Business Writing in a PEU World

A former financial reporter (think Bloomberg, FT, WSJ) kindly shared their thoughts on private equity.  Here are a few observations:

The PEU Report is absolutely brilliant and has given me faith that someone out there has noticed what is going on in the world.

There are very few people out there who will talk and write honestly about private equity. I know from personal experience that the financial press is so eager to break news on "deals" that reporters (who are increasingly compensated on the number of "market moving stories" they write) can't afford to be critical of Carlyle, KKR and Blackstone, and risk losing access to people at those firms.

I found it interesting how pay for performance in financial reporting distorts what stories are told and how.  Rewards punish and suboptimize quality, even in business storytelling.  Here is such an example:

I can remember Bloomberg's private equity reporter - who you featured in a recent blog photo - going on TV to talk about the HCA dividend and calling it a "liquidity event." The reporters are trained by the PE firms' PR people to use language that they find acceptable. Wouldn't want to say they're "cashing out." I've never seen anything like it before.

The reach and damage inflicted by private equity's greed is taboo:

I have seen so many people -- particularly those in their 50s - 70s -- taken apart by what has happened in their industry as greed has hollowed out the economy. These are people took pride in their jobs and held themselves to this invisible standard that we all just took for granted, but is being wiped out.

The Carlyle Group scares me more than anything I've ever seen on Wall Street. It seems to exist to corrupt politicians and it's hard to know who they even represent.

I watched a video interview of (David) Rubenstein and his arrogance is really beyond tolerance. He was going on about the debt ceiling problem and how there would need to be cuts in services and higher taxes. When the reporter asked him about tax on carried interest he turned really disdainful and said that this "only" amounted to $22 billion over some number of years and this was not serious money. Boy, nothing like everybody doing their small part to save the country from oblivion!

Not to mention Carlyle's use of offshore corporations to hide taxable profits.  Carlyle co-founder Rubenstein always seems to be in sales mode.

I liked this (Rubenstein) comment:

"(W)hen the Great Recession hit, stocks went down and private equity valuations went down. Now private equity never said that we are absolute return: markets go down and we go up. Our theory is if the public markets go down by X percent, we go down by less. Public markets go up by Y percent; we go up by more because the theory is that private equity is better than the public markets. If it weren't, people wouldn't invest with us, right? So, what happened was when the private markets went down, a lot of people were nervous about their stocks and a lot of people were nervous about their private equity valuations."

Good thing Carlyle had control over how they presented the valuations to the market! Also, didn't they have some money market type mortgage funds that fell off a cliff? So much for a great track record as asset managers.

As for their track record, Carlyle lost Carlyle Capital Corporation (mortgage backed securities fund), Blue Wave Partners (hedge fund), and eight other affiliates. These are conveniently omitted from Carlyle's pre-IPO sales pitch, which includes video.

I watched a few minutes of those Carlyle videos.

All I can say is that when people have too much access to cheap capital (thank you Greenspan and Bernanke) they tend to develop a very inflated sense of their real worth. First it was Mozillo over at Countrywide "spreading the American Dream." Now, the PE guys are "creating value" everywhere they go!

Don't forget private equity's role in innovation.  I'm not sure how a century's worth of discoveries occurred without PEU's.  They only became ubiquitous in the seven years.  Carlyle's major innovation was locating in Washington, D.C., the home of purchased politicians and a $3.5 trillion budget.

PEU's pit countries against each other, jockeying for lower taxes and softer regulation. Dealbook offered the PEU divide and conquer pitch, which got a reaction.

I can't tell if the PE guys are being insincere when they talk about China or they are actually stupid. There is no way that the Chinese govt would let American firms come in and strip cashout of Chinese companies the way they've been allowed to in the US! I imagine the Chinese welcome the PE guys because they see it as another way (through PE orchestrated mergers) to get hold of more American technology and companies and jobs.

What is going on with the theme of the article that these guys never agree with each other? As if there are these deep philosophical differences in how they operate?!? Makes one just despair.

Watching the Milken Institute panel discussion, the disagreement seemed more snarky and personal.  The Four Horsemen of the PEU-Pocalypse may not like riding together.  But they do so for greed and plunder.

Update 9-21-12:  Carlyle co-founder Bill Conway worries that China may shut out foreign PEU's for local.

Update 4-13-14:  Ashleigh Rogers of Seeking Alpha gave The Carlyle Group a thumbs up, thus improving the odds of her landing a David Rubenstein interview.

Update 5-1-14:  Bloomberg decided selling terminals was more important than investigative financial journalism.

Update 3-22-15:  Yale interviewed David Rubenstein in 2013 that is worth a listen in light of the above themes.  He avoids his and Carlyle's role in decimating the middle class.

Update 6-3-15:   Those harmed by the hollowed out economy spoke up in response to a silly piece in the WSJ asking why consumers failed to spend.

Update 8-4-15:  People may be ready to hold our abysmal leaders accountable for hollowing out our economy for their outsized gains, money and power.

Update 4-22-17:  Here's how greed has hollowed out the economy and decimated America's middle class.

Update 12-5-19:  The greed and leverage boys hollowed out residents of Sidney, Nebraska.  Fox News Tucker Carlson did a story about their town and how they were undone by a big Sasse donor.  Senator Ben refused to comment.  Loneliness? 

Update 3-16-22:  New Yorker reported:

Freedom House, a Washington think tank, has described the use of tax havens and other hidden maneuvers as a “multifaceted threat to democratic governance.” The efforts to escape an ordinary obligation of citizenship, while sometimes legal, “hollow out public services, and they fuel populist resentment by magnifying the perception that the system is rigged in favor of wealthy elites,” the group declared. Over time, they “set a country on a path toward institutional breakdown or even state failure.”

Update 4-26-23:   CNBC reporter Hadley Gamble was romantically involved with TPG founder David Bonderman.  Is nearly every business reporter a PEU concubine?

Update 6-17-24:  FT ran a story titled:

"Private equity firms have amassed $1 trillion in ‘carry’ fees as taxation debate mounts"

That's serious money. 

Update 9-18-24:  Rubenstein is now a PEU legend.  His Bloomberg Audio interview has a number of startling admissions.

...let’s get members of Congress to come and sit with each other from different parties in different houses, which they rarely get a chance to do. No press. Nobody can see ’em talking to somebody who’s a different member of a different party. And that’s been going over 10 years. 

And what do these members of Congress know about Carlyle?  Here's another Rubenstein admission:

Later I went out and recruited big names who had been in government, people like former Secretary of State, Jim Bakker, former Secretary of Defense, Frank Carlucci. And that gave us a certain allure because people were wondering what are they doing in an investment firm? 

Update 9-19-24:   No Presidential candidate (Trump or Harris) has talked about PEU preferred "carried interest" taxation this election cycle.  The Great Acquiescence has arrived.  PEUs are now part of our national DNA.  Thanks Carlyle for making secrecy and greed our unstated national values.