proposed blended rate under the House legislation). The Obama administration proposed similar changes in its published revenue proposals for 2010 and 2011.

Over the past several years, a number of similar legislative proposals have been introduced and, in certain cases, have been passed by the U.S. House of Representatives. In 2007, legislation was introduced in the U.S. Congress that would have taxed as corporations publicly traded partnerships that directly or indirectly derived income from investment advisor or asset management services. In 2008, the U.S. House of Representatives passed a bill that would have generally (a) treated carried interest as non-qualifying income under the tax rules applicable to publicly traded partnerships, which could have precluded us from qualifying as a partnership for U.S. federal income tax purposes, and (b) taxed carried interest as ordinary income for U.S. federal income taxes, rather than in accordance with the character of income derived by the underlying fund. In December 2009, the U.S. House of Representatives passed substantially similar legislation. Such legislation would have taxed carried interest as ordinary income starting in the year of enactment. The legislation passed by the House in December 2009 and certain other versions of the proposed legislation contained a transition rule that may have delayed the applicability of certain aspects of the legislation for a partnership that is a publicly traded partnership on the date of enactment of the legislation.

That explains the PEU IPO rush.  They needn't worry, as a Republican controlled House won't pass a bill changing PEU's preferred tax status.

The PEU lobbying group sounded confident that carried interest would hold the line:

“Proposals to raise taxes on carried interest have consistently been rejected for over four years because raising taxes on investments would only sideline employers and investors and create further uncertainty in an already struggling economy,” said Steve Judge, interim president and CEO of Private Equity Capital Knowledge Executed Responsibly (PECKER).
It's a bipartisan world, where Reds and Blues love PEU's.  PECKERS donate large amounts of campaign cash.  Greedy PEU's, with their leveraged political connections, stand ready to solve America's problems.  It's like asking the Tuberculosis virus to cure lung cancer.

Update 9-18-11:  TheDay.com quoted Yale's Jacob Hacker :  "The amount of lobbying that takes place on tax policy from the deep-pocketed interests that have the most at stake is enormous. There's very little representation on the other side. Don't forget, that members of Congress themselves, particularly senators, are well off and they're more likely to be sympathetic to the argument for low capital gains."

Sunday, September 11, 2011

Carlyle, Mubadala Back Virgin Money

The Carlyle Group joins its 10% owner, Mubadala Development, in backing Richard Branson's Virgin Money, as it moves toward physical banking.  Virgin Money may bid on Lloyd's and Northern Rock's bank branches.

One commenter on TelegraphUK said, "virgin financial products seem to have high charges and poor performance. its all about brand then."  Actually, it's all about the billionaires, Branson, Rubenstein, Conway, D'Aniello. Schwarzman, Kravis, Black, Hutchins, etc.

The billionaires will "save" the banking system, which they helped implode with highly leveraged collateralized loan obligation, So what, if they make billions in the process, courtesy of government subsidies, as in the case of BankUnited and FDIC money?

Saturday, September 10, 2011

Carlyle's Steaming IPO


The Carlyle Group's founders loathe paying taxes, that's well known.  They also hate paying management or performance fees.  Their S-1 states:

Carlyle partners and employees are permitted to participate in co-investment entities that invest in Carlyle funds or alongside Carlyle funds. In many cases, participation is limited by law to individuals who qualify under applicable legal requirements. These co-investment entities generally do not require Carlyle partners and employees to pay management or performance fees. 

The greed train gathers steam as it whistles toward an IPO.  All aboard!

Friday, September 9, 2011

PEU Safety Requires America's Ignorance

Below is the column Frances Townsend should have written:

Ten years after the 9/11 tragedy, the world is a much different place.

Private equity underwriters (PEU's) are ubiquitous. In fact, many of us (ex-public servants) work for two or three. Security measures occupy us not only at airports but also in other venues -- canine patrols on trains and bag searches at sports arenas and rock concerts.  These divert our attention from a greater insidious problem, politics and greed.  These things are not seen, and if they are, they aren't acknowledged. 

Instead we exhort the public to "see something, say something." And, for a time, red, orange and yellow were not only colors but threat levels.  PEU's understand threats, like paying taxes or being held accountable for their malfeasance.  Almost annually, PEU's mobilized a billionaire army to descend on Capital Hill to keep their preferred tax status safe.

Fran knows this from her work for and on behalf of PEU's.  I saw something, Townsend's omitting Memorial Medical Center's 35 deaths from her Katrina Lessons Learned report.  I said something about it and was promptly ignored.

While Americans died, Fran lived to PEU another day for Monument Capital and MacAndrews & Forbes.  She remains a close confidant of the Obama White House.  Watch Fran & her old boss profit from terror.  That's one legacy of September 12.

Wednesday, September 7, 2011

Carlyle Group's S-1 BS

The Carlyle Group's balance sheet as of June 30, 2011 shows:

Due to Carlyle Partners - $ 1.37 billion  

I assume this includes Carlyle's co-founders, the DBD's, CalPERS and Mubadala.  This is prior to any IPO proceeds, expected at $1 billion or more.  

Deferred Tax Assets - $15.4 million
Deferred Tax Liabilities - $63.6 million
All deferred tax liabilities came from newly acquired entities.  Carlyle only had deferred tax assets prior to these combinations:

No provision has been made for U.S. federal income taxes in the accompanying combined and consolidated financial statements since the Company is a group of pass-through entities for U.S. income tax purposes and its profits and losses are allocated to the partners who are individually responsible for reporting such amounts. Based on applicable foreign, state and local tax laws, the Company records a provision for income taxes for certain entities. Tax positions taken by the Company are subject to periodic audit by U.S. federal, state, local and foreign taxing authorities. 
I understand how performance fees are considered carried interest and passed through to partners and investors.  I don't get how annual management fees fall into this same category.

Carlyle has $10.98 billion in Level III investments, of which $10.44 billion are in loans.  This provides Carlyle a back door for corporate acquisition.

Partners' Capital is $62.3 billion.  It's not clear how much is the DBD's or exactly where it's parked.

Tuesday, September 6, 2011

Carlyle Sprinting to the Finish, Like Benefactor Bush

The Carlyle Group cracked open its chest of secrets with an IPO filing.  Their S-1 shows Carlyle's growth from 2003.



The Bush years were incredibly good to The Carlyle Group, which spread its global tentacles as a private equity underwriter (PEU).  Carlyle went from $3.3 billion in 2001 to $91.5 billion in 2008.   Their chart omits the dip from $91.5 billion to $86.5 billion, resulting from the financial crisis.  A virtually radioactive President Bush said he was "sprinting to the finish" as his term wound down.  Carlyle co-founder David Rubenstein told the WSJ he too is sprinting, likely to Scrooge McDuck's pool of riches.

Globalization continued its charge under President Obama.  Carlyle's investment offerings did likewise.


I found it humorous to read the DBD's eating their words regarding the benefits of private equity.  They're now on the side of public investments:

Some of our fund investors may believe that we will strive for near-term profit instead of superior risk-adjusted returns for our fund investors over time or grow our AUM for the purpose of generating additional management fees without regard to whether we believe there are sufficient investment opportunities to effectively deploy the additional capital.
Investors believe this, because of Carlyle's sales pitch.  That and promises of 30% annual returns.  The S-1 shows an IRR of 32% for fully-invested funds and 31% for private equity (total corporate).

Despite making billions, Carlyle's DBD founders long disdained paying taxes.  This shows in Carlyle's financial statements. The income and tax picture for 2011, when the PEU monetized numerous affiliates, shows:

History shows the greed/leverage boys faring extremely well on taxes:


Carlyle's pictures tell a PEU story.  I hope you enjoyed Chapter 1:  Sprinting to a Low Tax Finish.  Lawyers love it.  Who will buy the puffery?