Friday, August 12, 2011

Four Years Ago, Before PEU's Became Ubiquitous

The NYT reported in summer 2007 on Mitt Romney, as his presidential run ramped up:

Romney excelled as a deal maker, a buyer and seller of companies, a master at the art of persuasion that he demonstrated in the talks that led to the forming of Bain Capital.

“Mitt ran a private equity firm, not a cement company,” said Eric A. Kriss, a former Bain Capital partner. “He was not a businessman in the sense of running a company,” Mr. Kriss said, adding, “He was a great presenter, a great spokesman and a great salesman.”

“In private equity and in consulting, a lot of what you rely on is trust and confidence and persuasion,” said Mr. Kriss.
Bain Capital had $10 billion in assets under management in 2006.  It's $65 billion today. The flashback gets better:

Romney made his money mainly through leveraged buyouts — essentially, mortgaging companies to take them over in the hope of reselling them at big profits in just a few years. It is a bare-knuckle form of investing that is in the spotlight because of the exploding profits of buyout giants like Bain, Blackstone and the Carlyle Group. In Washington, Congress is considering ending a legal quirk that lets fund managers escape much of the income tax on their earnings.

“The amounts of money are so vast that it is truly a matter of time before the taxation of private equity is front and center of the public agenda,” said James E. Post, a Boston University professor who teaches business-government relations. “Increasingly, this world of private equity looks like a world of robber barons, and Romney comes out of that world.”

The legal quirk remains intact for billionaire private equity underwriters (PEU's).  Their preferred carried interest taxation survived four Congressional charges.  Politically connected PEU's from Bain, Blackstone and Carlyle stormed the capital.  They didn't have far to go, given their regular White House visits.

When Mr. Bain proposed starting Bain Capital about two years later (1983), Mr. Romney said, “I loved the idea,” adding that he was cautious at first because “it is my nature to study things extensively before I jump.”

Lawyers advised separating the investing venture from the consulting business to avoid a conflict of interest.

When Mr. Romney finally set up shop just across the hall from Bain consulting in 1984, his initial plan centered on providing venture capital — seed money — for ideas spun off by Bain consultants.

By the time Mr. Romney left the firm in 1999, the investments it had sold off had made enough money to deliver an average annual return that amounted to as much as 100 percent before fees.
Bain's huge profits and fees were taxed at a preferred rate.  But Mitt wanted more.  Here's how slick Romney is to the monied class:

But even among its peers, Bain’s results were so remarkable that by 1998 Mr. Romney had persuaded investors to let the Bain partners keep 30 percent of the profits — an arrangement that is still rare.
Despite the September 2008 financial meltdown, PEU's grew in assets under management and political influence, as attested by their preserving carried interest taxation.  At the time of their 2007 Dunkin' Donuts leveraged buyout:

The Carlyle Group managed $35 billion in assets.  They now manage $153 billion.

Bain had $27 billion under management.  It's currently $65 billion

Thomas H.  Lee Partners' $12 billion under management grew to $22 billion
That's PEU growth of 222% during a financial meltdown.  No wonder people don't want to speak out against them.  Which PEU sponsored candidate will be elected President for 2012?  On the Republican side, ex-Massachusetts Governor Romney faces a fresh PEU face in his Texas counterpart Rick Perry.  A spokesman turned the "Perry vought to run" for President into "Perry vill run." 

Rest assured, Red and Blue love PEU.

Update 8-14-11:  Bloomberg reported:  "Another $100,000 check to Americans for Rick Perry came from Wareing & Co. Ltd., according to FEC filings. The company is listed at the same address as Wareing Athon & Co., a Houston private equity firm run by Peter Wareing, whose holdings include cement company Gulf Coast Pre-Stress Inc."