Sunday, October 10, 2010

PEU Texas Governors Race

Who knew challenger Bill White loved private equity underwriters (PEU's) as much as incumbent Rick Perry?  Governor Perry's use of Texas Enterprise Funds as a cash kitty for Carlyle Group affiliates is well chronicled on this blog.  Bill White's dealings are less known, despite a summer attempt by the Governor to throw mud..

The Houston Chronicle reported:

GOP Gov. Rick Perry on Wednesday accused Democrat Bill White of engaging in profiteering during Hurricane Rita in 2005 by directing a local water authority to award a contract to a company to which he had financial ties.

"Ties" came via White's private equity investment in The Sterling Group's Fund II and affiliate BTEC, which specializes in the refurbishment, repair, and packaging of large gas-fired turbines.

Details on the private equity deal show:

BTEC was purchased by two private equity firms in September 2006. One of them, the Houston-based Sterling Group, asked White to join in its investment in BTEC, according to the White campaign.

In December 2006, White invested about $1 million in BTEC. He reported income of more than a half-million dollars on the investment on his 2007 tax return. 

Why is this 50% return in one year unusual?   Because Sterling never sold BTEC, an act which triggers private equity's biggest profits.

BTEC is still listed as a current holding in Sterling's Fund II.  The first monetization (exit) of a Fund II company came in 2008.

Private equity makes money in other ways, management fees and dividends.  That's one hell of a special dividend bleeding..

Oddly, Perry accused White of unethical behavior in regard to a $1.8 million project.  How does that compare with Rick's TEF shenanigans?  Perry discounted Carlyle's Texas 2010 obligation by that amount or more.

It's a PEU governors race. A decade of greed is upon us.  Private equity is now ubiquitous.  A vote for Red or Blue is a vote for PEU's.

Update:  The Governor's campaign commercial cites his competitor's profitable PEU investment, yet fails to mention any giveaway of state funds.  Gov. Rickly Pear, meet Blight.