Friday, August 19, 2011

What if Mr. Potter Started Bedford Falls Foundation?

Carlyle Group co-founder and private equity underwriter (PEU) William Conway established the Bedford Falls Foundation.  Conway and his wife gave $5 million to Washington's Capital Area Food Bank to construct a new building.  The facility will be called the Bedford Falls Foundation Food Bank Distribution Center (BF3-BDC).

As a longtime fan of the movie It's a Wonderful Life, Mr. Potter, George Bailey and Bedford Falls/Pottersville came to mind. I pondered Conway's movie character, given Carlyle's loading companies with soaring interest expense and management fees.  Those increased costs often supplant U.S. jobs in a Potter-like manner.

A former business reporter shared their take on Conway and company.

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 Rubenstein (Conway's partner) 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!

Conway's $5 million gift came with a Carlyle charge of leverage, potentially as high as 25 to 1.

Conway is providing $5 million to serve as equity so the charity can borrow or raise $125 million more from individual donors, city government, banks and commercial lenders. It's the same financial leverage model that made him worth $2.5 billion, according to Forbes magazine, and may potentially build 1,000 homes. 

Fortunately, the Capital Area Food Bank eschewed debt in leveraging the $5 million into a $37 million fundraising total. 

William Conway gave $15 to 20 million to the Bedford Falls Foundation after seeing the faces of the less fortunate on D.C.'s streets.  This revelation came before the fall 2008 financial crisis, which created legions more struggling citizens. As a percentage of Conway's $2.5 billion, $20 million amounts to 0.8%.

How long before the coming 125,000 square foot facility is overwhelmed by Pottersville people?  As a modern day, PEU "robber baron," William Conway cares.  The question is how much?

Update 8-23-11:  Enough to donate another $1 million to the BF3-BDC, which distributed a record 30 million pounds of food this fiscal year, up from 27 million last year.  The food bank went $1 million over budget last year.

Update 8-26-11:  Carlyle will invest in affordable housing in India.  Will they build homes like Bedford Falls or Potterville? A similar opportunity exists in Tunbridge Wells.

Update 1-31-22:  PND reported "Conway originally had planned to donate $1 billion to create jobs for low-income people, but when he solicited ideas for how to go about it last fall, he received more than twenty-five hundred suggestions. Ultimately, he determined that the greater need was to help the poor qualify for jobs that already existed. "I concluded out of all this that it was extremely difficult to create jobs," Conway said. "The objective I get to is similar, but I never thought I'd actually get there this way."