Is Trump Signaling PEU Love with Financial Disclosures?

 

A review of part three of former President Donald Trump's latest financial disclosure produced a number of private equity underwriters (PEU).  None were over $15,000 and several were less than $1,000.  That raises the question.

Is Trump virtue signaling the greed and leverage boys with his disclosure filings?

Today I heard a corporate executive describes Trump's 21% tax rate for corporations as their "fair share."  I did not realize taxes were like United Way donations.  

Long ago Trump's VP sidekick JD Vance showed he is a man of the PEUple.  Politicians Red and Blue love PEU and increasingly, more are one. 

Did PEU Directors Help Break Boeing Quality?

Much has been written about Boeing's series of stumbles.  The latest "fall" involves the company's credit rating.  My wise friend wrote:

Just to reiterate and solidify what a joke we are when it comes to credit. S&P placed Boeing on credit watch negative because of strike related financial risk?

Meanwhile, the financial engineering over the past two decades, the lack of real leadership, the reduction of quality control in their supply lines due to efficiency ratios for financial performance, among many other factors, never enter the credit rating. How is that for burying the real bodies of a crisis situation? Boeing is just a prime example of the blame shifting and lack of accountability throughout the financial sector.

Twelve years ago the majority of Boeing board members had direct private equity underwriter (PEU) affiliations (6 out of 11) while a seventh lobbied for the PEU association.   Board members are recruited for their specific skills and background.  Over half of the 2012 Boeing board knew PEU financial machinations which includes significant cost cutting.  

The public has seen Emergency Room care plummet quality wise under PEU ownership.  Vox reported:

When private equity comes for health care, though, the result is human suffering: Elderly and intellectually disabled people sitting in puddles of their own waste, sick patients not getting the care they need, worse outcomes for patients. 

Oddly enough, I recently flew next to a Medical Ambulance pilot.  His employer is private equity owned.  He'd recently reached out to friends, professionals in a variety of industries, and they all said the same thing.  "You can't believe what they (executives) are doing here!"   Across the board senior leaders were blowing through basic and longstanding practices.  

I'm sure some worked for PEU affiliates while others, like Boeing, had PEUs on their board.  The game will continue as long as capital can be had.

PEU Sports Interviews

CNBC interviewed the CEO of Sportscorp regarding private equity money flooding sports.

Yahoo Finance interviewed Carlyle co-founder David Rubenstein.  Asked about the impact of private equity investment in sports.  His answer:  "Well, drive up prices."  Just as they've done in housing, healthcare, pharmaceuticals and nearly everything they touch.

Rubenstein is the lead owner for the Baltimore Orioles and Carlyle holds a stake in the Seattle Reign.  A longtime Baltimore sports writer sent a letter to Mr. Rubenstein.  The author hopes for a better hand from lead owner Rubenstein relative to the prior team owner:

Over my three decades in dealing with the emissaries of Peter G. Angelos, this was not considered a bug but far more of a feature ­– pettiness, anger and retribution.

Private equity underwriters (PEU) typically take a steamroller to people expressing legitimate concerns.  Winning the game of financial profit maximization, obtaining public subsidies (direct and indirect) and cultivating political influence (which produced "policy making billionaires") usually requires a signature focus that excludes listening to real people.  

The Baltimore sports writer can appeal to other new Orioles owners, three of whom made their fortune with Ares Management.  However, the threesome may be busy as Ares is close to striking a deal to buy a portion of the Miami Dolphins.

 

The Sportscorp CEO noted the other announced deal for Tom Gores to buy a stake in the Los Angeles Charges is not a PEU deal.  It is however with a PEU founder.

Platinum Equity - A Global Private Equity Firm Founded by Tom Gores (on Forbes billionaire list)

So what can people expect?  Platinum Equity bought the NBA's Detroit Pistons in 2011.  The Pistons:

have been the league’s worst franchise for 15 years or so.

Gores bought out Platinum Equity's stake in the Pistons in 2015.   The City of Detroit provided $34.5 million in subsidy for the Pistons to move into a new facility.  Check out the name on the Pistons' home court.

Platinum Equity, another PEU arms length agreement.

Carlyle's Rubenstein located his firm in Washington, D.C. in 1987 to access Uncle Sam's wallet and intermittently non-lobby to keep his PEU preferred "carried interest" taxation.  He's predicting more tax cuts regardless of who wins the White House in November.

The PEU boys love a public subsidy but hate paying taxes.  So why is all this going on?  Because politicians Red and Blue love PEU and increasingly, more are one.  Professional sports is the newest PEU love and as Mr. Rubenstein said prices are going up.

Carlyle, Unison Target Strapped Homeowners

The Carlyle Group and new affiliate Unison want to be on both the debt and equity side of your home.  FT reported:

The company will buy as much as a 15 per cent interest in homes, spending between $30,000 and $500,000 per home. The homeowner will pay for an appraisal and Unison will invest at a 5 per cent discount to that appraised value. There is also a 3.9 per cent transaction fee.

At the end of the 10-year loan, Unison would, however, get its 1.5x appreciation share as well as the capitalized sum total of the 1.8 per cent initial cash interest rate savings (that’s the 7 per cent minus 5.2 per cent).

Carlyle plans to buy $300 million in Unison Equity Sharing Home Loans.  It would then market those to insurance companies (clients of Carlyle's Credit Strategic Solutions group).  

Unison said its typical customer has a Fico score over 700 and that typical use of proceeds are home improvements or paying down credit card debt.

Credit card debt raises red flags and calls into question someone being able to pay off a large loan, plus an outsized amount of the home's appreciation, plus making up for the interest rate break given on the loan.  

I expect a large number of Unison clients not being able to keep their home after the 10 year loan comes due.  

What happens when unsatisfied borrowers go to regulators and complain about Carlyle's Unison?  They might get, "Which Unison?"  Home equity Unison follows government procurement contractor Unison in the Carlyle family tree. 

Carlyle held government procurement contractor Unison from 2005 to 2010, then repurchased the firm in June 2020.  After a two year hold Carlyle flipped its majority stake to Madison Dearborn Partners but retained a minority investment (which it still holds).

Carlyle just wants their share of well, everything.  It's the PEU way.  Don't give it to them.

Home equity Unison's CEO Thomas Sponholtz said "We are trying to democratize the rich relative."  Carlyle's billionaire co-founders qualify as rich relatives.  

Sponholtz' worked for Bear Stearns, where he and the company were sued for negligence and negligent misrepresentation.  The parties settled for $130,000."   That was a long time ago in a world that no longer exists.  

Unfortunately, our current world has far more conflicted entanglements.  Sponholtz and Carlyle want you to bite on their sales pitch.  Read all the fine print before you sign, every blanking word.

Banks, PEUs Join Hands for Private Credit Offerings

Big banks and storied private equity underwriters (PEU) are joining to offer credit to private companies. The Federal Reserve Bank put out a "Fed Notes" on private credit in February 2024.  It states:

Private credit or private debt investments are debt-like, non-publicly traded instruments provided by non-bank entities, such as private credit funds or business development companies (BDCs), to fund private businesses.2 Private credit is typically extended to middle-market firms with annual revenues between $10 million and $1 billion, but has grown rapidly in recent years to fund larger companies that were traditionally funded by leveraged loans.

The Fed piece closes with a section on Interconnections with Banks:

While bank lending to private credit funds appears moderate, there are growing interconnections between these two types of lenders. First, banks are increasingly partnering with private credit funds to fund new deals. Second, banks are progressively selling complex debt instruments to private fund managers in so-called "synthetic risk transfers" in order to reduce regulatory capital charges on the loans they make. Such instruments have limited transparency and pose hidden risks to the financial system, especially as the industry has yet to endure a prolonged recession. Relatedly, there is growing concern that tighter regulations such as Basel III endgame could intensify migration of credit from banks to private credit lenders. Considering borrower risk profiles, such substitution is less likely to occur to bank-held loans, and more so with syndicated leveraged loans. In such cases, banks stand to lose underwriting fees to private credit funds. These developments suggest that private credit will become increasingly important to credit market functioning.

Yes, lets count more on instruments with limited transparency that pose hidden risks to the financial system.  More, please!

Thank heaven the PEU boys have found more ways to make fees.  Recognize any of these names?

 

  

It's a who's who of people who speak directly to elected officials without designating themselves as lobbyists.  It's also the list of people who hate paying taxes.

My wise friend wrote regarding the Fed and private credit:

It's kind of sad when a regulator puts out a note of the risks of private credit and stands by as the PEU conductors drive their train off the tracks. The fact that they recognize banks provide a higher form of regulatory framework to establish loans is the first red flag. As you read through the report there are so many factors they minimize.

Once a PEU boy, always a PEU boy.  Right Jay?   Residual PEU holdings, nobody declares those....

Who Serves Who in our PEU World?

Two hearings shed light into the proverbial darkness of outsized political influence.  The first involved the U.S. Senate where Caritas Christi/Steward Healthcare CEO Ralph de la Torre, MD was a no show for his subpoenaed testimony.  

Flashback to 2016 when private equity owner Cerberus had a giant profitgasm.  NYPost reported:

Cerberus received $719 million of the dividend while the remaining $71 million was paid to the Steward management team headed by CEO Dr. Ralph de la Torre.

Private equity underwriters (PEU) spawned the term "policy making billionaire" back in 2011.  

...the new philanthropists share a disdain for established politics and an impatience with the slow churn of old-fashioned policy making.

And how have PEU political donations changed since 2011?   They're way up:

I am not surprised that a PEU might skip an uncomfortable hearing with the people who repeatedly saved their highly unpopular, preferred "carried interest" taxation for the last decade and a half.  

Heck, at least two members of the committee, Red Team Senators Mitt Romney and Tommy Tuberville are former PEUs.

What else changed in healthcare since 2011?  Accountable Care Organizations came into being.  PEU Cerberus cited forming an integrated accountable care organization in its rationale for buying Caritas Christi and forming Steward.

Another change is the mass migration of U.S. healthcare companies to private equity ownership.

Let that sink in...50% of the healthcare industry is owned by private equity.  That means lots of deals.  Oddly, one man behind the Affordable Care Act, Peter Orszag, is now head of Lazard.  Their website states:

Lazard is one of the world's leading advisors on mergers, acquisitions, divestitures and related strategic matters.

Orszag changed his tune on healthcare antitrust after joining Lazard.  Consider his shift:

So Peter wanted healthcare to be overrun by private equity underwriters?  That's quite the admission.  Fortunately, a judge came to the PEU rescue and stemmed any antitrust overreach.  Peter can get back to wheeler-dealing PEU style.  His brother Jonathon can advise groups involved in both sides of an antitrust fight.

Let's tackle the second hearing.

Billionaires can "buy a Congressman" and make their problems go away.  

Who serves who in our PEU world?  Politicians Red and Blue love PEU and increasingly, more are one.  Nearly every former Medicare Chief is a PEU.  

It's no wonder people feel the healthcare system is not serving them.  An accountability mechanism does not exist.  Right Dr. Ralph de la Torre?  

Right Tom Scully?  Scully is the former Medicare Chief who refused to testify before Congress and went on to General Partner with PEU Welsh Carson Anderson and Stowe.  WCAS just benefited from that recent antitrust ruling.

Update 10-2-24:  Lazard's Peter Orszag was on CNBC this morning bemoaning the FTC's antitrust focus on vertical intergration (PEU buyouts).

The Great PEU Acquiescence

MSN reported:

Something has changed this election season. The perennial hot button issue of carried interest, which offers sweetheart tax rates to wealthy private equity and hedge fund executives—and costs the U.S. Treasury billions of dollars—is getting a pass.

The Great Acquiescence has arrived. 

...an Oxford study in June revealed that the largest private equity firms have avoided paying income taxes on more than $1 trillion of incentive fees since 2000—a line that seems tailor made for a campaign commercial—barely got any notice. 

Now, any momentum to change the carried interest rate seems to have fizzled altogether. Just last week, former president Trump verbally sparred with Kamala Harris, the Democratic nominee for president and current VP, in a much watched 90-minute debate. Neither side mentioned carried interest or even taxes. 

Politicians Red and Blue love private equity underwriters (PEU) and increasingly, more are one.   How did this come to pass?

PEU legend Carlyle Group co-founder David Rubenstein covered the history in a recent Bloomberg Audio interview and had a number of startling admissions.  First, this non-lobbyist regularly meets with elected officials.

 ...let’s get members of Congress to come and sit with each other from different parties in different houses, which they rarely get a chance to do. No press. Nobody can see ’em talking to somebody who’s a different member of a different party. And that’s been going over 10 years. 

Rubenstein chronicled Carlyle's early history after locating in Washington, DC.

Later I went out and recruited big names who had been in government, people like former Secretary of State, Jim Bakker, former Secretary of Defense, Frank Carlucci. And that gave us a certain allure because people were wondering what are they doing in an investment firm?

What were they doing?  Steering huge chunks of the federal budget to Carlyle Group affiliates through their non-lobbying political connections, reading the government tea leaves to direct Carlyle leveraged buyouts, and recruiting more government insiders to the secretive private equity underwriter.  That almost sounds villainous.

Blue Team Senator Kyrsten Sinema's massive payday awaits.  She heroically saved PEU preferred "carried interest" taxation.  Legislators will watch closely her next career move.  It could be theirs.