Monday, May 23, 2011

Too Intertwined to Fail

The marriage of U.S. private equity underwriters (PEU's) and Chinese sovereign wealth funds (SWF's) continues.  Bloomberg reported:

China Development Bank Corp.’s investment unit agreed to purchase a stake in U.S. buyout firm TPG Capital, said a person with knowledge of the matter.

TPG co-founder Jim Coulter attended a signing ceremony in Beijing today with China Development Bank Capital Co., according to a copy of the schedule for the event seen by Bloomberg News. Michael Fuchs, an external spokesman for TPG, and Zhang Cheng, vice president of the strategic planning department for CDB Capital, declined to comment.
Note the lack of disclosure regarding a SWF buying into a PEU.  Add China's abysmal quality record to private equity's greed and dastardly deeds await.  China refused to honor its derivative commitments in the last financial crisis, blowing off capital calls.   When the next one hits and TPG approaches China Development Bank for capital infusions, what will happen? 

America's White House loves PEU's, especially one owning Mrs. Obama's favorite clothier, J. Crewe.  What happens when the world encounters the next spin of the Wayback Machine?  The Wayback Machine ran hot lately, bringing us another "no fly zone" over the country of a heinous dictator, an acrimonious budget battle with possible government shutdown, and a nuclear plant disaster

How will a China funded PEU contribute to the next meltdown and how will Chinese investors make things worse?  It remains to be seen.