Sunday, April 27, 2008

Carlyle's Red & Blue Connections

The lobbying arm of The Carlyle Group has a distinctly bipartisan flavor. The infamous private equity underwriter flashed its red and blue credentials this past week. News reports indicated chief lobbyist, David Marchick, testified before a Senate Committee on foreign investment in the U.S. Mr. Marchick worked for many years with Bill Clinton, beginning in Arkansas and ending in the White House. Private Equity Hub reported on David's new assistant in its piece "Carlyle Bolsters Lobbying Team":

Bryan Corbett has joined The Carlyle Group as a principal on the firm's Government and Regulatory Affairs team. He will be based in Washington DC, and will report to David Marchick. Corbett most recently served in the Bush Administration as a Special Assistant to the President for Economic Policy and as Senior Advisor to Deputy Secretary Robert Kimmitt at the Treasury Department. He also served as Majority Counsel on the Senate Banking Committee.

Carlyle has both American political dynasties covered, Marchick from the Clinton's, and Corbett for the Bush's. Guess which Senate Committee heard the testimony of Carlyle's chief lobbyist? It would be the same Senate Banking Committee mentioned in Mr. Corbett's bio. Coincidence or intelligent design?

David's testimony is laughable from several perspectives. After the usual compliments, honoring, and boot licking, Mr. Marchick proceeded to talk about the review of foreign purchases of U.S. assets, complete with a reference to Dubai Ports World. He neglected to mention the sale of two Carlyle aviation companies to Dubai Aerospace. The transaction occurred between the failed Ports deal and the NASDAQ, both of which broadly made the news. How did Carlyle keep the sale of operations at over 50 U.S. airports quiet? Now, that takes connections as well as the leverage of corporate advertising on behalf of over 1,000 companies.

Marchick called for the usual voluntary code of conduct for investment firms, both foreign and domestic. He saw a dark cloud on the horizon, citing numerous instances where other countries blocked foreign investment. Isn't that their sovereign right, even the result of democratic processes? One deal involved New Zealand blocking a potential investment from Dubai in the Auckland airport. That would be the same Dubai Aerospace, the sovereign wealth fund that bought Landmark Aviation and Standard Aero from Carlyle back in August 2007.

This all points to Carlyle's ability to manage deals regardless of the political environment. This is also how they keep their good name. Know or employ the right people. Use those contacts to grease deals or stuff negative news. But most of all, stifle any real oversight by offering "voluntary codes of conduct" solutions. Did we learn anything from Enron or the current credit meltdown? Will Carlyle keep their preferred private equity taxation on carried interest? What will happen with sovereign wealth funds, one of which owns 7.5% of The Carlyle Group. Stay tuned, the board is stacked in the Pennsylvania Avenue PEU's favor. That's exactly what co-founder William Conway wants.

Who ever heard that a Carlyle joint venture botched the job so badly, Boeing nudged them out of their new Dreamliner production? After the hullabaloo over Hurricane Katrina and its aftermath, who knows the hospital with the largest patient death toll in New Orleans belonged to a brand new Carlyle affiliate, LifeCare Hospitals? Very few, my friend. And Carlyle likes it that way. They do have their good name to maintain.