Tuesday, January 31, 2012

Carlyle's PEU Stripping Fish

The Carlyle Group strips fish, in addition to corporate cash. 

PacAndes is the proverbial puzzle within an enigma. Its 50,000-gross-tonne flagship, the Lafayette, is registered to Investment Company Kredo in Moscow and flies a Russian flag. Kredo — via four other subsidiaries — belongs to China Fishery Group in Singapore, which, in turn, is registered in the Cayman Islands.

China Fishery and Pacific Andes Resources Development belong to Pacific Andes International Holdings, based in Hong Kong but under yet another holding company registered in Bermuda.

PacAndes, which is publicly traded on the Hong Kong stock exchange, reports more than 100 subsidiaries under its various branches, but a partly impenetrable global network includes many more affiliates.

One of its major investors is the US-based Carlyle Group, which bought $150 million in shares in 2010.

China Fishery Group reported a 2011 revenue gain of 27.2 per cent to $685.5 million from $538.9 million, 55 per cent of PacAndes' earnings. The company attributed it to stronger operations from the South Pacific fleet and the Peruvian fishmeal operations.

Recall how Carlyle co-founder David Rubenstein advocated the China model of capitalism at the recent World Economic Forum meeting in Davos, Switzerland.  The China model is state directed and subsidized, thus it helps to be in good with the state

(Fishing) overcapacity has been driven by government subsidies, particularly in Europe and Asia, experts say.

A landmark report by Rashid Sumaila, along with the oceanographer Pauly and others at the University of British Columbia, estimated total global subsidies in 2003 — the latest available data — at $25 billion to $29 billion.

Between 15 and 30 per cent of subsidies paid for fuel to allow ships to range widely, it said. Another 60 per cent went to increase size and upgrade equipment.

The study calculated China's subsidies at $4.14 billion and Russia's at $1.48 billion.

Carlyle affiliates frequently suckle on the government teat. It helps garner 30% annual returns.

The Carlyle Group cashed in for the fourth time on China Pacific Insurance.  Total proceeds to date are HK$28.7 billion.  If you haven't seen enough offshore tax shelters, Carlyle has another holding China Pacific:

Carlyle Holdings Mauritius, another subsidiary of Carlyle Group, still holds 113 million H shares in China Pacific Insurance.
Some experts call for a five year fishing moratorium for specific species.  A PEU moratorium on government subsidies, stripping cash from affiliates and hiring ex-politicians might allow business ethics and working capital to recover.  Let's hope its not too late for fish and ethical business practices.  Each deserves a chance for survival.

Monday, January 30, 2012

South Carolina State Treasurer Smells PEU

Curtis Loftis, South Carolina's Treasurer, wants the state's pension fund to lighten up on alternative investments.  WSJ reported:

Just five years ago, it was illegal for South Carolina's public pension plan to invest in hedge funds, private equity and other complicated bets.

Now, nearly half its assets are in such investments.

Loftis believes this allocation is far too high.

(Loftis is) fed up with years of high fees on the state's hedge-fund, private-equity and real-estate investments, and their complex terms, which he says are incomprehensible to the average taxpayer.

"I question whether Wall Street's interests are being protected or our interests are being protected," says Mr. Loftis.

The Carlyle Group's David Rubenstein called on Loftis in August 2011. The hour long session was an attempt by Rubenstein to touch his client. Loftis understands the private equity underwriter (PEU) mentality:

"He's a great man," Mr. Loftis says about Mr. Rubenstein. But, he added, "these people are not my friends. If I weren't the treasurer of South Carolina, they wouldn't take my calls."

No, they would not. PEU's focus on the 2 and 20, which Loftis stands to threaten.  They'd hate another PEU run.  How much did South Carolina's pension pony up in Carlyle capital calls in the 2008 financial meltdown?  CalPERS kicked in $681 million.

How much did South Carolina's alternative investment exposure rise keeping PEU's from swirling down the cash drain?  Rest assured, David Rubenstein won't say.  He probably views it as a discourteous question.

Sunday, January 29, 2012

Putting a Bow on Davos' Schmoozing & Parties

The World Economic Forum, an annual meeting of global tamperers, wrapped up in Davos, Switzerland.  The "future of capitalism" theme served as cover for Davos' hegemonic ends.  BBC reported:

Participants ... got down to what the event really is about: soaking up new ideas, pitching deals and - most importantly - using the opportunity to network.
The police state protected the event:

There were several small protests outside the heavily protected venue, surrounded by hundreds of Swiss police officers, security guards and soldiers.

It's good the police were there to save Davos participants. 

Davos certainly discussed many of the most urgent issues of the world. 

Otherwise who will save the world, or preserve it to their end?  Scheming is brain work.  It requires counter balance, thus Davos' infamous parties.  CondeNast's Daily Traveler wrote:

So Far, My Favorite Moments at the World Economic Forum Have Been at the Parties

The setting is majestic: the quaint Swiss town is surrounded by snowy mountains and pine trees blanketed in white. But no one seems to pay much notice to any of that. It’s all about the people
BusinessInsider reported:

Given the quality of speakers at the World Economic Forum, you may be under the impression that people go for the content. They don't. The content is a interesting diversion, for those with spare time, but the real reason companies happily shell out up to $600,000+ per year to attend the Davos conference is because of the schmoozing.

Schmoozers include David Rubenstein, Tim Geithner, Chelsea Clinton, Jamie Dimon, Bill Gates, Niall Ferguson, Nouriel Roubini, Mario Draghi, Christine Lagarde, David Cameron, Angelo Merkel, Vikram Pandit, Mick Jagger, Dr. Oz, and George Soros.

American branded global mega-corps were in full force, schmoozing and sponsoring schmoozing events:

Chelsea Clinton hosted the Clinton Global Initiative reception at the PwC "Thought Cafe."  PwC has Price Waterhouse Coopers in its background.  Deloitte promoted its new Business Society.  KPMG "Cut Through Complexity" with a snow free stairwell and Davos update page.

Carlyle Group co-founder David Rubenstein predicted capitalism would go state sponsored, like China.  Did he plug Moncler ski jackets, available at Ettinger Sports in Davos?

As for braving the cold without proper attire, three Ukrainian topless women were able to get near the heavily guarded grounds.  They chanted, "Poor because of you."

Might David Rubenstein offer them a Moncler cashmere turtleneck?   Should he feel less charitable, Rubenstein could ask authorities to roll them into a Brintons' carpet.  That remark is in poor taste, given Brintons' retirees lost their pension because of Mr. Rubenstein.
Davos' police apparatus quickly silenced the topless threat.  Is this evidence of KPMG's "cutting through complexity", Deloitte's new "business society"?  It echoes the China model of economic freedom, pushed on Palestinians the last few years. 

Next up for global tamperers?  It's a pair of CGI's, the Clinton Global Initiative and Carlyle Group investors meeting, which run back to back in the fall.   Clinton Global Initiative is a favorite of CEO's, the group getting value at Davos.  In between is the annual Bilderberg Group meeting.  Times couldn't be better for global tamperers.  Not so much for Brintons' retirees or Ukrainian feminists.

The global race to the lowest common denominator on worker pay/benefits, taxes and corporate regulation continues.  Exempt from the downward spiral are political donations and CEO pay.  Personal freedom, like Carlyle's shareholder rights, must be limited.  This is Davos' legacy in the new millenium.

Update:  ZeroHedge has a Davos post mortem

Update 1-31-12:  MarketWatch offered a scathing summation

Rick Perry Vought to Know

Rick Perry ought to remember his $35 million Texas Enterprise Fund gift to The Carlyle Group's Vought Aircraft Aviation in 2004.  The Carlyle Group is a private equity underwriter (PEU) like "vulture capitalist" Bain & Company.

Governor Perry bragged how the Vought TEF award would bring 3,000 new jobs to Texas.  They never came, a fact the media has been unable to find.

Vought dangled Boeing 787 Dreamliner jobs for Texans, before taking $65 million from the state of South Carolina to locate production there.  Carlyle deemed Senator Lindsey Graham a better military benefactor.  The extra $30 million also helped.

South Carolina's Vought went on to gunk up Dreamliner production.  The nightmare ended when Boeing bought out Vought's 787 associated facilities, or so they thought.  SEC filings show:

On July 30, 2009, Vought Aircraft Industries sold the assets and operations of its 787 business conducted at North Charleston, South Carolina ("the Boeing sale agreement") to a wholly owned subsidiary of The Boeing Company ("Boeing"). Following the acquisition of Vought by the Company, Boeing has asserted various breaches to the Boeing sale agreement which include alleged losses from aircraft tooling, flawed inventory management and problems with spare parts. The Company and its counsel are continuing to obtain additional information related to the various issues asserted by Boeing.
This sheds light on Carlyle's expertise as an operator, given 787 production ramped up under Carlyle's ownership.

Vought's Texas job commitment rang hollow from the Palmetto flim-flam and failed promises to relocate production from Tennessee and Florida.

On February 26, 2004, we announced plans to consolidate portions of our manufacturing operations to Dallas and Grand Prairie, Texas. The plans include renovating and modernizing the Dallas and Grand Prairie facilities, closing the facilities in Nashville and Stuart and moving their operations to Dallas and Grand Prairie and reducing the size of the Hawthorne facility. The final planned completion dates of closing the Stuart and Nashville facilities are December 31, 2005 and December 31, 2006, respectively.
It never happened, like Vought's employment promises.  Vought Aircraft Industries employed 3,350 in Texas when it signed on to add 3,000 more jobs, for a total of 6,350 Texas positions.

Vought's company wide employment danced around its Texas commitment  The company decided not to fulfill its Texas promises in 2005.

Amounts previously disclosed for 2004 have been updated to reflect a reclassification of $35 million in grants received from the State of Texas from operating activities to financing activities.. 
That's a sweet non-debt, non-equity capital injection.  Who wouldn't want $35 million to invest for five years Scott free?

Rick Perry's Texas Enterprise Fund spreadsheet indicates Vought provided 3,000 jobs with a total impact of 29,377 jobs.  Vought provided 3,350 Texas jobs when Perry pushed suitcases of cash on Carlyle:  Not only did Carlyle not add 3,000 jobs, they cut 35.  Rick Perry gave "vulture capitalists" $1 million per job lost.

Look how Vought characterized the grant.  In 2005 the company stated:.

On February 26, 2004 we announced plans to consolidate portions of our manufacturing operations to Dallas and Grand Prairie, Texas. We received a $35 million grant from the Texas Enterprise Fund in April 2004 and are in the process of working with the Texas General Land Office and several other state and local agencies to help us accomplish the consolidation. By accepting this grant, the Company is obligated to add 3,000 jobs in Texas over the next 6 years with a prorated penalty (based on any shortfall in our ability to maintain a total of 6,000 jobs in Texas with the total penalty amount not to exceed the amount of the grant) assessed beginning in 2010 if that goal is not reached.

Contrast this with their 2010 description:

In March 2005 we were awarded a $35 million Texas Enterprise Fund grant to assist in increasing employment levels at our Texas facilities. This grant requires that we maintain certain employment levels at our Texas facilities. As a result of our failure to maintain the required employment levels, we repaid $0.9 million to the Texas Enterprise Fund in 2010. Our failure to satisfy these commitments in the future could result in the requirement to repay some or all of the remaining portion of $35 million grant over the next nine years.

When 2010 arrived and Vought failed miserably on its TEF promises, two things happened.  Rick Perry renegotiated the deal in secret, enabling Vought to refund the paltriest amount.

Carlyle then sold Vought to Triumph, who now has the TEF obligation.  Vulture capitalists chose not to refund Texas taxpayers from their ample profits.

Over the course of my tenure as governor of Texas, we've helped created a climate where 1 million jobs have been created.

Nearly 30,000 of those are a bald face lie.  Even a Presidential run couldn't bring these facts to light.  The media didn't have to conduct research.   PEU Report has numerous posts, complete with links to Perry's fictitious report and Vought's SEC filings.

Rick Perry caters to vulture capitalists, when he isn't calling them names. The media is unaware, ignorant or also catering to the privileged class of super billionaires and their politician benefactors..

Update 2-4-12:  Governor Perry wants to give companies a break from job incentive reporting requirements.  More opacity from a vulture capitalist lover.

Update 11-15-21:  Carlyle's 2009 Annual Report stated "in March 2010, Carlyle agreed to sell Vought to aircraft components maker Triumph Group in a transaction worth $1.44 billion.  The group that decided not to refund Texas taxpayers included "The three founders are joined by Daniel F. Akerson and Glenn A. Youngkin on the firm’s executive committee.  The operating committee is led by seven seasoned Carlyle professionals: Glenn A. Youngkin, Chair; Jeffrey W. Ferguson; David M.Marchick; Peter H. Nachtwey; Michael J. Petrick; Bruce E. Rosenblum; and Gregory L. Summe."  The name on both groups is Glenn Youngkin, newly elected Governor of Virginia representing the Red Team.  Youngkin helped short Texas taxpayers as Carlyle kept $35 million over six years.  Not only did it not come close to their employment promises, they cut 35 jobs during that period.  Glenn and Carlyle took $1 million from Texas taxpayers for each job they cut at Vought in the Lone Star state.

Saturday, January 28, 2012

Carlyle's Energy JV: Three Rivers IPO

The Carlyle Group partnered with Riverstone Holdings on energy investments.  They started Three Rivers Operating Company LLC in March 2010.  This put ex-BP CEO and Riverstone Managing Director Lord John Browne back in Texas.

Less than two years later, Riverstone is ready to monetize by taking Three Rivers public.  Three Rivers' S-1 does not state how many shares will be sold or their expected price.  It does indicate Riverstone pulled $66 million from Three Rivers since inception.  Over $60 million came from a "distribution," while nearly $6 million came from placement and management fees.  The S-1 did not indicate the management fee paid for 2011.

Three Rivers used debt and equity to purchase assets from Cheasapeake Energy and  Samson Resource.  JP Morgan and BNP Paribas syndicated a $600 million credit agreement with Three Rivers.  The base borrowing is $325 million.  The S-1 stated:

Our company was formed in March 2010 for the purpose of engaging in the oil and gas exploration and production business. We began active oil and gas operations in April 2010 following our acquisition of developed and undeveloped properties from Chesapeake Energy Corporation ("the Chesapeake Acquired Properties") at an aggregate net purchase price of $202.8 million. In January 2011 the Company purchased all of the operated assets in the Permian Basin from Samson Resources Company ("the Samson Acquired Properties") at a purchase price of $343.5 million.
Not only is The Carlyle Group a virtual nonprofit organization, so is Three Rivers:

The Company is not a taxable entity for either U.S. federal income tax purposes or the majority of states that impose an income tax. Income taxes are generally borne by the members through the allocation of taxable income. Accordingly, no recognition has been given to federal income taxes in the accompanying consolidated financial statements.

The Carlyle Group's Daniel A. D'Aniello and Edward J. Mathias exercise investment decision making for 99.9% of Three Rivers' Series A stock units.  Carlyle announced it would no longer partner with Riverstone on new funds   It's a long term breakup.

Rest assured, Carlyle will profit handsomely.  A $300 million IPO puts Carlyle/Riverstone $90 million in the black.  Any future stock sales will be pure profit.

Will they garner a double, triple or quad for their two year holding of Three Rivers?  How much Three Rivers stock will Carlyle's co-founders, the DBD's, park in the Cayman Islands?

Sad State of Drugs

The prescription drug landscape is riddled with shortages, sabotage, superbugs and deadly substitutions

Generic sterile injectible drug shortages impact many people.  There are few suppliers making these drugs, so when a manufacturing plant has a problem, it quickly results in shortages.  Adding to potential quality concerns, the active drug ingredients are nearly all made in China and India in plants which are rarely inspected.  Chinese manufacturers played the deadly substitution game with heparin, killing many Americans.

Such a scenario is playing out in Pakistan, where contaminated cardiac drugs killed more than 100 people.  Over 46,000 patients received potentially contaminated medicine.  Heartwire reported:

Punjab Institute of Cardiology purchases medicines from the company that bids the lowest rate. The contaminated medicines were distributed from December 15, 2011 until the first week in January [3]. He said the first case was diagnosed on December 20, 2011, but the issue was confirmed on January 5, 2012, when about seven people had died. Elahi added that the distribution of the suspect drugs had been suspended, and 70% of the tablets already distributed had been recovered. He also noted that raw material used in the medicines was imported from China and Dubai.
It's not clear where the contamination for five different cardiac drugs originated, but its deadly outcome is certain.

The overuse of antibiotics created a line of drug-resistant lethal superbugs.    Even the tape used to seal wounds can harbor superbugs.  One doesn't have to be in a hospital to encounter a superbug.  Exposure can occur from a trip down a supermarket meat aisle.

Antibiotics interact with the environment, producing drug resistant bacteria.  These deadly organisms are predicted to migrate through other species to humanity's detriment.  One strategy is reverse engineer antibiotic sensitivity to bugs, i.e. make them less super. It's a dicey predicament, one made by antibiotic overuse.

Here's hoping the drugs you get are available, safe and effective.  Under the current system, it's a dice roll.

Update 2-1-12:  Pfizer recalled 28 lots of birth control pills, which amounted to "about 1 million packets of Lo/Ovral-28 and its generic equivalent, but the company estimates that only about 30 packets were flawed.".

Friday, January 27, 2012

PEU's Helped Create China Model

Carlyle Group co-founder David Rubenstein cited Chinese capitalism as the model for a debt impaired future.  It's a model private equity underwriters (PEU's) helped create.

Ten cents of every dollar we manage in private equity is in China,” said Jonathan E. Colby, a managing director with Carlyle Group. He added the Washington, D.C., firm is optimistic about China’s expected transition from an export-based to consumer-based economy.

Forget that another Carlyle executive cited the economic threat posed by China, the very country Rubenstein is teaching his PEU trade.  There is only one consistent foundation to the words Rubenstein and his ilk spout.  Greed.

Wednesday, January 25, 2012

Davos' Global Tamperers Twist Words for Power

The Carlyle Group's David Rubenstein echoed BlackRock's Larry Fink, who lamented working with democratic governments.

"Markets like totalitarian governments."--Larry Fink, BlackRock

HuffPo reported on Rubenstein from the World Economic Forum, the annual gathering of global tamperers, intent on growing their billions in wealth.

David Rubenstein, managing director of asset management firm Carlyle Group, said leaders must work fast to overcome the crisis or see other models of capitalism, such as the form practiced in China, win the day.

"We've got to work through these problems. If we don't do that in three or four years ... the game will be over for the type of capitalism that many of us have lived through and thought was the best type," he said.

China has reaped the rewards of its transition to a more market economy and is now the world's second-largest economy. Unlike the capitalist systems in the U.S. and Europe, China's market transformation has been heavily guided by a state apparatus that continues to balk at widespread democratic reforms.
Rubenstein's new version of capitalism is anything but.  It's government sponsored and kills individual freedom.  How can a "new version of capitalism" kill both capitalism and democracy simultaneously?  When it entrenches those with wealth and power.  That's the real game in America's Government-Corporate Monstrosity, Eisenhower's MIC on trillions in steroids.

The media fawns over David Rubenstein and his PEU ilk.  They push the shallowest meme to their greedy benefit.  Is there nothing they can't twist to their personal advantage?

Davos is about totalitarianism.  It's the China PEU model.

Update 2-10-12:  FP picked up the state capitalism vs. market capitalism dichotomy.

Tuesday, January 24, 2012

Joining the Homage to Mr. Rubenstein

If CNN, WaPo, and NYT can pay homage to Carlyle co-founder David Rubenstein, who am I to hold back.  Consider this my contribution, based on the song "Mrs. Robinson" from The Graduate:

And here's to you, Mr. Rubenstein
Jesus awards you more, as you know (Wo, wo, wo)
God bless you please, Mr. Rubenstein
Washington throws a bone to those who prey
(Hey, hey, hey...hey, hey, hey)

You'd like to know a little bit about us for your files
You'd like to help us learn to help ourselves
Look at Congress, all you see are sympathetic eyes
Stroll the White House grounds until you feel at home

And here's to you, Mr. Rubenstein
Yahweh awards you more, as you know (Wo, wo, wo)
God check you please, Mr. Rubenstein
Washington builds a throne for those who pay
(Ts eh, Ts eh, Ts eh...Ts eh, Ts eh, Ts eh)

Hide billions in a place where no one ever goes
Put it in the Caymans with your yacht
It's a little secret, just the DBD's affair
Run it through the Ugland house, away from the feds

Coo, coo, ca-choo, Mr. Rubenstein
Jehovah gives you more, as you know (Wo, wo, wo)
God damn the sleaze, Mr. Rubenstein
Washington fawns over billionaires who prey
(Hey, hey, hey...hey, hey, hey)

Planning Brintons' pre-pack on a Sunday afternoon
Candidates cite "vultures" in their debate
Laugh about it, pout about it
When you've got to choose
Every way you slice it, little people lose

Where have you gone, W. Edwards Deming
A nation turns it's lonely eyes to you (Woo, woo, woo)
What's that you say, Mr. Rubenstein
Your IPO has left and gone away
(Yaay, yaay, yaay...Yaay, yaay, yaay)

(These lyrics also work well with Mr. Schwarzman and Mr. Peterson, except they already cashed in big with Blackstone's IPO, something Mr. Rubenstein hopes to do.).

Update 2-10-12:  As for Jesus awarding PEU's more, one Carlyle ex should know.

Updated 2-12-12:  Will Micheal Huffington and Menachem Youlus sing along?

Update 9-18-12:  Forbes ran its homage to Rubenstein.

WaPo: Toasting Mr. Rubenstein

WaPo followed Fareed Zakaria's GPS in fawning over Carlyle Group co-founder David Rubenstein.  The piece highlighted Rubenstein's upbringing, with his father a postal worker.  Mr. Rubenstein cited education as the key to his economic fortune.  Surely, other students graduated from Duke and got a law degree at the University of Chicago.  How many are multi-billionaires?  It it's not 100%, Rubenstein's theory is in need of modification.

Mr. Rubenstein's initial killing came from selling Alaskan Native American tax losses. This venture became known as the Great Eskimo Tax Scam.

“Look, I know capitalism has its problems; it’s not always fair,” Rubenstein said. “I helped to start a company with virtually no money, and now I have more than I ever anticipated.” 
Carlyle exploited, even help create structures advantageous to private equity.  One of those is tax structures, domestic and offshore.  The Carlyle Group's IPO filing shows the firm to be a virtual nonprofit, much like a charitable hospital.  There's nothing charitable about private equity underwriters (PEU's). 

That said, here's to you Mr. Rubenstein, the nation turns its lonely eyes to you...

Monday, January 23, 2012

World Economic Forum to Dangle Carrots

The nonprofit World Economic Forum's annual meeting in Davos, Switzerland attracts a surprisingly profitable crowd. More than 1,000 CEO's will attend.  Davos ranks with the Clinton Global Initiative as a popular CEO destination.   Davos led the way with financial engineering, giving private equity underwriters major play the last decade.  What's up for 2012?  Check out the public agenda:

Note the "recently savaged for his Libya work" Michael Porter will present.

Other topics include:

Global Risk 2012: The Seeds of Dystopia
Risks in the Global Supply Chain
Risks in a Hyperconnected World
Averting a Lost Generation
What if Iran Develops a Nuclear Weapon?
Fixing Capitalism
What if All Known Antibiotics Lost Their Effectiveness?
Remodeling Capitalism
What if a Major Biological System Collapses?
CNBC Debate: The Global Agenda 2012

There are numerous sessions on the Arab Spring and Africa's rising.  Also, two special addresses are listed.  It's not clear who will occupy that time.

Might it be a private equity underwriter (PEU) recently interviewed on Fareed Zarakia's GPS?  Could a Presidential PEU make the stage, given Bain Capital is WEF strategic partner?  It wouldn't be Rubenstein first trip to Davos.  Might it be Romney's?

The Carlyle Group: Fareed's Fawning

GPS's Fareed Zakaria went prostrate on a Brintons' carpet before Carlyle Group co-founder David Rubenstein.  Turn your head if fawning makes you ill.  Otherwise, read on or listen to the podcast:

ZAKARIA:  My next guest is a pioneer of private equity. The term didn't really exist before David Rubenstein and his partners founded the Carlyle Group almost 25 years ago. Today, Carlyle is, by some estimates, the largest private equity firm in the world. The companies in Carlyle's portfolio have revenues of approximately $100 billion.

If Rubenstein's name sounds familiar, he was also in the news this week for donating $7.5 million to fix the Washington Monument.

Welcome, David.


ZAKARIA: Do you understand the attacks that people are making about private equity, about Mitt Romney? The basic argument, as I understand it, goes private equity companies buy these companies, load them up with debt, fire all - lots of workers, find some low cost place to do the same thing, and that's how they make money, and it's terrible for American workers.

RUBENSTEIN: Well, I think that's unfortunate because that's not the reality. The reality is this. Private equity firms are very good at buying companies, improving them, strengthening them, actually increasing employment in many cases, and doing a very good job for the investors, most of whom are public pension funds, fire workers, policemen, teachers. They're the beneficiaries principally of private equity.

ZAKARIA: Do you think that the basic model that people look at is wrong then, that they say these private equity companies come, you - so when you buy a company, how do you strengthen it? You know, how do - what is the magic that makes you able to grow the company other than firing workers and, therefore, reducing costs?

RUBENSTEIN: Well, firing workers is rarely something that's actually done. You know, the private equity statistic show that when you hire more workers, you actually make more money. So, in the end, private equity firms are trying to hire more workers and actually make the companies bigger than they were when they - when they made the original investment.

ZAKARIA: Because it would make -


RUBENSTEIN: Yes. That's what the statistics show. When you hire more people and you make more products or more services that you sell, you actually make more money, and that's good for the investors.

But actually, what private equity does is this. Somebody like my firm will buy a company. We are incented to do well. We typically get 20 percent of the profits, so we are perfectly aligned with our investors who put up the bulk of the money, though we invest as well.

The managers of the company, the people, the CEOs running the company, they get a large piece of the profits as well. Typically, we do this in a private setting. We don't have to worry about public reporting for a long time. The company's CEO can worry about making the company more efficient over a four to six-year period of time.

And what statistics show over a 10-year, 20 year, and 30-year period of time, that if you invest with a good private equity firm, you're likely to get a much higher rate of return than you would in almost anything else can you invest with.

So we're not doing anything that's magical, we're simply incenting the workers, we're incenting the CEOs, we're incenting the professionals to be aligned with the investors and make the companies grow.

ZAKARIA: What do you think of Bain Capital and - and the stories you hear about it in the context of this campaign?

RUBENSTEIN: Well, it's disappointing if you're in this - an industry that is actually adding value, creating jobs, making America more efficient in many ways and more effective in many ways.

Private equity is dominated by the United States companies. The largest private equity firms are here. Many people around the world are looking to us to how we do private - how they should do private equity there. In fact, the Chinese, for example, they very much want to import our private equity statistics and - because the statistics show that we are very good at what we do, and they want these - these skills and these know-how that we have here.

So why is it that the Chinese are so interested in learning what we do in private equity? Because they want to make their companies more effective, more efficient, and - and strengthen employment as well.

So I don't think what happened to Bain in terms of the criticism is really that fair. They may have done some things I don't know about years ago that aren't the practice of today. Remember, much of what Mitt Romney did happened 20 years ago or more, and the practice of the industry have evolved.

ZAKARIA: The other part about private equity that people worry about or are kind of stunned by is the kind of money you guys make. So - because there may be an IPO for Carlyle, you had to report this, and the three founders of Carlyle I think collectively made $450 million plus. There was returns from your own investments. You made several hundred million dollars last year.

Does - you know, do you understand how a lot of Americans look at that and say this just isn't fair?

RUBENSTEIN: Well, first, I do come from very modest circumstances. My father worked in a post office and never made probably more than $8,000 a year as an employee of the post office, so when people can rise up from very modest circumstances and do well economically, I think that's a good thing about America, and we should encourage that kind of activity.

Secondly, I give away about 50 percent of my income, so my, you know, desire to give back to the country is pretty strong and I intend to give away a lot more. I've signed the giving pledge with Warren Buffett and Bill Gates, and I intend to give away the bulk of my money. So yes, I do have a good income by most American standards, but I'm giving it away and doing the kinds of things that you mentioned the other day, the Washington Monument.

Third, I - I don't really set the - the rules about what income will be and taxes and so forth. If taxes are something that people are concerned about, Congress should change the taxes in the context of comprehensive tax reform.

And, most importantly, the money that I make, or my partners make, is perfectly aligned with our investors. If our investors make a lot of money, then we will make money. We typically get 20 percent of the profits. So if the pension funds that invest with us are doing very well, yes, we will do well. And because we're doing well, I'm fortunate to be able to give away the bulk of my money. 

ZAKARIA: Do you know - you know that there is a proposal that the bulk of the money you make, which is currently taxed at capital gains rates, which is much lower than income tax rates, that that should be changed. There are a lot of people who feel that isn't fair, that this is really income, and it should be charged at a higher rate.

Do you support changing the rate of carried interest from capital gains to ordinary income?

RUBENSTEIN: Well, there are a very few people who actually go to Congress and say please tax me higher. Maybe there are some, but there - there aren't many. In my case, what I would like to do is to have Congress tackle a tax reform in a comprehensive way. Trying to do it peacefully I don't think usually works well.

When I worked in the White House for President Carter, we tried to do comprehensive tax reform and we made some progress, and other presidents have as well. I think if you want to change that particular provision, do it in the context of everything else.

The tax system we have today is not fair in many ways. I wish it could be improved. When you have 10,000 pages of regulations and nobody can fill out their own tax return, that's not a good thing.

So I wish we would change it, but don't blame me for complying with the law. All I'm doing is I'm filling out my tax returns - or my accountants are, and I'm paying whatever I'm supposed to pay, though I'm giving away a large amount of the money and that probably lowers my tax rate because I'm giving away so much money. But change the law, but don't blame me for the law. I'm not writing the law. I didn't write the law.

ZAKARIA: But in the context of comprehensive tax reform, you would be comfortable with a change -

RUBENSTEIN: I would like to see what the whole changes would be. I can't just pick one change out and say it should be this way or that way. I want to make sure that we have good incentives, though, for doing what we do well in our business.

The United States does very well in private equity, and we have a very good economy, the most innovative economy in the world, and I want to make sure we don't do anything in tax reform that would change that. We are the envy of the world still in the way our economy is so innovative and the way we do investments very well. I want to make sure that whatever Congress does, it - it encourages people to do the kind of investing that we do.

ZAKARIA: Let me ask you about the economy, because you're looking at it with all these companies that you own, with hundred billion dollars in revenue, and this would put you as one of the largest corporations in the world, really, if you were to count it that way. Do you get the feeling that the American economy is bouncing back?

RUBENSTEIN: The American economy is in better shape than people thought it was just six months ago. I expect that this year we'll grow at three percent, maybe 3.5 percent. Europe will probably be flat to - to negative.

So the United States economy, while we have too much debt - and I'm very concerned about that. We have $15 trillion of - of debt, and we're running a $1.3 trillion annual deficit. That has to be addressed, and I hope Congress and the president will address that relatively soon and not wait until after the next presidential election to address it.

But, given those debt figures, we are doing reasonably well. I think we would do better if we tackled our debt problem, though.

ZAKARIA: Let's talk for a second about the stuff that you buy and give away.


ZAKARIA: So you - you're giving $7.5 million to clean the Washington Monument. You bought a -

RUBENSTEIN: More than clean it. It's to repair it. It's (INAUDIBLE) earthquake damage. Yes.

ZAKARIA: You bought a copy of the Emancipation Proclamation, and what did you do with it?

RUBENSTEIN: I have bought a number of historic documents, and I've put them on display at places where I think people can see them, because I think it's important for people to know about American history.

So I bought a copy of the Magna Carta, the only one in private hands. I've put that on display at the National Archives so Americans can see the document that inspired the Declaration of Independence and the Constitution and the Bill of Rights.

I bought a copy of the Emancipation Proclamation, and I've put that on display at the Oval Office, and I - the president is very pleased to have it there.

I bought a couple copies of the Declaration of Independence. One is on display at the State Department.

Recently I bought a copy of the 13th Amendment, which freed slaves, and that is going to be displayed somewhere else in Washington soon.

So I'm very proud of owning these documents and making - important - making sure that people can see them and learn American history. I'm very concerned that people don't know enough about our history and the rights that we have and the freedoms that we have. And I think if Americans would learn more about American history, I think we'd be a better country. 

ZAKARIA: But you - and you buy all these documents. You don't keep any of them at home?


ZAKARIA: If we were - if one were to go to your house, would there be any documents there?

RUBENSTEIN: No. My - I don't want to have things in my house because how many people are going to see them? I want the American people to see them.

So millions of people go to the - to the Archives. Millions of people going to the Smithsonian. Millions of people go to the State Department. And they can see these documents, and that's more important than having them in - displayed in my house.

ZAKARIA: David Rubenstein, pleasure to have you on.

RUBENSTEIN: My pleasure, Fareed.

GPS and Carlyle would like to close this CNN provided PEU infomercial with a well know song from The Graduate.
"Here's to you Mr. Rubenstein.  Congress loves you more than you could know  Coo, coo ka choo...."

Update 1-24-12: Financial News noted the GPS piece

Friday, January 20, 2012

CNN to Spotlight PEU's

On the heels of WaPo and NYT's private equity puff pieces comes CNN's GPS. CNN World stated:

On GPS this Sunday at 10am and 1pm EST: In light of Mitt Romney’s role at Bain Capital, we take a rare look inside the world of “private equity.” What is this industry? How does it make so much money? Is it really all about firing workers?

Fareed speaks to a pioneer of the industry: David Rubenstein of The Carlyle Group, the world’s biggest private equity firm.
Rare is a critical examination of private equity's financial game playing, made more opaque by obtuse language, liquidity event, leveraged recapitalization, sponsor,  economic net income, carried interest,

PEU Report covered private equity underwriters (PEU's) since 2006.  Fareed is free to ask questions about Carlyle's past sins, but he'd do the public the most service exposing details of their latest S-1/A.

Carlyle Group (NASDAQ) shareholders are like one time election voters.  Give Carlyle's DBD founders cash and get no rights.  I expect Fareed to spend more time on panda's and the Washington Monument than LifeCare, SemGroup, Synagro, Brintons' or pension "pay to play."  Media knows the price for PEU access.  It's puff questions.  Nothing about puffery.

Update 1-23-12:  Bloomberg had the CNN PEU transcript the day before the program ran and produced a nice fluff piece for Carlyle's David Rubenstein.  That should keep reported access.  As for the show itself, Fareed omitted panda's, but the cameraman's posterior might be sore from the repeated ramming home of Rubenstein's Washington Monument donation.  Fareed gave David plenty of air time for his philanthropic deeds.  Nothing about any of Carlyle's past sins. 

Thursday, January 19, 2012

Carlyle's Rubenstein PPP's on Washington Monument

Carlyle Group co-founder David Rubenstein donated $7.5 million to restore the Washington Monument.  WaTi reported:

Rubenstein said he gave the money as a way to “repay my debt to the country.”
Given Rubenstein's vast wealth and low tax burden, his debt repayment could be viewed as pennies on the dollar.  Rubenstein is happy to pay interest and debt.  He and his ilk hate paying taxes.. WaPo reported:

In an interview, Rubenstein, 62, said he agreed to split the estimated $15 million repair bill with the federal government. Congress has already allocated the government’s share.

Officials had indicated that they were searching for a donor to match the government funding. Rubenstein said he offered to enter “a kind of public-private partnership (PPP) with the U.S. government.”

Rubenstein's move helps Carlyle in at least two ways.  One, Carlyle has an infrastructure fund with over $1 billion, most of it ready to go to work in public-private partnerships.  Two, the donation links  a private equity underwriter (PEU) with the restoration of a national icon.  This press is worth far more than any PEU media campaign blitz.

Wednesday, January 18, 2012

Boeing Ditches Wichita for Texas' Nonunion & Tax Breaks

After winning the military air tanker contract, Boeing promised thousands of new jobs to the people of Wichita, Kansas.  Those new jobs won't happen.  To make matters worse, over 2,100 existing jobs will disappear.
Four hundred Wichita jobs will move to San Antonio, Texas to a nonunion shop.  Governor Rick Perry said this of his efforts to make Texas attractive to Boeing:

Gov. Rick Perry ceremonially signed House Bill 3727, which relates to the appraisal of aircraft temporarily under production in Texas.

"HB 3727 makes it easier for companies like Boeing to have cost certainty when it comes to their tax bill, helping them commit to doing more business in this community and our state," Gov. Perry said. "This facility and the jobs it supports are part of Texas' economic success, and thanks to this bill, will continue to be part of San Antonio's robust economy."

HB 3727 requires aircraft temporarily located in Texas for manufacturing or assembly to be appraised at 10 percent of its market value. The bill also defines a temporary production aircraft as an aircraft with special airworthiness and flight permits and has a maximum takeoff weight of 145,000 pounds. 
The littany of explanations for the move has begun, from Boeing to industry experts.  Not said, Boeing needs to compete in the race to the lowest common denominator on worker benefits/pay, benefit from taxing entity giveaways and maximize nondebt, nonequity capital injections (cash and in-kind economic development assistance). 

Here's what Texas, Oklahoma and Washington have to beat economic development wise (from Boeing's latest 10-K):

Industrial Revenue Bonds (IRBs) issued by the City of Wichita are used to finance the purchase and/or construction of real and personal property at our Wichita site. Tax benefits associated with IRBs include a ten-year property tax abatement and a sales tax exemption from the Kansas Department of Revenue. We record the property on our Consolidated Statements of Financial Position, along with a capital lease obligation to repay the proceeds of the IRB. We have also purchased the IRBs and therefore are the bondholders as well as the borrower/lessee of the property purchased with the IRB proceeds.

The capital lease obligation and IRB asset are recorded net in the Consolidated Statements of Financial Position. As of December 31, 2010 and 2009, the net assets associated with the City of Wichita IRBs were $822 (milllion) and $856 (million).
Is Boeing cramming down itself or simply shafting the people of Wichita?  Here's Boeing's defense book of business (from an October 26, 2011 investor presentation):

A $59 billion backlog and $6 billion in orders weren't enough for Boeing to fulfill its Kansas promises.  Approving the move were Red & PEU board members.  Ken Duberstein and Susan Schwab represent the Red team, while private equity underwriters (PEU's) from KKR, Carlyle Group affiliate Nielsen, Oak HIll and Clayton, Dubilier & Rice occupy four seats.

Two former Boeing board members served President Obama, William Daley-Chief of Staff and John Bryson-Commerce Chief.  Consider these fun facts, nuggets regarding those running the global race to the bottom, only political donations and executive pay are exempted.

Update 2-10-13:  Boeing outsourced 35% of Dreamliner manufacturing to Japan.   Carlyle Group affiliate Vought Aircraft did its part to delay the Boeing 787 launch.  Rick Perry subsidized Vought with $35 million in taxpayer money for cutting 35 jobs.  Yes, that's $1 million per job lost.

Carlyle Group's Ban on Shareholder Lawsuits

Bloomberg unveiled:

Carlyle Group LP, the Washington- based buyout company that’s preparing to go public, is seeking to bar its future shareholders from filing individual and class- action lawsuits.

The firm revised its governing documents last week to say that investors who purchase company shares must settle any subsequent claims against Carlyle through arbitration in Wilmington, Delaware. That could limit the ability of stockholders to win big awards for securities-law violations such as fraud, several attorneys said.

Will Bloomberg find how Carlyle's co-founders plan to retain control over executive compensation.  A publicly listed Carlyle won't appoint a board level committee on executive pay.  What are NASDAQ's standards?  Carlyle Group investors fork over the money and get few rights.

Update 2-2-12:  This story has legsBloomberg's PEU reporter asked Rubenstein about Carlyle's provision in its prospectus that investors not be allowed to sue the company. A friend wrote, "Rubenstein got a bit stroppy at that point and repeated that was not something he was going to comment publicly on. He gave no reason. But the reporter eased the situation by saying - 'fair enough.'"  Fair to the DBD's, Carlyle's triumvirate.

Tuesday, January 17, 2012

Second PEU Puff Piece from the Majors

NYT's Dealbook defended private equity via a piece on Paul Levy, a "low key" private equity underwriter (PEU).  This followed WaPo's interview with University of Chicago Professor Steve Kaplan.  Both men catered to The Carlyle Group and co-founder David Rubenstein.

Neither article mentioned "leveraged recapitalizations,"  i.e. "debt for dividend" bleeding, where PEU's recover most of their initial investment prior to any IPO or sale.

The majors omitted PEU's complete reliance on tax minimization.  This occurs via:

1) Dramatically increased interest expense - PEU's would much rather pay interest than taxes.
2) Off-shoring to low tax portions of the world - take Carlyle's DBD Cayman
3) Preferred carried interest taxation - for those receiving investment profits
4) Virtual nonprofit status - Carlyle's effective tax rate is 1%.

Both articles cited private equity as pension savers, completely ignoring how Carlyle dumped pensions for two recent acquisitions, RAC and Brintons.

PEU practices are based on greed, which results in dubious ethical practices.  It's nice when a PEU and its joint venture partners can pony up $70 million to "settle" a "pay to play", i.e. bribery investigation. 

Why would NYT and WaPo omit the PEU nature of private equity? Take it as a clue to their sponsors.

Monday, January 16, 2012

PEU Rick Perry Catered to Vulture Capitalist

Texas Governor Rick Perry attacked Presidential hopeful Mitt Romney in South Carolina by saying:

“I know the difference between venture capital[ism] and vulture capitalism.  Venture capitalism is a good thing, comes in, gives that gap funding to help these companies get off and get started creating jobs, and work. But Mitt Romney and Bain Capital were involved with what I call vulture capitalism." 
Perry stuck to his "vulture capitalism" guns on CNN:  Chron reported:

Perry said as governor of Texas he had created one million jobs rather than “destructing businesses or destructing jobs” the way Romney had with his investment firm. 
What does Rick Perry call a six year $35 million incentive, intended to produce 3,000 new jobs, which resulted in the elimination of 35 jobs?  How would Rick Perry characterize a company that failed to deliver promised jobs from closing plants in Tennessee and Florida, instead keeping those plants open?  The nondelivery came from a vulture capitalist, a private equity firm like Bain Capital.

Governor Perry should know, given he executed the $35 million Texas Infrastructure Fund grant for The Carlyle Group's Vought Aircraft Industries.  Carlyle briefly dangled jobs from Vought's Boeing 787 Dreamliner work, but decided South Carolina's $65 million incentive and Senator Lindsey Graham's good graces outweighed Texas's deal.

The end result of Rick Perry's work?  Private equity underwriter (PEU), The Carlyle Group, had $35 million in non-debt, non-equity capital to use for six years.  When it became time to pay the piper, Perry renegotiated Vought's TEF deal in secret.  He did so right before Carlyle sold Vought to Triumph. None of the proceeds were used to repay Texas taxpayers.

Rick Perry gave free money to vulture capitalist Carlyle.  The Carlyle Group's recent dealings with Brintons reveals much.  Carlyle used discounted debt to takeover Bintons, a back door move.  It shed Brintons' pension, cut jobs and sent production to China.

Perry's political lingo is just that, a ploy to garner votes..  Rick Perry loves PEU's.  He'd love a trillion dollar federal budget, all the more money to send to his friends and backers.  .

Sunday, January 15, 2012

PEU's to Exit BankUnited?

Reuters reported:

Private equity-backed BankUnited Inc has hired Goldman Sachs Group to explore a potential sale.
That's the widely hated Goldman Sachs helping private equity underwriters complete their profitgasm on BankUnited.  

BankUnited was taken over and recapitalized by private investors such as Wilbur Ross's WL Ross & Co, Blackstone Group LP and Carlyle Group CYL.UL during the financial crisis, and went public in January 2011.
Reuters omitted the FDIC's $2.27 billion cash injection in BankUnited.  This non-debt, non-equity capital injection made BankUnited the best capitalized bank in America.  Where can others line up for 72 cents on the dollar of free money?  Oh, the game is for PEU's only.  Dang!

PEU's may soon flip the 28 cents on the dollar they put up for BankUnited,, but they'll get 100% of the profits.  BankUnited took in $780 million in their 2011 IPO. Add $40 million in transactions fees, dividends and special dividends and PEU investors have nearly free shares.  BU's owners initial investment was $900 million.  Will it be a double, triple or quadruple? 

Saturday, January 14, 2012

SNL vs. WaPo on Private Equity

Saturday Night Live kicked off with a skit spoofing Presidential hopeful Mitt Romney's love for firing people as a former private equity maven.

Donald Graham's Washington Post ran a fluffier piece Saturday night.  It could've come from the Private Equity Growth Capital Council (PEGCC). My guess is Thomas Heath and University of Chicago business professor Steve Kaplan made Carlyle co-founder David Rubenstein very happy.

There was no mention how PEU's bleed companies via special dividends, often returning all their upfront equity investment pre-IPO, or pension dumping which happened when Carlyle took over RAC and Brintons.  American Airlines' employees could face a similar fate should a PEU become their "sponsor.".

America had a choice Saturday night regarding private equity, funny vs. fluffy.
In five minutes the SNL skit informed more Americans than my five years of blogging.at PEU Report.  (PEU stands for private equity underwriter, my pet name for the greed and leverage boys.)  While SNL's spoof had span, PEU Report offers research based depth.  Feel free to mine it. It's a window into purchased politicians and their PEU sponsors.

How Congress Loves PEU's

Let me count the nontax ways the U.S. Congress showed love to private equity underwriters (PEU's).  Over the last six years The Carlyle Group paid a tax rate of 1%.

The Carlyle Group's David Rubenstein personally visited Congressmen to save PEU preferred carried interest taxation multiple times.  Carlyle is a virtual nonprofit.

Four Carlyle principals attended an Inauguration Eve party for newly elected President Barack Obama, only three had their Carlyle credentials omitted.  T.F. "Mac" McLarty, co-founder David Rubenstein, and Ed Mathias never cited their Carlyle slots.  Only William Kennard listed his employer, The Carlyle Group.

Other PEU's represented at the 2009 soiree included KKR, Perseus, RLJ ( a joint venture partner with Carlyle), Ariel Capital and Ripplewood.  Ripplewood purchased Hostess Twinkies in February 2009, sending it into bankruptcy this week.  Purchased politicians and their high dollar donors seem bankrupt, much like the Ding Dong.

Update 11-16-12:  Hostess will shutter operations and attempt to sell its brands in bankruptcy auction. Note the language regarding the PEU race to the lowest global common denominator on worker pay and benefits:  "They were not going to agree to another round of outrageous wage and benefit cuts and give up their pension only to see yet another management team fail and Wall Street vulture capitalists and 'restructuring specialists' walk away with untold millions of dollars."

Update 12-13-12:  DealBook reported David Rubenstein, the billionaire co-founder of Carlyle, said that it was unfair to accuse his industry of not paying its fair share of taxes.  “I’m paying what I’m supposed to pay,” he said. “Change the law, I’ll pay whatever I’m supposed to pay.”