Wednesday, September 28, 2022

Carlyle's Natural Resources Cornerstone Doesn't Count

The Carlyle Group is skilled in creating unique measures that maximize the private equity underwriter's image.  The latest is an emissions report that omits Carlyle's significant ownership position in NGP Energy Capital Management.  WaPo reported:

At the start of 2022, the Carlyle Group, one of the world’s leading private equity firms, published a report on its financial risk from greenhouse gas emissions. Yet something was not in the report.

Carlyle’s largest oil and gas investment, NGP, was not included. A “note on scope” halfway through the document said this was due to a “different business model.”

If energy prices remain high, NGP is on track to earn $1 billion for Carlyle this year. 
Carlyle made the investment in December 2012.  Their press release stated:

Global alternative asset manager The Carlyle Group (NASDAQ: CG) today announced it has added significant capability to its growing global natural resources investment platform. Carlyle has acquired a 47.5 percent revenue interest in NGP Energy Capital Management, an Irving, TX-based energy investor with $12.1 billion in assets under management. Carlyle will pay, at closing, $424 million to acquire Barclays Natural Resource Investments' ("BNRI") 40 percent stake and 7.5 percent from NGP's management. 

The transaction, which will be funded with cash and Carlyle Holdings partnership units, has closed today, December 20. The transaction also includes: a right to purchase an incremental 7.5 percent revenue interest, which would bring Carlyle's total revenue interest to 55 percent; 7.5 percent of the carried interest in all future funds; and options to acquire BNRI's 40 percent interest in the carried interest in NGP's current flagship fund (NGP Natural Resources X, L.P.) and all future NGP funds. 

NGP will serve as the cornerstone of Carlyle's growing natural resources investing platform
NGP is not an official part of Carlyle carbon wise.  This hearkens back to Carlyle running from the carcass of Carlyle Capital Corporation (CCC).  CCC was a highly leveraged mortgage backed security fund sold as a "safe investment."  CCC folded in February 2008.  I'll venture massive investor losses in CCC were never included in Carlyle's top secret investment return formula.  

The more you know about a measure the better you are able to understand what it actually says.

"An operational definition is a procedure agreed upon for translation of a concept into measurement of some kind." An operational definition specifically states how to measure the item being defined. Many difficulties can arise without operationally defined measures.--Dr. W. Edwards Deming

Opaque measures, ring fencing problem results...fudging is the PEU way. 

Update 9-30-22:  FT ran a letter which stated

 ...the path that has worked for private equity, not normally for countries. There are four stages. One, load the victim organisation up with debt. Two, bleed off cash and assets to provide excessive rewards for the inner circle. Three, massage the numbers to flatter the performance of the victim company. Four, get out fast and leave others holding the can.

Monday, September 26, 2022

PEU Unethical Waves

The SEC fined Wave Equity Partners LLC, an ESG oriented private equity underwriter (PEU).  

From May 2018 through October 2020, Respondent caused Fund II to pay certain organizational expenses specified in Fund II’s governing documents, including placement agent fees to a third-party vendor. The placement agent fees that Respondent borrowed from Fund II over this period of time totaled $1,096,443.

Pursuant to the terms of Fund II’s partnership agreement and private placement memorandum, this borrowed money was required to be paid back to Fund II promptly through an offset of the quarterly management fees charged and collected by Respondent for its management of Fund II. 

Respondent did not offset any of the money borrowed from Fund II against the receipt of management fees for 11 consecutive quarters, beginning with the second quarter of 2018 (the quarter ended June 30, 2018) and continuing through the fourth quarter of 2020 (the quarter ended December 31, 2020). Instead of paying back Fund II during this time period, Respondent used the management fees it charged and collected for its own operating expenses. 

From July 2018 to October 2021, Respondent never informed investors and potential investors in Fund II that it had failed to repay Fund II timely and was thereby in violation of Fund II’s governing documents.

Glenn Youngkin was once an ESG fan while co-CEO of The Carlyle Group He flipped his position after winning the Virginia Governor's race.

FT ran another story on PEU continuation deals and conflicts of interest in moving affiliates from one fund to another.  A Dutch pension fund investment professional equated continuation deals with ponzi schemes.

FT also reported that a PEU billionaire lamented that crypto is not as ethical as private equity.   

“I’ve gotten to know that world a little bit more, and some of the business practices don’t rise to the level of ethics that we’re all used to in private equity with your investors and your customers and your community, and that has been a bit disappointing.”

Opaque fees, a history of collusion via club deals, pay for play settlements indicate questionable PEU ethics.  The intense profit pressure put on affiliates frequently causes bad behavior (Carlyle = ARINC, SemGroup, Synagro, ManorCare)

Consider that Carlyle co-founder/crypto fan and policy making billionaire David Rubenstein has access to D.C.'s hallowed halls of governance.  He kept PEU preferred taxation despite widespread public opinion to the contrary.

Failing to meet the already low ethical standards of the greed and leverage boys...that shouldn't be the future of finance, much less its present.

Friday, September 23, 2022

PEU Party in Cannes

The greed and leverage boys gathered along the French Riviera to sell the private equity underwriter (PEU) method of investing.  It's high fee and low tax.  The PEU way leverages debt and political connections for profit.  

When times are good PEU sponsors bleed affiliates with dividend recapitalizations.  When times get tough affiliates can find themselves stressed for operating cash as the greed and leverage boys won't throw good money after bad.  If it gets bad enough affiliates can be cast into bankruptcy.

A newer option is to sell an affiliate to a sibling fund in the same PEU family.

FT reported:

Mikkel Svenstrup, chief investment officer at Denmark’s largest pension fund ATP, used his platform at the conference to compare private equity to a pyramid scheme

He complained about the industry’s use of “continuation funds”, a fast-growing model in which a private equity group sells a company to itself by shifting it between two of its own funds. And he said he was “looking very carefully” at “all those tricks they do to kind of manipulate” returns figures. 

 Bloomberg reported

... continuation funds allow buyout firms -- also known as general partners -- to keep raking in management fees from existing or new clients.

Neuberger Berman is planning to deploy a chunk of the $4.9 billion it has raised for second-hand private equity deals on so-called continuation funds.

Is Neuberger looking for PEU affiliates on life support?  It may find ample opportunities going forward. 

The greed and leverage boys want to open their offerings to the more common investor.   This PEU hunt for cash from individuals is characterized as the "democratization" of private equity.

Common Dreams reported on dark money in American democracy

Proponents of democracy responded with disgust Thursday after Senate Republicans filibustered the popular DISCLOSE Act, which seeks to expose the super-wealthy donors who are spending unlimited amounts of undisclosed money to ensure that the U.S. government advances their interests at the expense of the vast majority.  

PEU founders have long been policy making billionaires.  America's hallowed halls of government have long been occupied by greed and leverage boys.  

Politicians Red and Blue love PEU and increasingly, more are one.  One can keep the PEU party on the Riviera rolling, even as they take their last breath.  

Update 9-26-22:  FT ran another story on continuation deals and  conflicts of interest in moving affiliates from one PEU fund to another.  It also reported that a PEU billionaire lamented that crypto is not as ethical as private equity.  Ah, failing to meet the already low ethical standards of the greed and leverage boys...

Thursday, September 22, 2022

Rubenstein on Jay to Suppress Lee

Carlyle Group co-founder David Rubenstein filled the financial airwaves recently, previewing this week's Fed meeting and offering interpretive commentary after the Jackson Hole event.

Rubenstein advises the New York Fed via his service on the Investor Advisory Committee.  That committee will take up the following questions in October:

What are your expectations for the U.S. economic outlook for growth and inflation? How are you thinking about the trajectory of the U.S. economic outlook relative to other jurisdictions? Which developments have been most important in affecting your outlook?

What is your outlook for Federal Reserve monetary policy and the path of policy? How do you expect monetary policy to evolve internationally? What do you think has driven changes in currency markets recently and what are the potential impacts and implications of these moves?

What are your thoughts on the outlook for Chinese economic growth? To what extent do recent developments, such as conditions in the real estate market, the zero COVID policy, and the upcoming Party Congress affect your view of the near-term outlook. What are key risks further out?

Rubenstein's ubiquitous presence may be an attempt by Carlyle to change the subject from the founders' recent drubbing of former Carlyle CEO Kewsong Lee.

Fed Chair Jay Powell's job is to get the greed and leverage boys their next round of buying opportunities.

Thursday, September 15, 2022

Rise of the Salesmen

This morning a CNBC guest called Adam Neumann a "great salesman" but failed to endorse Neumann's latest enterprise in conjunction with Andreesson Horowitz.

Andreesson Horowitz is also behind online brokerage Titan which announced it would offer several private equity options offered by other great salesmen, Apollo Global Management and The Carlyle Group.

Titan and its PEU partners will take fees for their services. 

Carlyle co-founder David Rubenstein recently talked how buying cryptocurrencies is titillating.  Titan can help investors get into crypto and/or private equity products.  

Are you ready to be sold?

Update 9-18-22:  David Rubenstein's show is now on PBS as well as Bloomberg.  Crypto loving Rubenstein (Paxos investor) just put out a book on investing.

Update 9-21-22:  Rubenstein was on Fox yesterday and will open tomorrow morning for CNBC.  Both networks have him talking about Fed policy.  Few mention his advisory role for the New York Fed.

Update 9-27-22:   CNBC reported:

The actively managed Ark Venture Fund invests in 70% private firms and 30% public companies focused on technologically enabled innovation, and selectively in other venture capital funds, Ark Invest said Tuesday. The fund is available initially through investing app Titan to individual investors with a minimum investment of just $500.  Titan is a startup backed by Andreessen Horowitz.  The Ark Venture Fund charges a flat management fee of 2.75%.

Wednesday, September 14, 2022

Rubenstein's Titillating View of Crypto

The allure, the privacy, the experience of "happiness and pleasure" are why people invest in cryptocurrencies noted Carlyle Group co-founder David Rubenstein.   One can be like James Bond given:

"There’s a lot of thrill in the secrecy of it, a lot of thrill that nobody knows what you actually own, a lot of Russian oligarchs saw their assets being taken away by Western governments and many other wealthy people around the world are probably saying, ‘well I want to have some assets that nobody can confiscate, nobody knows that I have [them],’ and that’s what cryptocurrencies do."

Rubenstein's family office Declaration Partners has a stake in crypto infrastructure firm Paxos.  I imagine Rubenstein received a capital call from Paxos given crypto's recent swoon.  

Hold me, thrill me, kiss me, kill my portfolio with spreads and fees.... 

Update 9-15-22:  Kim Kardashian of SKKY Capital is looking to date a doctor, lawyer or neuroscientist.  Why not a fellow private equity underwriter (PEU)?  That would be titillating.

Update 10-1-22:  Rubenstein remains a crypto promoter.

Monday, September 12, 2022

Carlyle Forms Atmas Health

A Carlyle Group press release stated:

Global investment firm Carlyle (NASDAQ: CG) announced the formation of Atmas Health in partnership with long-time healthcare executives Kieran Gallahue, Jim Hinrichs, and Jim Prutow and Carlyle’s Global Healthcare team.

The formation of Atmas Health is a continuation of Carlyle’s long-term global commitment to the global healthcare sector, in which it has deployed over $22 billion of capital. Carlyle’s significant experience investing in medical products, tools, instruments, and contract manufacturing businesses includes Medline, Ortho Clinical Diagnostics, Resonetics, Unchained Labs, amongst others.
Carlyle's Global Healthcare team makes no mention of ManorCare, the giant nursing home it drove into bankruptcy.   Former Carlyle CEO Kewsong Lee drove the formation of a COVID-19 portfolio.  

With Lee effectively fired Carlyle has turned to outsiders to grow its healthcare portfolio.  Look for this group to leverage federal funds to re-shore pharmaceutical and life science manufacturing. 

KKR's ownership of HCA added billions in unnecessary costs to America's absurdly expensive healthcare nonsystem.  Making healthcare more expensive is the PEU way.