Sunday, November 19, 2017

Core Drivers of PEU Riches


The Carlyle Group presented recently at the Future of Financials conference hosted by Bank of America Merrill Lynch.  The private equity underwriter (PEU) had a slide on core drivers of their performance.  I adapted the slide to show how billionaire PEU founders achieved their outsized wealth (pictured above).

Another slide showed Carlyle serves 1,750 investors from over 82 countries.  It is these people Carlyle co-founder David Rubenstein has in mind when he meets with President Trump, just as he met with Presidents George H. W. Bush, Bill Clinton, George W. Bush and Barack Obama.  Carlyle's pervasive political influence is not mobilized on behalf of the average citizen.  It is steered toward the international billionaire class.

Politicians Red and Blue love PEU.   That'sbecause the greed and leverage boys may be their next employer.  That's the world we live in.

Wednesday, November 15, 2017

Carlyle Says It's Not a Spent Force


FT reported:

The private equity model “is starting to look like a spent force” because more competition and record cash available is leading to lower returns as operators are forced to take on more risk, an adviser to the industry has said.
Carlyle Group co-founder David Rubenstein, ever the salesman, offered a different view:

Speaking at a trade conference in Amsterdam, David Rubenstein, the billionaire co-founder of the Carlyle Group, said the model of private equity had worked “pretty well” for both managers and investors and that was likely to continue for the next three decades, with minor adjustments.
Carlyle has roughly $100 billion to raise.  Carlyle knows when not to throw good money after bad, as it did with bankrupt Carlyle Capital Corporation (CCC).  The question is if and when investors decide PEU stakes are a bad deal.

The model of asset management charged no carried interest — the cut managers share with investors — for 200 years, he said, but private equity in the 1960s changed it because “money would be committed but not actually invested and more or less 20 per cent of the profits would go to the [manager]”.
The greed and leverage boys became ubiquitous in the last two decades.  The rise of the billionaire founders coincided with the decimation of the middle class.

Ironically, PEUs want to become part of that middle class retirement account, what's left of it.  Is more risk the tonic, or will it be toxic?    Ask the robot what you need to do the pay a management fee plus carried interest.  Surely, Carlyle funded artificial intelligence will give you an answer.  

Monday, November 13, 2017

Billionaire Report Highlights Detained Saudi Prince

The PwC-UBS billionaire report highlighted a joint deal between Bill Gates' Cascade Investment Group and Kingdom Holding,  directed by Prince Alwaleed Bin Talal, one of the world’s leading investors.  The pair bought out Four Seasons just before the 2008 financial crisis.

PwC-UBS released the billionaire report in October, before the corruption crackdown in Saudi Arabia that engulfed the Prince.  Money reported:

He’s the richest man in the Middle East.  And now he’s under house arrest.  Prince Alwaleed Bin Talal—best known for sporting a distinctive throwback mustache, trading in traditional Saudi garb for fine suits, and making a series of high-profile, brand-name investments—was detained this week as part of what the Saudis have called a corruption crackdown. It is not clear what specific charges have been leveled against the prince.
Four Seasons issued debt twice under billionaire ownership, according to Moody's.  The company floated $1.1 billion in debt in June 2013.  Part of those proceeds went to preferred shareholders.  It refinanced $950 million of debt in November 2016, with $36 million going to owners in the form of dividends.

Money noted the Prince's propensity for leverage:

Yet the New York Times also speculates that Prince Alwaleed may have gone bankrupt during the 2008 financial crisis—which might be connected to his detention. 

“He had been highly leveraged and somehow got elements of the government to bail him out, through his connections to then-King Abdullah and the finance minister, who is also said to have been arrested.
The United States rescued private money with trillions in public funds during the financial crisis.  Surely, the Saudi's did likewise.

Kingdom Holding Company: The World’s Foremost Value Investor 

Directed by Prince Under House Arrest in Corruption Crackdown
Billionaires, leverage, corruption and bailouts.  It can be a sordid tale.

Sunday, November 12, 2017

PwC-UBS Fawn Over Billionaires in Report


The Guardian reported:

Yet the 2017 billionaires report compiled by the Swiss bank UBS and the consultancy firm PwC finds that the clock would have to be turned back to 1905 – when the Russians were having a trial run for their revolution and Queen Victoria had been dead only four years – to find a time when wealth was so concentrated.

Josef Stadler, the author of the UBS/PwC report, said: “We are now two years into the peak of the second Gilded Age,” and he added that the 1,542 dollar billionaires around the world were concerned about how concentrated wealth has become. But not, it seems, concerned enough to do anything about it. The rich show real tenacity when it comes to holding on to their wealth and the system that generates it.
The newspaper piece missed the marketing nature of the PwC/UBS billionaire report.  First, it calls then "new value creators" vs. "systemic wealth concentrators."  Second, the intent is to advise more of the world's wealthy billionaires.

America's political system under Republicans and Democrats fostered the rich getting richer, as shown by a graph in the billionaire report. I added colored arrows and presidential names to the graph.  The growing of billionaires has been a bipartisan effort for decades.

PwC and UBS join politicians Red and Blue.  All love PEU, private equity underwriters. 

Interesting aside:  The report shows U.S. billionaire's preference for holding companies private (63%) vs. public (37%).  That fits squarely with the PEU meme.  

Sunday, November 5, 2017

Bloomberg Columnist Likes PEU Powell Nomination


Fed Chair nominee Jerome Powell has a strong supporter in the author of "Fed Up:  An Insider's Take on Why the Federal Reserve is Bad for America."  Danielle DiMartino Booth wrote:

The sheer breadth of Powell’s experience is refreshing compared to what we’ve had for the past 30 years. Powell has a deep understanding of the law and politics. 
At the Carlyle Group, Powell founded and ran the Industrial Group within the Buyout Fund. A separate missing characteristic among Fed leaders for the past 30 years has been a woeful lack of understanding as to how Fed policy effects corporations and the decisions CEOs and CFOs make driven by Fed policy, the most obvious of which has been debt-financed share buybacks at the expense of capital expenditures.
Future Fed Chair Powell's Carlyle Group executes a private form of the above strategy, debt financed dividends at the expense of capital expenditures and my addition, employee raises..  

Author Danielle DiMartino Booth and Carlyle co-founder David Rubenstein share frequent appearances on Bloomberg and CNBC.  Rubenstein has his own show on Bloomberg

DiMartino Booth is a full-time columnist for Bloomberg View, a business speaker, and a commentator frequently featured on CNBC, Bloomberg, Bloomberg Radio, Fox News, Fox Business News and other major media outlets.

Below is a core message of Fed Up, according to Amazon.

While easy money has kept Wall Street and the wealthy afloat and thriving, Main Street isn’t doing so well. 
America's new Fed Chair grew wealthy from his time with The Carlyle Group, a politically connected private equity underwriter (PEU).

In 2017, Powell reported that he had a net worth of between $19.7 million and $55 million, making him the richest member of the Federal Reserve Board of Governors.
I expect Jerome Powell to look after his wealthy peers as Fed Chair.  He should face easy approval as politicians Red and Blue love PEU.

Update 11-9-17:  Billionaire peer lover and corporate fan Trump's Fed will help whom?  Fed Chief Alligator Powell will govern one corner of Trump's D.C. swamp.

Wednesday, November 1, 2017

Fed Officially Goes Carlyle


God's favor for The Carlyle Group's co-founders continued with President Trump's appointment of another Carlyle alumus for Federal Reserve Chair, Jerome Powell.  As they turn their politically connected private equity underwriter (PEU) over to younger hands they will have two friends working on the macroeconomic scene.  The irony is the last few decades have been tilted toward the greed and leverage boys and not the average citizen. 

Monday, October 30, 2017

Carlyle Triumverate Has God's Favor


Private Equity News reported:

“Private-equity firms seem to be favored by God because the founders don’t seem to die early,” Mr. Rubenstein said.
"God's work" Lloyd Blankfein's son Alex works for The Carlyle Group.

Politicians of both stripes favor private equity underwriters.  How much richer can Carlyle's PEU founders get with both God and elected officials on their side?  It remains to be seen.