PEU Ownership Risk

 The Carlyle Group and Insight Partners will acquire a majority stake in Exinger.  Intelligent CIO reported:

“Exiger’s AI technology transforms the way organizations identify and manage risk, reduce cost and increase resilience across their supplier and third-party ecosystems. We are thrilled to partner with Carlyle and Insight Partners as we continue to invest in our 1Exiger platform which empowers our customers to make confident, deliberate decisions informed by real-time insights,” said Brandon Daniels, Exiger CEO.

The 1ExigerAI platform addresses the entire risk landscape, including foreign ownership, control or influence, environmental, social and governance, cyber, financial health, reputational, national security, regulatory, product and operational risks.

And what if the risk is private equity underwriter (PEU) ownership?  What if a supplier just experienced a liquidity recapitalization, where their PEU owner just pulled a yacht-load of cash out and saddled the firm with even more debt?  

Companies bought by private equity firms are far more likely to go bankrupt than companies that aren't.

That came from an April 2023 NYT piece, "Private Equity is Gutting America and Getting Away With It"

Supplier bankruptcies could be very disruptive to supply chains.  Would Carlyle/Insight ensure that gets written out of the algorithms?  

It's AI, but its our PEU AI.....would you like to buy?

Marc Rowan Has Something P(N)EU to Sell

Apollo Global grew from $40 billion in assets under management in 2008 to $650 billion in 2023.  CEO Marc Rowan talked about massive change, i.e., the world that made those products zing/soar is no longer around.    So what are the products of tomorrow?

Automatic tie ups with insurance companies who no longer invest in financial products on an arm's length basis.  

Private equity underwriters (PEU) take stakes in insurance companies who take stakes in specialty financial firms owned by that very PEU.  Imagine three firms taking fees from just one investment.  

Uncle Sam's budget drives numerous PEU investments.  So clean energy and artificial intelligence are on the list.  Why not do both?

And what of those old products, the one's public pensions have counted on to erase their shortfalls?  I imagine Apollo and peers will keep those on life support as long as possible, continue to draw management fees, deal fees upon refinancing and saddling the affiliate with more debt to pay sponsor dividends.  Life support will entail extending maturity of current debt and if that is not possible, a PEU round robin of "you finance my junk and I'll finance yours."

The irony of the PEU/AI marriage is AI and the tech bros want everything for free, while the greed and leverage boys want everything for fee.

Dramatically increasing electrical demand to feed AI and cryptocurrencies is a colossal waste of resources.  AI will be used by predators to get them more money. control, power and whatever else those "who can never get enough" want.  Predators are already pervasive in cryptocurrencies.  Financial regulators opened the door for regular people to put their hard earned retirement money in BitCoin ETFs.  

Add that firms are coming out of the woodwork to sell small investor sized PEU stakes.  Yes, you too can buy those products of yester-year.  Marc and company are selling.

Google Fired 50 for Protesting Israeli Contract

Google included the following in its IPO in 2004: 

"Don't be evil. We believe strongly that in the long term, we will be better served—as shareholders and in all other ways—by a company that does good things for the world even if we forgo some short term gains." 

2018 saw Google make changes.  

Google’s unofficial motto has long been the simple phrase “don’t be evil.” But that’s over, according to the code of conduct that Google distributes to its employees. The phrase was removed sometime in late April or early May

A Summer 2022 story reported:

Hundreds of Google and Amazon workers on Thursday staged protests around the country to speak out against the two tech giants’ cloud contracts with the Israeli government, fearing the military could use the technology to surveil Palestinians.

Google initially  fired 28 employees for protesting what they considered evil, an AI project for the Israeli government.  That number grew to 50.

CEO Sundar Pinchai referred to the situation as political debate.

“When we come to work, our goal is to organize the world’s information and make it universally accessible and useful.”

One might consider sexual assault in the workplace as evil or not the right thing.

Workers who organized a 2018 walkout over the company’s handling of sexual assault allegations said Google punished them for their activism.

The issue is a moral one.  The widespread killing of women and children in Gaza through violence is compounded by the lack of access to food, water, medicines and sanitation that accompanies war.  Someone can be horrified by the horrific Hamas terrorist attack on innocent Israeli citizens and also be disturbed by the current conditions in Gaza.  They are not mutually exclusive.

One can wish for Gazans to share in the same freedom and independence we enjoy without wanting a single Israeli to perish.  Terrorist should not get to redefine words like "river" or "sea" as "death" for use by the rest of the world.

Jewish people and the government of Israel are not the same thing.  One can protest Israeli government policies without any ill will to Jewish persons living in or outside Israel.  

Google employees shared their concerns with their employer as "evil" and  "not the right thing" and learned there is no patience regarding the $1.2 billion contract with the Israeli government which has surveillance capabilities.  Hard lesson learned.  

Meanwhile, super wealthy business legends like Leon Cooperman and Robert Kraft cite university professor tenure as the cause of student protests over the conditions in Gaza.  Isn't the direct cause of protests the obliteration of Gaza and suffering of the Palestinian people?   If that were not happening, students would not be protesting.  

Leon Cooperman cited that Jewish people make up .03% of the world's population but have 20% of the world's Nobel Prize winners.  He said anti-Semitism is like "penis envy."  

I find it hard to believe that the women and children of Gaza are dying from lack of penises.  But I've been wrong before and will be wrong again.  Maybe Google can get a contract for that.

Update 4-25-24:  I'm not sure where Google would get the penises, but I understand they are in large supply in Silicon Valley.

Levered, Tax Hating PEUs Are Debt Hawks?

Semafor reported:

“Our national fiscal trajectory is unsustainable,” Hank Paulson said. “The national debt we have will ultimately, if unchecked, destroy our economic well-being and our national security, which is rooted in the economy.” 

 The sheer amount of debt doomerism I heard this week was notable. The U.S. will spend more this year paying the interest on its $35 trillion debt than on either national defense or Medicare, according to the Congressional Budget Office — and that forecast assumed rates would start coming down in June, which looks increasingly unlikely. 

“Nobody seems to be worried that much” about America’s soaring debts, David Rubenstein said, “in part because people have been willing to buy our Treasury bills. At some point people won’t be willing to do that.” He reminded us that the Dutch guilder was once the world’s reserve currency. 

It’s easy to brush off Paulson and Rubenstein as hawks whose aversion to debt is generational and personal. Paulson was a spendthrift even when he ran Goldman Sachs, living in a 1,200-square-foot apartment and once returning a new winter coat his wife, Wendy, found too showy. Rubenstein grew up poor in Baltimore, worked in the Reagan White House, and, to hear him tell it, recently bought the Orioles as a bit of “patriotic philanthropy.”

Both Hank Paulson and David Rubenstein are private equity underwriters (PEU).  Rubenstein co-founded The Carlyle Group while Paulson founded and is executive chairman of TPG Rise Climate, the climate investing platform of the global private equity firm TPG.

Several items seem out of place.  First, David Rubenstein worked in the Carter White House, not Ronald Reagan's.  Second, the PEU boys love debt.  They hate paying taxes.

Rubenstein's firm levered Carlyle Capital Corporation out the wazoo with debt 30x equity.  A signature PEU move is to saddle affiliates with more debt to pay a sponsor dividend, aka liquidity recap.  A better term would be dividend bleeding.  

This is the first time I read Rubenstein's purchase of the Baltimore Orioles fit under "patriotic philanthropy."  That usually translates to "gigantic tax write off."  Will it drop Mr. Rubenstein's tax rate below 10%?

Update 4-23-24:  Semafor provided the following graphic today.  I adapted it slightly for this blog.

Also, it is important to remember how hard David Rubenstein worked over the last fifteen years to keep private equity's preferred "carried interest" taxation.  Frequent trips to Capital Hill, phone calls from senators and the most recent "Hail Kyrsten Sinema save" kept Mr. Rubenstein and his PEU peers happy.  It did worsen the deficit he claims to be so concerned about.

Carlyle's BeautyCounter Foreclosed

It took three short years for The Carlyle Group to run BeautyCounter, with its $1 billion valuation, into foreclosure.  Founder Gregg Renfrew will buy back the company carcass from Carlyle, despite having remained with Beautycounter in various roles under private equity underwriter (PEU) ownership.

Four days ago Beautycounter terminated its agreement with independent sellers, legally known as brand advocates.  When Carlyle purchased the company it had more than 65,000 independent sellers in North America.  Their termination notice stated:

The company is shutting down its operations and intends to wind-down and dissolve in the near-term.

Of course it invoked its confidentiality clause.  

Glassdoor is already full of scathing assessments of Carlyle's horrific ownership of BeautyCounter.  I can't imagine what will be added in the near future.  Who can beat the following employee review?

If your idea of career fulfillment and growth looks like a hellish Groundhog’s Day experience where you attempt to climb a hill during a toxic mudslide with zombies on the attack, Beautycounter may be a good workplace fit. If you are a competent, sane, and hard-working individual who values competency, sanity, integrity, and ethical leadership, think thrice before joining this “company.” Good news is, you’ll probably never have the opportunity because judging from the ever-ending promotion cycles and constant, ill-planned layoffs, the company will be lucky to survive through 2024. 

Beautycounter’s products are the self-proclaimed cleanest in the industry (and they are decent products to the credit of the R&D and product development teams), but its culture is as toxic as it comes. 

Working here feels like a dystopian version of The Office meets The Hunger Games, where a cult of mean girls in positions of power or nepo friends of the founder desperately swirl, spin, cling, and claw onto anything they can do to help save this flailing and failing not-MLM-MLM at any cost. For the past few years, it’s been a revolving door of mostly freshman C-Suite executives who attempt to turn the business around, only to fail miserably due to political roadblocks or their own ego and ineptitude, leaving a confusing mess in their wake for the brand and its employees. 

The culture is the ugliest intersection between cutthroat corporate antics and the wild startup west. Everyone in leadership wants power and control, and no one wants to take any ownership or accountability. The bright light is there is/was a small cohort of amazing and well-liked VPs and Directors who brought legitimate experience, fresh energy, and strategic thinking to the business, only to be blocked by their vertical’s C-Suite sponsor at every chance, creating a negative trickle-down effect. Almost all the aforementioned middle-senior management got laid off because they challenged the system or left on their own accord because they had enough. 

Noting that while all companies have problems and it’s tough to be in the C-Suite, there have been four C-Suite turnovers since the start of the pandemic, and with the exception of the current CTO, a 100% C-Suite turnover since May of 2023. You don’t need to be a math major to know those stats are not great. But worse became worst when the board and ex-CEO, Marc Rey, decided to part ways in May, and they appointed an interim CEO who has an HR background, came from the board of directors, and is a former employee of The Carlyle Group (the private equity firm that acquired Beautycounter in 2021). Holy conflict of interest, Batman! 

She is an unseasoned, delulu nepo-friend-of-the-founder executive who thinks that love is going to save the business and has made the short-sided, desperate decision to bring back the megalomaniac, one-hit-wonder founder to help bring this brand to its mid-2000s glory along with a slurry of ex-employees who were instrumental in creating the foundational problems that plague this company to date. Seems like her rose-colored glasses are too thick to see the world has changed. 

After a multi-million dollar company all-in in Santa Monica, she ruthlessly made the decision to have two rounds of layoffs in a three-month period, including many super smart, engaged, and talented folks and ascending and promoting the worst offenders and performers. The problematic fire-and-ice duo that was the CMO and CCO both mysteriously “stepped down” from their roles shortly after. I can only imagine there will be a fourth layoff round of the year once a few high-profile tech projects get off the ground. 

All in all, this place might have an admirable mission on paper, but they are not a legitimate business. It’s a scary sorority of unserious privileged people cosplaying professionals. Everyone else will churn or be kicked out as soon as possible.

Another employee offered: 

...it's been a mess for quite some time. We have no resources. We have no empathy. We have nowhere to go without fear of retaliation or getting on someone's bad side. B-Corporations especially should not be able to act this way. Good intentioned people beware...they only care about what you can produce. Even when you do, you may wake up to a pink slip due to business being down...right after a multi-million dollar company conference.

So much for fast-track growth...    Business of Fashion reported:

Operations will be paused for two weeks, and Beautycounter will officially relaunch on May 1; existing retail partnerships, like those with Ulta Beauty, will remain intact.

Sounds like a supply chain disruption.  Carlyle has an AI tool for that.

... transforms the way organizations identify and manage risk, reduce cost and increase resilience across their supplier and third-party ecosystems. 

Will they market it to those 65,000 former brand advocates?

BeautyCounter's carcass may fly higher without a PEU around its neck to weigh it down.  Then again, PEU ownership may have inflicted a mortal wound.

Update 4-23-24:  Jay Sammons left Carlyle and BeautyCounter for SKKY Partners with Kim K.  Axios reported lagging fundraising for the fund which has 20% carried interest.

Global Cosmetics News reported BeautyCounter "regains independence" and is now free from Carlyle.

Another Red Team PEU Candidate

Former CEO of Bridgewater Associates David McCormick is running for the U.S. Senate in Pennsylvania.  This super rich "man of the people" made the NYT for misrepresenting his upbringing. 

Voters might assume anyone "raised on a family farm" is the son of actual farmers.  Not so.  McCormick has more in common with Sam Bankman Fried given his father's job as university President and his mother's raising of Arabian horses.

McCormick's bio shows his forays between public service and Bridgewater: 

David McCormick is CEO of Bridgewater Associates, responsible for overseeing the firm’s strategy, governance, and operations. David joined Bridgewater in 2009 and previously served as President and then Co-CEO before becoming CEO in 2020. Before joining Bridgewater, David was the U.S. Treasury Under Secretary for International Affairs in the George W. Bush Administration during the global financial crisis, and prior to that served in senior posts on the National Security Council and in the Department of Commerce. 

From 1999-2005 David was a technology entrepreneur, serving as CEO and then President of two publicly-traded software companies, FreeMarkets, Inc. and Ariba, Inc., and prior to that was a consultant at McKinsey & Company.

Bridgewater Associates is the largest hedge fund in the world, requiring a minimum $7.5 billion investment..  Bridgewater claims to be an "idea meritocracy."  The $7.5 billion entry fee instantly throws that into the trash bin.  It's a firm oriented to gargantuan wealth.  Consider this employee review from Glassdoor:

An implicit caste system based on degree of family wealth and where you went to undergraduate school. 

-Not actually transparent at upper levels - Unclear to me if people promoted, actually deserved it - Turnover was brutal in that people kept leaving after 2 years and there were barely anyone at that 3-8 year range - Brutal hours - I also look at the other reviews and genuinely wonder if they're fake by HR - Hides under a veneer of meritocracy but ultimately it's office politics like everywhere else - The metrics to define your impact really depends on the agenda your manager has, not what you think will add impact. Remember that. Normally this is obvious, except that Bridgewater likes to hide under the idea of letting the best ideas succeed, it doesn't.

Voters who've worked for a private equity underwriter (PEU) acquired firm know the trauma the greed and leverage boys wreak on staff and quality operations.  Hedge funds are a close cousin to private equity as they are a levered bet, for or against future success of corporate debt/equity.  Many private equity underwriters have their own hedge funds.  Bear Sterns' hedge fund collapses were the canary in the 2008 Financial Crisis coal mine.

McCormick's comfortable academic upbringing turned into a bonanza adulthood. Business Insider reported:

According to his 2024 financial disclosure, McCormick and his wife own at least $123 million in assets, which would make him one of the wealthiest members of Congress if elected. 

Somewhere between $1.1 million and $2.25 million are held in an account called "David H McCormick 2020 Dynasty Trust."

Voters are sick of political takers who can't seem to get enough power, prestige and the chance to furter distort the system to the advantage of their PEU peers.  Government catered to this bunch for decades and now the greed and leverage boys want to occupy the actual seats of power, legislative and executive.

Adding another obscenely wealthy, tax avoiding Red Senator could dismantle Social Security and other safety net programs.  Politicians Red and Blue love PEU and increasingly, more are one.  

Amid Biden State Dinner Attendees

Yesterday I perused the attendee list from the recent White House state dinner for Japanese Prime Minister Kishida Fumio.  In my search for current and former private equity underwriters (PEU) some obvious names stood out:

Ajay Banga - General Atlantic

Jon Gray - Blackstone

Anthony Blinken - Pine Island Partnera

Bill Clinton - Yucaipi, Teneo, Ecobridge

Lisa Jackson - Galvanize Climate Solutions 

I noticed an invitee from the White House Office of Public Engagement Stephen Benjamin.  Here's what I found.  Benjamin served as Mayor of Charleston, South Carolina for over a decade and President of African American Mayors Association.

As a young lawyer Stephen Benjamin served on the board of Advance America Cash Advance Centers.

There he had the opportunity to learn about self dealing at the top.  Advance America had numerous entanglements with its Board Chairman.

This may be ancient history.  Private equity was in its relative infancy during this period.  Conflicted, self dealing became a signature mark of the greed and leverage boys.

More recently Mr. Benjamin served as Executive Chairman for Municipal Bonds for America.  They lobbied against taking away tax free muni's in 2016.

Some critics say the exclusion for municipal bond interest is an inefficient windfall for wealthy investors....

I'm sure the billionaire class was grateful.  

Politicians Red and Blue love PEU and increasingly, more are one.

PEU Damage in Oncology Care

I've learned much from perusing the comments submitted by the public regarding private equity's harmful ownership of healthcare companies.  Anonymous commented yesterday on the damage done in oncology services by private equity underwriters (PEU):

Private Equity in Healthcare is creating a barrier for patients to healthcare services. This has become apparent and problematic specifically in the Oncology sector.  

The cost to operate center requires a long-term commitment to be effective for patients and communities. There are few "new center" developments and builds in the US, so private equity must "acquire" practices and or physicians. The cost to do so for service lines like radiation oncology are prohibitive, so they enter into MSO or PSA contracts and collect a percentage with no real value added. The promise of investment and increased efficiencies to struggling service lines and physicians are often enticing, but these practices and their viability can't be controlled by private equity. 

 Recently, we saw what happens when this model fails with the bankruptcy of Genesis Care:  

Many of these facilities failed to reopen or be re-acquired due to location and the cost needed to make facility improvements. Private equity investment and involvement in oncology must be carefully looked at and reviewed. There is already disproportionate access in the US to cancer services. These short-lived models have the potential to restrict access to patients.

Private equity had two rounds with 21st Century Oncology/Genesis Care.  Vestar Capital owned the firm from 2008 to 2017 when it first declared bankruptcy.  21st Century Oncology paid Vestar over $1.2 million per year in management fees from 2012-2014 ($3.8 million total for the period).  

Deal and management fees paid to Vestar:

During 2010, we paid $2.0 million to Vestar Capital Partners V, L.P. for additional transaction advisory services in respect to the incremental amendments to our senior secured revolving credit facility, the additional $15.0 million of commitments to the revolver portion, and the complete refinancing of the senior subordinated notes. We paid approximately $0.6 million, $1.3 million and $1.3 million in management fees to Vestar for the years ended December 31, 2008, 2009 and 2010, respectively.

We paid approximately $1.6 million and $1.2 million in management fees to Vestar for the years ended December 31, 2011 and 2012, respectively.

We incurred approximately $1.3 million and $1.3 million in management fees to Vestar for the years ended December 31, 2013 and 2014, respectively.

And what did those $8.6 million in management fees buy?  Settlements with the Justice Department for fraudulent billing.

December 2015:

21st Century paid $19.75 million to settle allegations that it violated the False Claims Act by billing for medically unnecessary laboratory urine tests, and for encouraging physicians to order these tests by offering bonuses based in part on the number of tests the physicians referred to its laboratory.

March 2016:

21st Century Oncology, has agreed to settle allegations that they performed and billed for procedures that were not medically necessary. Pursuant to the settlement agreement, 21st Century shall pay the United States $34,695,243 to resolve these allegations. Headquartered in Fort Myers, 21st Century has offices in 16 states.

KKR backed GenesisCare bought 21st Century Oncology in 2019 after it emerged from bankruptcy.  KKR's ownership lasted until June 2023 when the firm declared bankruptcy.  

My wise friend sent me a story on venue shopping for bankruptcy cases and the rise of the Southern District of Texas as the preferred court for corporate financial resets.  SEC filings show twelve 21st Century Oncology firms, all based in Florida.  Of the firm's numerous subsidiaries, none were incorporated in Texas in 2016.  

So how does a PEU owned oncology firm in Florida declare bankruptcy in the Southern District of Texas?  Forum shopping.  The court wiped $1.5 billion off GenesisCare's balance sheet.  

Consider how long private equity underwriters were involved with this one cancer care company.  Seventeen years.  And the Feds are finally seeking public input on PEU ownership?

Yes, a number of things smell in this story.  The greed and leverage boys can stink up an industry.  It isn't called PEUReport for nothing...

Update 4-16-24:  Jesse's Cafe Americain quoted the damage done by those with hardened hearts.  It not only harms patients but impairs the careers of enterprising regulators wishing to constrain such bad behavior.  Truly odiferous!

Update 4-18-24:  Boring Business on X offered statistics on private equity in healthcare.  Private equity owned 20% of the healthcare firms that went bankrupt in 2023 and own 90% of those at risk for failure.

Update 4-22-24:  TPG and Amerisource Bergan purchased OneOncology from General Atlantic.  I have seen the damage TPG and Welsh, Carson, Anderson and Stowe majority ownership did to my hospice employer.  One FTC comment informed me of OneOncology's shift from one PEU to another.  My comment addressed damage done to hospice quality care. 

IntraFi's History Includes PEU Debt for Dividends

Semafor did an outstanding report on fintech company IntraFi.  

"How one company made bank off the regional banking crisis"

It raised a number of questions regarding IntraFi's private equity underwriter (PEU) ownership.  The story mentioned three founders.  All three served in the Clinton administration in various financial roles.  They joined together to start Promontory Financial Group and Promontory Interfinancial Network.  

PEUReport noted in 2009 former SEC Chair's advisory role with Promontory Financial Group.  Levitt still shows an association with "Promontory" on his X page along with a smattering of crypto/fintech firms.

The three founders signed a Promontory Interfinancial Network financial audit submitted to the SEC in 2005.   Promontory contacted the SEC again regarding proposed changes to money market regulations after the 2008 financial crisis.

The persons below played major roles under President Bill Clinton's White House.

A 2014 slide presentation detailed Promontory's service offering.

Through the magic of Promontory Interfinancial Network the $250,000 maximum per account is transformed to $50 million.  Former FDIC Chair Sheila Bair called Promontory's business model "gaming FDIC rules" in 2019.

That same year Blackstone bought the company.  It changed the name to IntraFi in 2020,  In 2021 Blackstone saddled IntraFi with $540 million in new debt for a sponsor dividend.

Blackstone sold part of IntraFi to Warburg Pincus in November 2021 and just months ago the pair loaded IntraFi will another $500 million in debt for yet another sponsor dividend.  

The Semafor backstory reveals the transformation of the Blue political team toward greed and leverage.  It's instructive given politicians Red and Blue love PEU and increasingly. more are one.

Update 4-12-24:  The American Prospect reported:

Lobbying reports released last week show $100,000 in expenses going in the first quarter of the year to The Duberstein Group, a well-connected lobbying firm that IntraFi has worked with in the past, in the Promontory years. The firm was founded by Ken Duberstein, a former White House chief of staff under Ronald Reagan who died last year.

The 2014 slide deck showed on Slide 19 that Ken Duberstein served as a Board member of Promontory Interfinancial Network.  Red Team Ken Duberstein did his part to advance PEU love after his public service.

Ares Capital Drops 99 Cents Store into Bankruptcy

The Sun U.S. reported:

Discount retailer 99 Cents Only filed for Chapter 11 bankruptcy in Delaware on Sunday after talks of closing. The company said it planned to close all of its 371 stores in the US and sell off its real estate and remaining inventory.

The move will result in the termination of over 10,000 employees.  The real estate will be sold off to satisfy creditors and store merchandise marked down under the handling of Hilco Global.

Private equity underwriter (PEU) Ares Capital purchased 99 Cent Stores in 2011 alongside a Canadian Pension fund.  Ares beat out an offer by Leonard Green Partners, another PEU.

As 99 Cent Stores is private no information is available on the amount of money Ares siphoned from their affiliate via, deal fees. annual management fees, special distributions or dividends.  Rest assured Ares recouped its initial equity investment long ago.

Hilco Global is part of Hilco Capital, which also has Canadian pension fund investment.  Hilco Global is itself a PEU affiliate:

Executive Vice-President and Head of Private Equity at CDPQ. “Hilco Global, whose role is to transition existing and often undervalued assets in challenged sectors into profitable use, directly benefits from the economic disruption taking place within companies around the world as a result of new technologies and changing consumer habits. Furthermore, this long term partnership is an excellent complement to CDPQ’s Distressed Debt strategy.”

The system has the greed and leverage boys on both sides of most deals.  They hold the equity and provide the credit.  Consider an IMF graphic put together and shared by Jack Farley via X. (I took the liberty of making slight adjustments).

The PEU boys are often on both sides of a buyout deal.  Even after getting multiples of their initial equity investment PEUs can buy discounted debt of affiliates they stressed as they travel the bumpy road to bankruptcy.  PEU sponsors often siphon valuable cash from the company during this process.

In our PEU oriented world conflicts remain secret.  There is no sheriff watching for unethical behavior.  The system is designed to their liking.  

Recall Ares beat out Leonard Green Partners for 99 Cent Stores in 2011.  Leonard Green bought JOANN in 2010 and bankrupted it last month.  LGP had taken JOANN public via an IPO in 2021.

Wolf Street wrote about JOANN's bankruptcy filing:

The company said today in an SEC filing that it had entered into a Transaction Support Agreement on March 15 with the holders of its senior secured term loan facility; and with the PE firms Green Equity Investors CF, L.P., Green Equity Investors Side CF, L.P., and LGP Associates CF, LLC; and with “certain current or former members of the Company’ board of directors”; and with “certain third-party financing parties that executed joinders thereto.”

And the means for LGP as a zeroed out equity holder to remain involved?  They likely bought discounted debt as JOANN circled the corporate drain.

I found it interesting that The Sun U.S. contacted 99 Cent Stores for comment but did not place a call to Ares Capital.  It's like interviewing the victim of the car wreck but not the perpetrator.  

One might expect elected officials to examine this unseemly financial landscape but that is not likely.  Politicians Red and Blue love PEU and increasingly, more are one.

World Awakening to PEU Damage?

The world may be waking up to the damage done by private equity underwriters, now at the height of the economic eclipse of western economies.

Marketplace reported:

There’s currently a joint Federal Trade Commission-Department of Justice-Department of Health and Human Services inquiry into how private equity’s ownership of hospitals and physician staffing companies is affecting health care. 

 Separately, a Senate committee recently sent letters to several private equity firms that own or staff hospital emergency rooms asking them to provide information on staffing decisions, patient care and safety, and more.

Investigators are seeking comments from the public regarding private equity's damage to healthcare.

Comments on the federal query can be made at wwwregulationsgov and must be submitted by May 6.

As of now there are 1,025 comments.  Full disclosure, I've worked for two PEU owned healthcare companies and plan to submit a comment.

Left Foot Forward is written by an emeritus professor of accounting and member of Britain's House of Lords.  He writes:

Private equity operates through complex corporate structures and key components are almost always located in low/no tax jurisdictions with little or no transparency. High leverage, low wages, low investment, asset-stripping, strategic bankruptcies, profits shifting, tax avoidance and financial engineering are key tools for extracting profits. 

It loads the acquired entity with secured debt because interest payments qualify for tax relief, which lowers the cost of capital and helps to increase returns. The secured creditor status enables private equity to drastically reduce or eliminate the losses which might arise from bankruptcies because it has to be paid before all other creditors.

It remains to be seen if the government investigations are anything more than show.  Politicians Red and Blue love PEU and increasingly, more are one.

Update:  Not my comment but one that resonates with PEU Report:

Many of thepworst instances of a poorlygfunctioning corporate governance/economic incentive system have been through U.S. private equityafirms mismanaging investments in U.S. healthcare and technology companies -- are just the uniquely awful examples with broad public awareness. Private equity firmslcynically deny they have operational control of their portfolio companies when abuse is revealed, despite their effectiveicontrol through an interlocking directorate of board members, investors, and economic incentives. Some limited partner investors arevincentivized into complicity through access, equity co-investments, or fee breaks. Employees and management teams at these portfolio companies, like helots, are retaliated against if they speak out of line. 

The current governancepsystem in place for private equity is not effective and the DOJ, FTC, and Department of Health and Human Serviceseshould have a greater degree of oversight to stop this from happening again. This induced trauma is happening with full awareness from the wider private equity ecosystem. Many of the most resourced private equity firms in the world are right nowucolluding to ringfence their own liability and cover up the impact this misappropriation of resources is having on our healthcare system.

Retaliation occurs at the affiliate level as well, especially for those healthcare workers raising concerns about diminishment of care and fraudulent Medicare billing.  The PEU boys led a de-evolution of management that is particularly greedy and mean.

Update 4-9-24:  People around the U.S. can see the prevalence of PEUs via a new tool from the Private Equity Stakeholder Project.  Noted author Gretchen Morgenson wrote the story.

Update 4-11-24:  Matt Stoller wrote on X:

This headline basically says it all. The Republican approach to health care policy is to let private equity take over the doctor's office and privatize Medicare.

Biden's Big Money Night with Clinton & Obama

News stories on the star studded gathering of former Presidents at a fundraiser for President Joe Biden did not mention private equity underwriters (PEU).  President Bill Clinton helped PEUs get a foothold in their early days, while President Barack Obama helped them survive and thrive through the financial crisis.  President Biden stacked his cabinet with PEUs after taking office in 2021.

Forbes reported in June 2012:

When President Bill Clinton's time in politics was up, he landed at Ronald Burkle's private equity firm, Yucaipa Companies. For six or so years after he left the White House, Clinton served as an adviser to various Yucaipa investment funds and those funds paid him a lot of money. Clinton finally ended his relationship with Yucaipa, reportedly walking away from a huge $20 million payday, because the relationship was deemed to be overly sensitive for Hillary Clinton’s political ambitions.

Both the Red and Blue political teams utilize the automatic door between politics and private equity.  Private equity firms pay former politicians huge fees for a few hours work.  The Clintons and Obamas have cashed in from such engagements.

The "work" is generally very part time, involves obscene fees and can come directly from the PEU or an affiliate (owned company).  KKR owned Laureate Education paid Bill Clinton $18 million for his service as "honorary chairman."

Former President Obama's PEU ties are not as public as Clinton's.  Key Obama advisors became PEUs.  Obama has a family office, meaning his wealth warrants a personal PEU like operation.  Last May Michelle Obama co-founded PLEZI and will serve as strategic advisor.

Both Clinton and Obama ponied up to the greed and leverage boys and continue to ride alongside them.  Seven months ago Bloomberg Law reported:

Former US President Bill Clinton is teaming with Israeli billionaire Ziv Aviram to launch a climate fund with about $1 billion of start-up capital.

The announcement came at 2023 Clinton Global Initiative, relaunched in 2022 from self-banishment for shameful insider profiteering.

The fine print at EcoBridge's website states:

*EcoBridge is creating an Impact Advisory Board to gain the insight of its members and to help the fund with respect to its analysis of climate sustainability. President Bill Clinton will serve as chair of the Impact Advisory Board, advising EcoBridge on climate impact across different political, economic and government environments. The Impact Advisory Board will be supported by the Clinton Foundation, to align EcoBridge’s investment focus with the educational and climate impact goals of the Foundation. 

Disclaimer: Neither President Clinton nor the Bill, Hillary and Chelsea Clinton Foundation will provide any investment advice to the fund or will be responsible for the fund’s operations. President Clinton is not a Co-Founder of EcoBridge, but has agreed, along with the Foundation, to provide certain services to support EcoBridge’s mission, including advising on political structures, climate change issues, global trends, or making introductions to persons or companies within President Clinton’s or the Foundation’s network. Because President Clinton and the Foundation are not registered or licensed as financial professionals, the services that they will provide to EcoBridge will not include valuation of investments or making recommendations or decisions to buy, sell or hold investments. All investment advisory services provided to the fund will be performed by EcoBridge. President Clinton and the Foundation are receiving compensation for their services.

The disclaimer did not state the amount or type of compensation Clinton is to receive from Ecobridge.

The Israeli consulate of the Marshall Islands found this to be news.  Their story characterized the venture as::

EcoBridge is a New York-based investment manager with a strategic presence in Israel that has a mandate to manage private investment funds with a global focus.

Clinton's non co-founder, co-founder offered in a Sea Change Radio interview:

This morning, President Clinton and I were together on stage and announced about new fund. We call it EcoBridge, which is a climate tech fund, where the intention is to invest in cutting edge technologies that can reduce the climate edge effects. And we intend to raise between one to $2 billion and start as quickly as possible to invest in companies in a global scale, not just, uh, in Israel, or not just in the United States, but globally. 

So we need to find areas where there’s enough mature companies that are already active in this space. We still checking where will be the most effective. We have pretty good idea already, but our first challenge is in the next half year, year is to raise enough money that we’ll have enough means to invest in those companies.

He zeroed in on CO2 reduction identifying three areas for investment:

.....agriculture food (production) is the number one. The second one is constructions and the materials for the construction, which releasing enormous amount of c o two to the air. Then of course transportation in in the whole, the jets, the trains, the boats, the vehicles, which is the third in the line.

It's an investment that apparently needs government subsidy/assistance:

And it’s, it’s clear that at the beginning, the profit and the revenue from this kind of activities will be low. So government should invest first, but in parallel, the business sector should find solutions.

The feel good mantra for outsized profits arose during the interview:

I see in this activity, although it’s a fund for profit for investors, but in my perspective it’s philanthropy.

Yippppeeee!  The world has yet another David Rubenstein (patriotic philanthropy) and Sam Bankman-Fried (effective altruism).

Back to the gathering Presidents.  Obama offered to frustrated Americans: 

There are "structural problems" that frustrate people. "If you're working hard, and your paycheck is getting stretched, beyond the breaking point, and you're worried about rent, and you're concerned about the price of gas, it's understandable."

Hard working Americans have seen the super rich PEU class, now occupied by Clinton and Obama, garner the vast majority of economic gains.  

While Clinton, Obama and Biden have all been PEU enablers, the Red Team has been more overtly shameless in their PEU love.  It's an odd and disturbing form of bipartisanship, one that has consistently worked against the will of citizens.

Politicians Red and Blue love PEU and increasing, more are one.  It even has its own Legends Tour.

(And no this is not an April Fool's post.  It just happens to be April 1st.)

Update 4-2-24:  The day after the Blue "big money" show, Biden bundlers gathered to increase the take.  NYT reported:

To be considered a “presidential partner,” donors have been asked to raise $2.5 million, while a “principal shareholder” is asked to raise $750,000.

Is that a limited or general partner? 

Also, enough people have worked for a PEU affiliate and experienced the carnage as funds shift from staff and quality operations to paying annual management fees, much higher interest expenses and giant cash withdrawals by their "sponsor."  It's traumatic for those jettisoned and leaves a long lasting cultural stench.  That sounds structural to employees.  

My wise friend wrote:

Whether you believe in climate change or not, one thing is for sure.  Politicians will go into heat over funding schemes that provide them new positions to profiteer and screw the public in ways Masters and Johnson would find novel. 

Even if you accept the screwing the politicians and PEU's have given the public, the most nauseating and damaging aspect to a capitalistic society is they have removed themselves completely from the vicissitudes of economic activity and its effects.

The structures embedded in the deals to scrape every morsel of sustenance through fees from the operating entity struggling for life are devoid of a true managing operator mindset. It's parasitic at best, sadistic when blooming. 

Add in all the other games they play and ask yourself once you wire them the money, how do you have recourse? They are in control, They are where all the flows concentrate, what is their risk? Really none. Rewards Unlimited. 

There was a coup, it was supported by the Fed and our politicians. They should have just let them fail. I don't think there's a way out of this.

Update 4-5-24:   A member of the British Parliament has awakened to the evils of private equity.

Orioles New PEU Owner "24-7"

Carlyle Group co-founder David Rubenstein is now the lead owner of the Baltimore Orioles.  Major League Baseball owners unanimously approved the sale.  Approval came the day after a monster container ship destroyed the Francis Scott Key Bridge, killing six people.  

Rubenstein will tackle naming rights for Camden Yards.  Surely a Carlyle Group or Declaration Partners affiliate is interested in having their logo on Orioles' stadium. The following names are from the Declaration Partners family (Rubenstein's Family Office):

Stubhub

Paxos

Cava

Dataminr

Epic Games

Cadre

The Carlyle Group has 290 active portfolio companies that may wish to see their name on Camden Yards.  It's quite common for private equity underwriter (PEU) affiliates to "do business with" each other.  

Stubhub already markets Orioles tickets.  Time may or may not reveal how many of Rubenstein's corporate holdings do business with his latest purchase, the Baltimore Orioles.  

Rubenstein noted as he took over the reigns in Baltimore:

"The highest calling in mankind is private equity."

Oddly, a three judge panel suggested otherwise recently.   The appeal regarded excessive and unethical expenses billed to public pension funds.   A PEU senior advisor fraudulently billed:

... travel expenses to Montreal for a friend’s bachelor party, Miami for a friend’s wedding, Brazil for a vacation with his wife, and New Orleans for the Super Bowl. Rashid also sought reimbursement for expensive dinners and lavish gifts for his friends and family.

FT reported the appeals court: 

agreed with Rashid that the private equity firm’s expense system was broken enough at the time that Rashid himself could not have reasonably anticipated that the victims of his illicit spending spree were Apollo’s limited partners. 

"Apollo’s accounts receivable department contravened the terms of the fund partnership agreements — negligently or otherwise — and billed the funds directly for such administrative expenses.”

So the private equity underwriter (PEU) submitting fraudulent expense reports won on appeal because he was unaware of who would actually pay?

Everything about this story flies in the face of a clear, ethical contractual relationship between Apollo and its limited partners. And private equity is what Tony Robbins wants the little people to buy into, calling it "The Holy Grail" of investing.

Does anyone detect a pattern?  Highest calling, Holy Grail....   FT closed with:

The classic principal and agent relationship — where an investor outsources management of their assets to an outside party — is rife with potential conflicts of interest. One thing that should be clear is who pays for what. But the Apollo case shows that in private equity, monitoring and enforcing contract terms is not so straightforward.

Will Orioles fans be treated like PEU limited partners and be subject to surprise fees?  What interlocking arrangements exist between the club and its new ownership group?  How many more are in development? 

Rubenstein, 24-7 greed.....where every "arm's length" tagged deal is safe!

NBA's Preferred PEU Rescues Lore and ARod

The Carlyle Group backed out of $300 million in financing for Marc Lore and Alex Rodriguez' expanded ownership stake in the Minnesota Timberwolves.  

Lancaster Online reported:

Blue Owl HomeCourt, a $700 million fund managed by a division of publicly-traded Blue Owl Capital, has acquired a minority stake in the Timberwolves, a source familiar with the deal told the Star Tribune.  

A previous potential investor, Carlyle Group, a Washington, D.C.-based investment firm, decided not to move forward in a deal that would have provided structural financing to Lore and Rodriguez, a source familiar with the negotiations told the Star Tribune this week. The deal with Carlyle was meant to aid the next ownership payment. 

HomeCourt was formed in 2020 as a partnership with the NBA "to provide institutional capital to the NBA ecosystem" and is used to acquire minority equity stakes from minority shareholders of NBA teams. As such, its ownership stake does not require NBA approval.

NBC Sports reported:

...the NBA and Carlyle Group had been in negotiations about an investment and could not agree on the structure.

Thus, Blue Owl Homecourt rescued Lore's and ARod's ownership expansion.  Blue Owl was formed by the merger of Dyal Capital.  Dyal arose from the ashes of Lehman Brothers via Neuberger Berman.

Axios reported:

Owl Rock was a by-the-book Wall Street firm, formed by Blackstone and KKR vets. Dyal was a trailblazing upstart, with a Lehman Brothers pedigree.

Both the Dyal side and Owl Creek sides of Blue Owl have private equity underwriter (PEU) roots.

Blue Owl Homecourt holds stakes in the Sacramento Kings, Atlanta Hawks and Phoenix Suns.  Last summer the firm dropped the names "Dyal" and "Owl Creek" in favor of Blue Owl.

NBA ownership gets PEUier and PEUier.  Will players have to wear their PEU logo aside their team logo?  How many logos might they wear if it's a PEU club deal for an NBA franchise opportunity?  It might require long sleeve jerseys to display them all.  

Additional luxury skyboxes will be needed.  Let's hope they are Tepper proof.  Ticket buyers don't need owner backwash tossed on them.

Update 3-27-24:  What are the consequences of making the NBA PEU friendly?  

...wonder if the league will lose the fabric of so many things that makes it special while chasing and courting every entity, sacrificing its beautiful soul along the way.

Update 4-3-24:  The deal for Lore and ARod to take a majority stake in the Timberwolves fell through.  The current team owner changed his mind.

Blue Owl Capital's private lending exploded in the last few years and the company. like most PEUs, is "getting into insurance" or getting a giant pot of money to steer into its investments/funds.   

Pensioners Sue Over PEU

Pension plan participants from Lockheed Martin and AT&T sued over transferring their pension obligation to annuity provider, Athene.  Athene is owned by Apollo Global, a giant private equity underwriter (PEU).  

The insurers’ private equity ownership was criticized in the plaintiffs’ complaint, alleging that private equity-owned insurers take on high-risk and high-yield investments to achieve higher returns than traditional insurers. These private equity-owned insurers also tend to charge lower fees than traditional insurers to take on plan liabilities, the complaint states. 

 The complaint against AT&T over its PRT with Athene alleged that 80% of Athene’s pension risk transfer liabilities are reinsured in Bermuda. The Lockheed Martin lawsuit accuses Athene of having a “highly risky offshore structure.”

Apparently these pensioners haven't read Tony Robbins new book, which characterizes private equity as the financial Holy Grail.  

The lawsuit against Lockheed also cited an October 13, 2022, NISA Investment Advisors study evaluating the credit worthiness of major insurers, which found Athene the riskiest of nine major PRT providers.

The plaintiffs also allege that the high risk associated with the investments of private equity-backed insurers are not worth their returns, stating that PE returns are not any better than index fund returns, after fees. 

 “Lockheed Martin failed to select the safest annuity available to provide retirees and beneficiaries pension benefits,” the plaintiffs allege. “Relative to traditional annuity providers, Athene invests in far riskier assets to support participants benefits payments. In a market with no shortage of stable and established annuity providers, no prudent and loyal fiduciary would have offloaded billions of participants retirement savings under the circumstances then prevailing”.

Flash back to February 2023:

Meanwhile, even as some sophisticated private investors rush to get out of private equity, the world’s largest private equity firm, Blackstone, recently reassured Wall Street analysts that state pension officials will continue using retirees’ savings to boost revenues for private equity firms, hedge funds, real estate funds and other so-called “alternative investments”.

...a JP Morgan study in 2021 found that private equity has barely outperformed the stock market, but it remains unclear whether that “very thin” outperformance is worth the risk of opaque and illiquid investments whose actual value is often impossible to determine – investments that could crater when the money is most needed.

Yesterday the Bank of Montreal (BOM) and The Carlyle Group announced a move to offer BOM investors secondary private equity stakes.  What a relief that sophisticated investors have another exit strategy for their unwanted PEU holdings.

Pensioners are right to be concerned about the quality of assets underlying their annuities.  The greed and leverage boys stormed the insurance industry, acquiring insurers and steering their capital into PEU offerings.  

Pension funds had already ratcheted up PEU holdings in an effort to increase returns and decrease any underfunding.  AT&T's pension had 14% private equity.  Lockheed Martin's pension shopped $1 billion of its private equity holdings, selling $600 to $700 million in 2023.

Lockheed shifted pension responsibility to insurers in a number of transactions, the last two with Athene.

Valuing PEU holdings had a voodoo vibe when interest rates were low and affiliate sales easily financed.  Add that sponsors frequently sold holdings to PEU peers for an undisclosed amount and pricing assets got even murkier.  Often the seller, the buyer and the financier were all PEUs.  

For things to be arm's length we'd have to know how many arms are in the deal and any sub-deals.  That's extremely difficult in our PEU world where politicians Red and Blue love PEU.  Maybe we will see where judges fall in that spectrum.