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.