Saturday, October 2, 2010

Brookings Launches Private Capital Project

Two private equity underwriter (PEU) meetings occurred this past week.  New York hosted the Private Equity Analyst Conference, while in Washington, Senator Mark Warner (D-Va) keynoted the kickoff of The Brooking Institute's new Private Capital Project.

Pensions & Investments revealed a connection in their report on the Analyst meeting:

Private equity executives have not done a good job with the industry's image, said Kevin J. Conway, managing partner, Clayton, Dubilier & Rice LLC.

As a way of tackling the image issue, Mr. Conway announced that one of his firm's founders, Joseph Rice, has set up a private equity institute at the Brookings Institution to research positive contributions of the industry.
The following quotes are from the Brookings' meeting.  Senator Warner stated in his address:

You know, I do think that one of the things that hasn’t received enough attention, outside of kind of academic areas, is how -- and I realize there are folks here, particular from PE firms, and others, and some of this will hopefully make you a little bit mad -- but, you know, the last 10 or 12 years, and it’s not really one political party over another, but there’s a lot of factors, I think, that have changed the role of private capital that maybe don’t get enough scrutiny. Some of this is fairly obvious, but from a policy-maker side, I don’t think we really spend much time about it.

And, you know, they’re obvious things -- the movement of private capital knows no boundaries.
Warner recovered from his ramble to reveal his analysis and recommendations:

1.  American innovation dwindled to a trickle, partly due to funding structures
2.  U.S. financial black magic got out of control
3.  Government doesn't have many bullets left to kick start economy
4.  Solution lies in cash rich corporate balance sheets and private capital sources
5.  Turn expiring Bush tax cut money back into the economy, via other corporate tax breaks
6.  Give businesses certainty via regulatory pay go.
7.  Institute policies, including tax policy, encouraging growth and innovation
8.  Public-private infrastructure financing (ignore Chicago parking meter debacle)
9.  Expand manufacturing and export
10.  Export to China and India
11.  Target energy, broadband, commercial space flight, biotech, & infrastructure.  Requires regulatory and IP reviews.

Damon Silvers revealed:

About five weeks ago the subordinate debt in the Hilton buyout was bought back by Hilton, to the great advantage of Blackstone, Hilton’s owner. And who sold it? The Federal Reserve Bank of New York, which had gotten it from Bear Stearns. And at what discount? 44 percent.

That gets an Obama Stimulus Plan tax break.  Meanwhile, Den White stated:

China has announced that it’s going to invest, as a government, $15 billion in industries, state owned enterprises, that build hybrid cars and electric cars.
China's investments are backed by cash, while America's are debt fueled, dependent on future public offerings for repayment.. 

Martin Bailey and Josh Lerner will head up Brookings' Private Capital Project.  Did either take notes when the keynote speaker said:

I hear repeatedly from friends in the business community, “You know, Warner, we’re getting these great opportunities. Country-X is offering all these incentives. Country-Y is offering these low wage rates. We’re doing all this. We’re going to move our operations over here.”

Follow the PEU money, now sponsoring a Brookings study.  Private capital, frequently means public fleecing.