Sunday, March 22, 2015

Carlyle's Rubenstein Prophesized Bowden

Carlyle Group co-founder David Rubenstein spoke to SEC regulation of private equity in a Yale interview in 2013.  He stated (at roughly the twelve minute mark):

"Relatively speaking we're not that heavily regulated.  Dodd-Frank legislation was 2,300 pages. It more or less didn't do anything to private equity."

"It said if you manage $50 million or more, you register with the SEC.  It doesn't really mean all that much in terms of oversight."

Which brings us to the SEC's Andrew Bowden, the man who once talked tough about private equity doing shady things to limited partners via fee allocations.  NakedCapitalism reported Bowden's flip-flop at Stanford  Law School, where he appeared with a KKR board member (the moderator) and Oak Hill's general counsel.  Bowden's former tough talk turned to pander:

...the people in private equity, they’re the greatest, they’re actually adding value to their clients, they’re getting paid really really well, you know, if I was in that position, the one thing I would think to myself as I skipped to work was like just “Let’s not mess it up. You know, this is the greatest thing there, I’m helping people, I’m doing OK myself.” 

And so my view on the small ones is, I still think this is one of…I tell my son, I have a teenaged son, I tell him, “Cole, you want to be in private equity. That’s where to go, that’s a great business, that’s a really good business. That’ll be good for you.”  So for me personally, as we share our opinions… 

Questioner [interrupting] I’d love to hire your son, by the way. That’s a deal.

KKR already hired General David Petraeus and Ken Mehlman.  The Carlyle Group hired a young Frist and Axelrod.  Give the teenage Bowden his $18 million, like GTCR founder and Illinois Governor Bruce Rauner did for a younger Rahm Emanuel.  With his security pot in place the teen can focus on making the world safe for private equity, which is the real aim.

Mr. Rubenstein spoke to the top seven to ten private equity underwriters (PEU) in the Yale interview.  He mentioned Carlyle, Blackstone, Apollo, TPG, KKR, Bain, Oaktree, Warburg Pincus and Ares.

They are all based in the United States   How can it be that the United States, which was 46% of the world's economy in 1960, now about 20%, 19% or so.  How can we have 100% of the global private equity firms?"
Rubenstein sees that changing as people in other countries start private equity firms, some with government support.  His prediction provides insights to why America spanks the world in the global private equity race 100% to zero.  First, PEUs avoided oversight, while retaining preferred taxation.  Second, many affiliates receive direct and indirect public subsidies, federal, state and local.

I don't believe the "helping people" meme, especially as Mr. Rubenstein envisions a world where the wealthy do very well and children have less prosperity than their parents.  He and his private equity brethren created that very world. He need not act like he was a bystander for this sad development.

Carlyle and company are a root cause.  Bowden is part of the system making the world safe for global private equity.