Monday, October 28, 2013

Carlyle's Rubenstein Breaks Silence on Shutdown


Carlyle Group co-founder David Rubenstein wouldn't weigh in publicly when Congress played its latest game of economic chicken.  Yet, he somehow found his voice in an AP interview:

Q: What was your reaction to the 16-day government shutdown and the near breach of the nation's debt ceiling?
A: I am relieved that the shutdown and debt ceiling crisis are behind us. Hopefully something like this will not occur again. But I am disappointed, saddened and embarrassed for our country that our democracy did not work as the founding fathers had hoped.
The Founding Fathers didn't hope.  They designed a government that has been co-opted by power, greed and influence.  America's democracy serves Rubenstein's PEU class.  (PEU is my abbreviation for private equity underwriter)

Any doubts can be dispelled by looking at the Red and Blue teams' major funders and employment of ex-politicians.  Drop a lure in the ex-public servant water and you're bound to snag a private equity top-sucker or bottom-feeder. 
 
Q: What should Congress tackle first — now that the debt ceiling and shutdown is resolved?
A: They should try to reassure the country — and the world — that the last few weeks were an aberration and not likely to be repeated early next year. Once that re-assurance occurs, focus on how to spur economic growth — while reducing economic disparity — (which) would be a great plus for everyone.
Spur economic growth means tax cuts for corporations, which PEU's own.  Private equity firms are treated as nonprofits by the same Congress that calls nonprofit community hospitals "tax exempt facilities."  Using similar logic, PEU's should be called "tax exempt corporate flippers" or "slave makers." 

PEU flippers contributed greatly to America's economic disparity growth over the last twelve years.  They cut or eliminated pensions, sent jobs overseas, eliminated traditional middle class jobs and loaded affiliates with debt to pay themselves millions in dividends.

Elected officials need to land on someone's teat to feed their greed and power addictions.  Rubenstein knows this and chose Washington, D.C. for Carlyle's corporate headquarters.  Carlyle employed legions of Red and Blue team members.  They worked tirelessly to grow Rubenstein's billions, which he nobly will give away via "patriotic philanthropy," while detesting every tax he spies.     

D.C. Police to Utilize Redflex Cameras

 

Redflex's annual report revealed a project in Washington, D.C.

Redflex was awarded a contract to supply over-height and over-weight enforcement camera systems to the District of Columbia Metropolitan Police Department in Washington DC, USA. This contract arose through the joint efforts of the USA and Australian business units. The camera systems are currently being installed and revenue will be recognized in the Australia/International business segment.
Oddly, D.C. based Carlyle Group made a short run at Redflex and both companies have a history of bribery, Carlyle in Connecticut and Redflex in Chicago.  Macquarie ceased to be a substantial holder of Redflex on October 23rd. 

Redflex's products include automatic license plate number reading, vehicle counting/classification, and traffic enforcement (red light, speeding, school bus stop and train intersection violations). 

What did Carlyle see that made Redflex attractive?  Did their intelligence source the D.C. Police buy or was something greater luring the private equity underwriter (PEU)?  How might Carlyle profit from "making the world safer?"

Sunday, October 27, 2013

Carlyle Does Complicated for Breakfast


Missoula City Mayor John Engen is taking a hard run at buying Mountain Water from its private equity owner The Carlyle Group.  Carlyle purchased Park Water, the owner of Mountain Water, on December 20, 2011.  Less than two years later Mayor Engen courts Mountain Water with serious ardor and a potential condemnation order.

The Missoulian stated Mountain Water's extensive holdings complicate the deal.  The Carlyle Group birthed "the complicated" in business.  They'll use that to obfuscate, deflect and deny any fair offer for Mountain Water. 

Mountain Water's John Kappes detailed an extensive list of the company's holdings and assets.  After Carlyle's Chinese forestry and fertilizer assets evaporated into smog filled air, rest assured The Carlyle Group did an extensive valuation of Park Water's numerous assets, including those of Mountain Water.   

Ideally, Engen and Carlyle would sit down with that valuation and mark things up or down.  That's far too simple and wouldn't get the greed/leverage boys the millions they covet. 

As for the employees how much of a stake do they hold in Mountain Water?  I expect it to be none or infinitesimal.

Carlyle will seek a premium to split off Mountain from the rest of Park Water.  I expect they'll press for a multiple of their original equity investment in Park.  How much might Carlyle's DBD's and Robert Dove make on holding Mountain Water two years? 

Saturday, October 26, 2013

PEU-palism Finally Noticed


The Economist reported on the New American Capitalism distinguished by the virus like spread of Master Limited Partnerships:

The new popularity of the MLP is part of a larger shift in the way businesses structure themselves that is changing how American capitalism works. The essence is a move towards types of firm which retain very little of their earnings: “pass-through” companies which every year pay out more or less as much as they take in. Many of the standard rules that corporations which retain their earnings have to follow when dealing with shareholders do not apply to such firms. And, crucially, so long as they distribute their earnings such set-ups can largely avoid corporate tax.

Private equity underwriters (PEU's) behave like MLP's, even after going public:

In 2007 private-equity firms seized on another clause in the tax law on interest and dividends that enabled the MLP structure to be used for publicly listed components of Apollo, Blackstone, Carlyle, KKR and other private-equity companies.
Which explains why The Carlyle Group is a virtual nonprofit in the taxes it pays.

Meanwhile, an entire layer of public companies using these new structures stands outside the (shareholder rights) debate. The prospectuses that Apollo, Blackstone, Carlyle and KKR published before listing are clear about the rights of unit holders to influence corporate decisions: “limited” is an understatement.
Consider how PEUbiquitization occurred in our country without one peep from 60 Minutes.

Among all firms, in 2008 pass-through structures accounted for 23% of companies and 63% of profits, according to the latest data available from the Internal Revenue Service (IRS)
I noticed PEU tax avoidance early on and asked my CPA Congressman about it in August 2007.  He ignored my question.  Then again he received substantial donations from PEU affiliates.

The new American capitalism is PEU-palism.

Update 10-28-13:  Senator Bernie Sanders (I-VT) noticed what 60 Minutes hasn't been able to find.  Carlyle co-founder David Rubenstein talked about many things in a recent interview, but not this subject.

Update 7-19-14:  Others noticed how 60 Minutes now offers puff pieces.

Wednesday, October 23, 2013

Quality Indicators for PPACA's Health Exchange

The AP reported:

A review of internal architectural diagrams obtained by the AP revealed the system's complexity. Insurance applicants have a host of personal information verified, including income and immigration status. The system connects to other federal computer networks, including ones at the Social Security Administration, IRS, Veterans Administration, Office of Personnel Management and the Peace Corps.

The government spent at least $394 million in contracts to build the federal health care exchange and the data hub. Those contracts included major awards to Virginia-based CGI Federal Inc., Maryland-based Quality Software Services Inc. and Booz Allen Hamilton Inc.

Complexity is a widespread management phenomenon and is integral to PPACA's health deform, which will spread Bush's high deductible health plans like a Santa Anna wildfire.  Note the five interfaces listed above, plus the need to connect to insurance company systems.  Also, The Carlyle Group's Booz Allen Hamilton did work on the health exchange website, a project that came in three times its expected cost.

Poor design and a lack of pre-release testing contributed to the debacle:

Congressional investigators have concluded that the government's Centers for Medicare and Medicaid Services, not private software developers, tested the exchange's computer systems during the final weeks. That task, known as integration testing, is usually handled by software companies because it ferrets out problems before the public sees the final product.
The HHS team rolled out an untested, complex system and the public experiences it daily.  This story is too common in today's world. 

For HHS history buffs:  President George W. Bush kept Tom Scully from testifying on Medicare Part D to an upset Congress.  I'll venture President Obama does likewise with HHS Secretary Sebelius and HHS Chief Marilyn Tavenner.  Scully went on the become a PEU with Welsh, Carson, Anderson & Stowe.  We'll see which PEU's call Tavenner and Sebelius after their public dis-service. 

Tuesday, October 22, 2013

PEU Courting of Baby Boomers



Private equity underwriters (PEU's) may soon be ready to tap money in individual Baby Boomer retirement accounts.

History shows PEU's selling a twofold cause for their stellar returns.  One, they were not publicly held, thus they could be more patient in growing their equity stakes in affiliates.  In the last few years a spate of PEU's went public, discrediting this critical success factor. 

Two, they invested big money from a few long term "patient" investors, pension plans, extremely wealthy investors and sovereign wealth funds.  Now PEU's have their eye on the mass of less wealthy investors saving for retirement.  Forbes reported:

"The looming pension fund squeeze explains an increasingly urgent search by major private equity groups to find a way to tap retail money: in particular 401 (k) retirement accounts. These individually managed accounts are the fastest growing form of defined contribution plans – where the sum invested is fixed.

But selling private equity funds to individuals is going to be tough. Individuals are not comfortable losing discretionary control over their money for a decade or longer. Creating feeder funds for the vast majority of individual investors, who don’t meet accredited investor status, will also add difficult-to-digest expenses in an asset class where fund managers already, on average, impose a 2 percent annual management fee, and typically take 20 percent of profits above an 8 percent annual return hurdle rate."
The Forbes columnist suggested PEU's stick to their knitting and chase new wealth around the globe, whether that be wealthy individuals or sovereign wealth funds.  

If anyone has the resources and time to successfully invest in private equity – arguably the most complex asset class that exists – it’s professional investors.
Complexity and greed, two PEU memes, seem to be spreading wildly throughout the globe.  Can their volcano like growth be reigned in or will they grow so fast they collapse back onto themselves?

Those who believe in the PEU model can already buy stock in Blackstone, The Carlyle Group, KKR and Apollo Global Management.   If that isn't the PEU bridge to riches why would one believe in their next retail offering?

Wednesday, October 16, 2013

PEU Mavens Silent on Default

Fortune noticed the silence from private equity underwriter (PEU) legends on the prospect of a U.S. debt default. 

As the debt ceiling and government shutdown talks stalled yesterday, I reached out to several top private equity executives for their thoughts on what would (or wouldn't) happen if there was no deal by Thursday. Did they believe it would be catastrophic? Did they believe continued implementation of Obamacare would be worse? What were they telling their portfolio company CEOs?

No comment.

That's what I heard from representatives for people like Leon Black of Apollo Global Management (APO), Henry Kravis of Kohlberg Kravis Roberts & Co. (KKR), David Rubenstein of The Carlyle Group (CG) and Stephen Schwarzman of the Blackstone Group (BX).
PEU's like market dislocation.  Congress and the White House could be serving their PEU backers by delivering chaos.  Any comments by PEU legends would be explored deeply in hindsight and might reveal the bets each made in the debt default run up.

Update 10-19-13:  The Red and Blue Teams came together on a short term package to keep government operating until after the first of the year.  Oddly, the business community wants Congress to commit to no more government shutdowns or debt defaults.  The meme is businesses want predictability so customers will let lose of hoarded cash.  PEU mavens want lower taxes all around and wish to hold onto PEU preferred carried interest taxation.  Congress usually delivers for their funders.

Update 10-28-13:  Carlyle co-founder David Rubenstein weighed in after the fact.

Tuesday, October 15, 2013

Carlyle Exits Apartments, Buys Trailer Parks


WSJ reported The Carlyle Group will acquire two trailer parks from Shamrock Holdings LLC.  The parks are in Florida.

Analysts said the deal is evidence that big investors are betting that the demand for low-cost manufactured housing, the latest generation of trailers or mobile homes, will rise as other housing alternatives become too expensive for a number of Americans, especially senior citizens.

This comes after Carlyle said it would reduce its apartment real estate investments.  Bloomberg reported:

Carlyle Group LP (CG), the private-equity firm with more than a third of its $2.3 billion U.S. real estate fund in apartments, is reducing holdings of multifamily housing as rent growth slows from a post-recession surge.

The company is considering apartment sales as rising construction reduces multifamily shortages and price gains for rental properties make them less attractive for private-equity firms that seek returns of 20 percent or more, said Robert Stuckey, the Washington-based firm’s head of U.S. real estate investing. Carlyle has invested or committed about $800 million of equity in 61 multifamily properties since the start of 2011, he said.
Trailer parks, rented by senior citizens, is the place for returns of 20% or more.  Who won't Carlyle take advantage of in their greed quest?  Private equity underwriters did their part to grow America's trailer parks. 

Sunday, October 13, 2013

PEUbiquity

"They’re so ubiquitous, you can’t get away from them even if you tried... To not be able to comment or critique or parody that (ubiquity), I just think it’s morally unacceptable.”  Filmmaker Randy Moore on Disney

'Tis also the case with private equity underwriters (PEU;s), now ubiquitous in the power/greed arenas of business and politics. 

Saturday, October 12, 2013

Carlyle Ready for Commscope IPO


Reuters reported The Carlyle Group plans to take affiliate Commscope public:

Telecommunications equipment company CommScope Holding Co Inc set pricing terms for its initial public offering, which could value the company at up to $3.9 billion, the price at which it was taken private in 2011 by Carlyle Group LP.
How much did Carlyle suck from Commscope in dividends and management fees the last three years?  The S-1/A stated:

Since January 1, 2011, we have declared and paid special cash dividends and distributions in an aggregate amount of $750.7 million to our equity holders.

...special dividends of $1.29 per share in 2012 and $3.48 per share in 2013.

Carlyle added debt to Commscope in a dividend freeing move:

In May 2013, we issued $550 million of the 2020 Notes, the net proceeds of which were used to pay cash dividends to our common shareholders and distributions to certain option holders.

And who were the "certain option holders" enriched by Commscope's debt for dividend move?

In a mere seven months Carlyle stripped $750 million from Commscope:

On November 30, 2012, we declared and paid a special dividend of $200.0 million, or $1.293 per share, on our common stock, which we refer to herein as the “2012 Dividend.” In addition, on May 20, 2013 and June 28, 2013 we declared special dividends of $342.8 million, or $2.213 per share (paid on May 28, 2013), and $195.9 million, or $1.265 per share (paid on June 28, 2013), respectively, on our common stock, which we refer to herein together as the “2013 Dividends.” The 2012 Dividend and the 2013 Dividends are referred to herein together as the “Special Dividends.  Of these amounts, approximately $727.0 million was paid to Carlyle according to its ownership of common stock.”
As for PEU deal costs and management fees paid by Commscope:

Reflects charges of $3.0 million, $2.5 million, $3.3 million, $1.8 million and $2.7 million and for the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively, related to due diligence and other transaction related costs on potential and consummated acquisitions. Includes $2.9 million, $3.0 million, $1.5 million and $1.5 million for the years ended December 31, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively, related to the Carlyle management fee.

Tack on another $50 million in entry and exit fees to Carlyle:

...we paid an annual management fee to Carlyle of $3 million plus expenses. Further, under this agreement Carlyle was entitled to additional reasonable fees and compensation agreed upon by the parties for advisory and other services provided by Carlyle to us from time to time, including additional advisory and other services associated with acquisitions and divestitures or sales of equity or debt instruments. Carlyle also received a one-time transaction fee of $30 million upon consummation of the Acquisition for transactional advisory and other services. Except for this one-time transaction fee, Carlyle did not provide any additional services beyond consulting and oversight services for the years ended December 31, 2012 and 2011. We will pay Carlyle a fee of approximately $20 million to terminate the management agreement in connection with the consummation of this offering.
Carlyle gets theirs, even when it appears they don't.

Update 10-25-13:  Commscope's IPO price came in below the expected range.  

Friday, October 11, 2013

Carlyle Group: Hot on Street


The Street.com could barely contain their enthusiasm for The Carlyle Group's use of proxy measures to predict key economic outcomes.

Who wouldn't want to invest with such smart financial managers?

Smart?  Correlation is not causation.  Proxy measures can fail miserably when key causal factors behave erratically or break altogether with historical patterns.

It is positive that Carlyle Group, which indirectly employs hundreds of thousands of workers and invests billions on behalf of public pension funds, feels it can play a role in mitigating the deleterious impact of the federal government's partial shutdown. 

Carlyle's endless marketing machine is led by co-founder David Rubenstein.  PEU's like economic dislocation as it enables them to bring on new affiliates at discounted prices.  But there's a deeper issue for Carlyle in the shutdown. 

Numerous Carlyle affiliates do the government's work in many arenas.   Carlyle needs access to trillions in federal juice to keep flipping companies for major multiples.

The surface image is Carlyle is cute and smart.  The subsurface base of the iceberg has Carlyle's profit machine reliant on market dislocations, ongoing federal funding and continuation of private equity's preferred tax status.

Boy, those Carlyle yams are hot.  Who wouldn't want a piece of that?  WaPo, which will become PEUPo, agreed with The Street about Carlyle's greatness.  Fawning over The Carlyle Group is a near universal phenomenon.  Who wouldn't love such smart financial managers? Carlyle Capital Corporation investors.

Thursday, October 10, 2013

Obama Bundler Opens PEU

 Dusable Capital Management

Bloomberg reported:
Barack Obama’s top individual fundraiser, a former technology executive who collected millions of dollars for the president, is seeking as much as $1 billion for a private-equity fund that will invest in infrastructure and renewable energy, according to a person with knowledge of the matter. 

Frank White Jr. has teamed up with two other Obama backers, Shomik Dutta and two-time Grammy Award-winning rapper Prakazrel Michel, to establish a Washington-based money-management firm called DuSable Capital Management LLC, according to a regulatory filing. DuSable plans to raise $500 million to $1 billion, said the person, who requested anonymity because the details are private.

Watch to see how the Obama team dishes out infrastructure and renewable energy franchises to friends.  It's the game in Washington, evidenced by DuSable's Senior Advisor fresh from a Chief of Staff job with the Department of Energy.

President George Bush had Robert L. Johnson, III.  President Barack Obama has Frank White, Jr.  I've said for years Red and Blue love PEU.  It's disturbing that they're proliferating in The Carlyle Group's backyard.  D.C. is a strategic place to tap Uncle Sam's largess.

Carlyle Group in Middle East-North Africa


WSJ ran an interview with The Carlyle Group's co-head for the Middle East-North Africa:

We feel very comfortable with the GCC (Gulf Cooperation Council states), with Turkey, Morocco and Jordan.

The GCC is comprised of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates.
I take it Arab money is no longer mad at Carlyle.