Sunday, June 29, 2014

Bill Clinton's Undeclared Carlyle Group Speech

FT reported ex-President Bill Clinton's spoke at The Carlyle Group's annual investor meeting in 2012.  This was not Carlyle's NASDAQ unit-holder gathering, but the meeting of Carlyle's high dollar private equity investors.  FT's piece stated:

Private equity groups compete with each other to host the most glitzy affairs and solicit the biggest names. Last September, Carlyle’s co-founder David Rubenstein led a question-and-answer session with Mr. Clinton, who charges as much as $200,000, at its annual event.

Why doesn't Clinton's federal financial disclosure filing include Bill's Carlyle Group speaker fee from September 2012?  Because it doesn't fit with the narrative for Hillary's Presidential run.  Clinton's listed September speeches include:

Five Star Institute - Sept. 7, 2012
Solar Energy Trade Shows LLC - Sept. 12, 2012
C3 Summit LLC - Sept. 13, 2012

Bill's Carlyle talk likely would've been September 10 or 11, 2012.  Clinton made other PEU speeches that year, including:

GTCR - June 27, 2012
Pershing LLC - June 6, 2012
UBS Wealth Management - 3 speeches, Feb. 2, April 17 and Oct. 18
J.P. Morgan -  Oct. 17, 2012
Goldman Sachs - Oct. 23, 2012
Mortgage Bankers Assoc. of America - Oct. 23, 2012

Bill's missing Carlyle Group speaker fee brings to mind two other PEU omissions.  One, The Carlyle Group's LifeCare Hospitals got not one mention in the Bush White House Lessons Learned report on Hurricane Katrina.  LifeCare had the highest number of patient deaths in Katrina's aftermath.  Thirty five patient deaths warranted not a peep from Frances Townsend, the report's author. 

Two, residual private equity stakes have been as absent as Clinton's Carlyle Group fee.  For years White House Health Reformer Nancy-Ann DeParle's disclosures showed no residual PEU holdings from CCMP affiliates.  Yet later, residual profits from the sale of a healthcare affiliate appeared.

DeParle's 2011 filing showed a gain from her earn out from MedQuest, a medical imaging company.  Nowhere on two prior disclosures did she indicate residual private equity stakes in MedQuest or any other healthcare firms, where she served as a board member.

Private equity underwriters (PEU's) metastasized from leveraged buyout organizations (LBO's).  Oddly, convicted LBO genius Michael Milken now operates a global confab called The Milken Institute Global Conference.  Clinton spoke at that event in 2012 and also failed to list this speech or its income in the federal disclosure filing. 

What is it about private equity that enables residual stakes and speaking fees to be secret from public disclosure?  The PEU world thrives on secrecy and elected leaders foster such.  Politicians Red and Blue love PEU.

Update 4-23-15:  WaPo found what PEU Report discovered last year.

Sunday, June 22, 2014

Cause for VA Cheating: Pay for Performance

America's foremost quality guru, Dr. W. Edwards Deming, was known for saying, "Will they ever learn?"  U.S. leaders remain unaware of the long proven toxicity of extrinsic rewards for work that requires teamwork and interdependence.  CNN reported:

At the Phoenix Veterans Administration (VA) patient wait times were directly tied to VA employees' bonuses and raises. By manipulating doctor's appointments for the veterans, the wait time to see a doctor appeared to be shorter, a factor considered in VA employee bonuses and raises, according to a VA inspector general report said.

The VA secretary's audit of a number of medical centers that concluded "some front-line, middle, and senior managers felt compelled to manipulate" the scheduling process to meet performance goals established by the agency.

The first public revelation that salary increases and bonuses may have been a factor came with the release of the agency's inspector general report.

Factor?  Try cause.  Extrinsic motivators cause major harm to any organization that performs complex work which requires teamwork.   Motivation expert Alfie Kohn, author of "Punished by Rewards" wrote:

Not a single controlled study has shown a long-term improvement in the quality of work as a result of any reward system. That would be an astonishing fact were it not for the existence of scores of studies – conducted with adults as well as children, in real workplaces among other venues – that have demonstrated how rewards tend to be not merely ineffective but powerfully counterproductive

Bribing people to do good work and management by fear are root causes of systemic cheating.  

The pattern of widespread cheating under pay for performance systems is long established, but apparently invisible to most leaders.  Lying, cheating and stealing occurred in the 1990's under executive stock options, sold at the time as the most pure incentive reward.  Thirty percent of executive stock options were backdated.  

Teachers and healthcare workers are just as smart as CEO's.  Cheating reappeared in numerous school systems, where administrators and teachers lied to show improvement.  It's back under the Veterans Administration and unfortunately it's foundational to PPACA, otherwise known as health reform.  Numerous federal agencies, Medicare and HRSA, offer "pay for performance."

PPACA's larger aim is to reshuffle the healthcare deck. President Obama's health reformer Nancy-Ann DeParle came from private equity, CCMP Capital Partners, and returned to it post "public service," as a founder of Covenant Capital.  How did Nancy-Ann receive a distribution for a PEU investment not shown on her federal financial filing?  It happened.

Congressional aides may have enriched themselves along the health deform path.  The issue is trading on insider information and whether Congressional representatives or aides leaked a forthcoming policy change.  NYT reported:

S.E.C. investigators have subpoenaed Representative David Camp, Republican of Michigan and the chairman of the House Ways and Means Committee, for records. The Justice Department has also subpoenaed one of Mr. Camp’s committee aides, Brian Sutter, to testify before a federal grand jury.

Former Office of Management and Budget Chief Peter Orszag told Carlyle Group co-founder David Rubenstein the feds would throw a lot of "stuff against the wall to see what sticks."   Medicare/Medicaid Chief Marilyn Tavenner, a former HCA executive, leads implementation of federal bribes, manipulations and sticks.  They'll end up like executive stock options, school testing and the Veterans Administration, distorting behavior and turning people's attention to money, instead of the important work of improvement/innovation.

The last fifteen years have seen leaders use the words "continual improvement" while trashing its underlying management theory.  Dr. W. Edwards Deming's System of Profound Knowledge has been set aside for the altar of command and control, bribes/manipulations, and sleight of hand budget cutting.

Dr. Deming decried leveraged buyout organizations for lack of constancy of purpose.  They re-branded as private equity and today are as widespread as school cheating or corporate lying.    Private equity firms have billions in dry powder with healthcare clearly in their sights.

My pet nickname for this mendacious group is private equity underwriters (PEU's).  They focus on capital structure, industries supported by Uncle Sam's trillion $ wallet, bolt-on acquisitions for affiliates, dividend bleeding, covenant light debt and fees, fees, fees

Management's propensity to view people as solely motivated by money is crude, ignorant and lazy. The feds, by incorporating pay for performance, makes the same error.  Add increased healthcare ownership by the greed/leverage boys and it won't be about delivering quality healthcare anymore.  It'll be about optimizing people's pay and affiliate resale value.  As a group, management, the feds and PEU's will have excised the heart of healthcare.

Consider how crude management becomes when they embrace systems of fear and manipulation.  A VA report stated:

OIG received numerous allegations daily of mismanagement, inappropriate hiring decisions, sexual harassment, and bullying behavior by mid- and senior-level managers.
Even their response to "systemic inappropriate scheduling practices" is crude, i.e. it points to individuals vs. those imposing distorting pay practices:

We have and will continue to conduct comprehensive interviews of numerous individuals to evaluate the many allegations, determine their validity, and if appropriate, assign individual accountability.

Quality will not improve in organizations bribing and manipulating people.  Lying and cheating will explode as it has done before.

President Obama has the answer to his 2009 statement "if performance pay works."  It distorts behavior, frequently making things worse.  The fish rots from the head down.  Leadership is required.

Update 7-13-14:  USAToday reported on the direct link between bonuses and cheating  reported to the White House.  President Obama remains a slow learner in this regard.

Update 8-9-14: This is the case with Dr. Deming's "continuous improvement" or "quality":
“You cannot imagine what sorrow and anger seize one's whole soul when a great idea, which one has long and piously revered, is picked up by some bunglers and dragged into the street, to more fools like themselves, and one suddenly meets it in the flea market, unrecognizable, dirty, askew, absurdly presented, without proportion, without harmony, a toy for stupid children.”
Fyodor Dostoyevsky, The Possessed

This applies to Obama's PPACA and corporate board rooms, especially in the health and education arenas.

Update 4-26-15:  Evidence of horrific management practices distorting behavior can be seen in "the explosion of False Claims Act suits in recent years."  Law360

Update 2-25-19:  Bribing people to do work doesn't make happier people.  It causes multiple forms of bad behavior.  Job satisfaction comes from fair pay, support from managers and coworkers and the ability to perform meaningful work. 

Update 5-30-23:  HuffPo's "The Golden Age of White Collar Crime" stated:

32 percent of American managers said they were comfortable behaving unethically to meet financial targets.

Thursday, June 19, 2014

PEU's Need Privacy, Citizens Don't

As I looked at the above list of international partners in NSA surveillance, I wondered how many PEU tax havens were on the list.

I only found two, Singapore and the Netherlands.  Which list will Ukraine make next, tax haven or intelligence partner?  My money is on tax haven, given its Carlyle Group and Hunter Biden connections.

PEU's expect privacy and purchased politicians deliver.

Carlyle, PEU's Want $300 Million Aussie Tax Break

Financial Review reported from Down Under:

Private equity firms TPG, KKR and Carlyle Group want $300m tax break 

Three US-based private equity firms are seeking a $300 million tax break from Treasurer Joe Hockey, including TPG Capital, which was pursued by the tax office for $678 million after the sale of its 80 per cent share of Myer in 2009. 

The Australian Private Equity & Venture Capital Association, which counts TPG, KKR and the Carlyle Group as members, has written to Mr Hockey, complaining the retrospective changes to the thin capitalisation rules will force the global PE firms to pay up to $300 million in additional tax on debt arrangements for existing investments in Australia. 

The letter suggests the changes increase the ­sovereign risk of investing in Australia. It said the “ad-hoc” and ­retrospective nature of the rules were “not consistent with an environment that seeks to promote long-term stability and tax certainty for investors”. 

The changes, which come into effect on July 1, mean more tax than was budgeted for may have to be paid on investments by TPG and Carlyle in Healthscope, KKR in Bis Industries, and TPG in Inghams Enterprises. 

The tax affairs of the private equity industry are typically shielded from public view. They were thrust into the spotlight 4½ years ago when the Australian Tax Office failed to stop TPG moving profit from its exit of Myer to its companies in the Netherlands, Luxembourg and the Cayman Islands. Tax authorities subsequently warned PE firms they would freeze assets to ensure there is no repeat of the Myer episode.

My nickname for the U.S. PEU trade group is PECKER, which stands for Private Equity Capital Knowledge Executed Responsibly.  It appears a similar group of PECKERS work in Australia.  We'll see if Aussie politicians cater to the PEU class like their American counterparts, which grant PEU's virtual nonprofit status.

Monday, June 16, 2014

Carlyle's China Forestry Enters Debt Default?

Bloomberg reported:

China Forestry Holdings Co., a timber producer backed by private equity firm Carlyle Group LP, faces a payment deadline on its U.S. dollar bonds today as it seeks more time to audit its books and complete a debt buyback. 

The company must pay the overdue half-yearly 10.25 percent coupon on $180 million of November 2015 securities to avoid a default, according to a May 16 Hong Kong stock exchange filing. A one-month grace period expires today. China Forestry paid the previous coupon in November after a similar delay. 

“They’re effectively in default by our definition,” Johnson Ng, an analyst in Hong Kong at Standard & Poor’s, said by phone June 13. “The nature of their business requires a lot of capital for harvesting and trading. We think they’ll face difficulty in getting financing support, especially against the backdrop of accounting issues.” 
The Hong Kong stock exchange suspended trading China Forestry’s stock in January 2011.  China is the wild, wild east for investment and product safety.  A bond default won't kill Chinese infants, unlike toxic baby formula (another Carlyle investment - Yashili).  China Forestry is more like spilled milk, that soured KPMG and Carlyle's reputations.

Saturday, June 14, 2014

Carlyle's Chief Accountant Sells 11% of Shares

Ticker Report noted:

The Carlyle Group (NYSE:CG) Chief Accounting Officer Pamela L. Bentley sold 13,195 shares of the company’s stock on the open market in a transaction that occurred on Thursday, June 12th. The shares were sold at an average price of $32.44, for a total value of $428,045.80. Following the completion of the sale, the chief accounting officer now directly owns 110,073 shares in the company, valued at approximately $3,570,768. The transaction was disclosed in a filing with the SEC.
She sold her shares on June 12, successfully avoiding any Friday the 13th PEU curse. 

Pamela wasn't the only Carlyle leader lightening their load in any one holding.  Carlyle itself sold a chunk of Commscope, going from a planned 15 million share offering to 17.5 million share.

Is it a good time for an accountant with massive responsibilities to raise cash?  For what ends...

Friday, June 13, 2014

NBC Employs Daughters of America's Royal Families

Politico revealed Chelsea Clinton earned $600,000 a year working part time for NBC.  NBC also employs Jenna Bush Hagar, another White House Royal.  The Clintons are the titular head of the Blue Team while the Bushes lead the Red Team.

Cementing their political dominance, rumors have it Blue Hillary Clinton could square off against Red Jeb Bush in 2016.  That would be both instructive and sad. 

Politico said this about Chelsea's other work while earning over half a million at NBC:

In that time (since November 2011), Clinton’s principal occupation has been the Bill, Hillary and Chelsea Clinton Foundation, where she has been a major force in steering her parents’ charitable work in the final years of her mother’s tenure at the State Department, and since.
That's the same charitable foundation that hired Clinton's friends and used money in unethical ways.  The William J. Clinton Foundation was renamed the Bill, Hillary and Chelsea Clinton Foundation in April 2013.   Chelsea went from working 2 hours a week for the foundation in 2011 to 30 hours a week in 2012 (source IRS 990 forms). 

Chelsea earned $300,000 sitting on IAC's board of directors.  No word on how much NYU paid her to be Assistant Provost or the Clinton Foundation paid her. 

Who else gets $900,000 a year for two very part-time jobs?  The Royals do...

Wednesday, June 11, 2014

Akerson Central to PEU Recall on Club Deals

Former GM CEO Daniel Akerson somehow missed questioning in the timing of GM's deadly recalls.  Akerson came to GM from The Carlyle Group, a private equity underwriter (PEU).  Carlyle's works hard to maintain its sterling reputation, thus bad news is not permitted.  When Carlyle lost Carlyle Capital Corporation (CCC) to bankruptcy, it danced away from CCC's carcass, claiming "we're not that Carlyle."

I'll venture that GM employees knew not to bring bad news to former PEU Akerson.  I suspect there would be a serious price to pay for anyone who'd smudged or dinged GM's shiny rebirth under Akerson.  Automotive part failure related deaths would fit into that category. 

Another form of recall has Akerson front and center on anti-competitive PEU club deals.  Goldman Sachs and Bain Capital settled their portion of the case for a combined $121 million.  Key evidence of collusion includes Dealbook's report:

K.K.R. asked its competitors to “step down on HCA” and not bid, according to an email written by Daniel Akerson, who was then a partner at Carlyle.

Apparently, Akerson didn't get the memo from fellow PEU Robert Rubin of Centerbridge Partners.  Let the girls in the office do e-mail.  KKR's public face of Ken Mehlman and David Petraeus have been silent on this subject.  Maybe one of their girls will weigh in.

Akerson's on record in a scandal of public interest, just not the one with car crash related deaths.

Monday, June 9, 2014

Clintons Went from Millionaires to PEU's

America's Blue Team royal family, Bill and Hillary Clinton, left the White House with a mere $1.26 million to $5.7 million in assets.  Yet, Bill's privatization of public services, enabled many private equity underwriters (PEU's) to get their footing in the 1990's.  They've returned the favor many times over.

The Clintons went on to earn an astonishing $109 million between 2000 and 2007, according to disclosure reports.

Bill had stints with Yucaipa and Teneo.  Recently Hillary spoke to The Carlyle Group, KKR, Teneo and Goldman Sachs.  Daughter Chelsea is well on her way, currently being schooled by PEU's

Hillary's "return to the the White House fiction" is the Clinton's were dead broke when they left public service.  The Clinton's needed to earn such big money to buy houses and send Chelsea to school so she could become a PEU.

The Clinton's should be judged by the way they ran their foundation.  They hired friends who used tax free money is unethical ways.

Economic power buys political power, which then sets favorable rules and telegraphs money making opportunities for the already wealthy.  Health reform is the latest "market remake" where PEU's plan to make 30% annual returns.

I don't buy Hillary's bootstrap/panty meme.  She's not pulling anything up, but putting something over.  Mrs. Clinton can read her lines, but the people reading between them are policy-making billionaires.  I'm sure they'll help Bill and Hillary reach the billionaire mark.  Another Clinton Presidency wouldn't hurt.

E-mailed comment:
People act as if they're heroes...but they helped kill the middle class, i.e. shafta.  

My reply:  I agree they helped kill the American Dream.  They are shameless.

Friday, June 6, 2014

Old Salty PEU

BusByway writes:

David Rubenstein, Co-CEO of the Carlyle Group, said "The U .S. markets are not cheap, and it's very difficult to find deals in the buy-out world." That's not a good sign. Following Rubenstein was former Treasury Secretary Larry Summers, who said, "We are not at the end of financial instability."

Private equity underwriters (PEU's) are cashing in stock holdings in a number of affiliates.  Do they project an increased need for cash?

Thursday, June 5, 2014

Simple, Dolt Rises to Treasury Secretary and Saves Financial World

Vice's book review of Timmy Geithner's polished auto-reflection states:

Geithner wasn’t a good student. He notes, as a grad student, that he mostly played pool. “During my orals, when one professor asked which economics journals I read, I replied that I had never read any. Seriously? Yes, seriously. But not long after we returned from our honeymoon in France, Henry Kissinger’s international consulting firm hired me as an Asia analyst; my dean at SAIS had recommended me to Brent Scowcroft, one of Kissinger’s partners.” I’m sorry, but what? How does this just happen? And it goes on. One day, when Geithner was a junior Treasury civil servant, Treasury Secretary Lloyd Bentsen just called him out of the blue to ask his advice on a matter about which he knew nothing. Why? He doesn’t say—he’s just puzzled. 
Either Tim is a modern day Chauncey Geithner (Being There) or he's following the insider code, as illuminated by predecessor Larry Summers.  Stories must be retold for each generation.  Tim's is as good as any for the simpleton rising to the top from sheer luck.

Wednesday, June 4, 2014

Carlyle Group Executive Joins Mastercard Board

Broadcasting and Cable reported:

Former FCC chair and Carlyle Group Managing Director Julius Genachowski has been elected to the board of MasterCard, the company said Tuesday.

From public service to PEU profits, priceless....

Tuesday, June 3, 2014

Carlyle Going after European Trailer Parks

FT reported:

US private equity investor Carlyle has entered into exclusive negotiations to take control of Homair Vacances, a French operator of camping and mobile homes that seeks to expand across southern Europe.

The Washington-based buyout house is buying a 75 per cent stake in the Paris-listed company from French firm Montefiore Investment, which will be reinvesting as a minority shareholder. 

The move comes after Homair on Monday said it had agreed to buy its main competitor, Eurocamp, from UK-based Holidaybreak to expand in Europe in a deal that will double its size. 

The combined group will operate more than 15,000 mobile homes across nearly 300 campsites, mainly in France, Italy and Spain. It will generate about €180m in revenues.

The logic for private equity underwriters (PEU's) in investing in trailer parks is:

An increasing number of customers have been drawn to mobile homes and self-catering holidays as they sought budget holidays during the downturn.

As PEU's decimate the middle class in Europe, as they did in the U.S., demand for budget holidays should soar.  Whatever money the people have left, PEU's want it.  It's the PEU way.

 Update 6-9-22:  


Chicago Skyscraper Needs Special Servicing

The former Sears Tower, now known as the Willis Tower, requested loan modifications from its creditors before entering "imminent monetary default."  I take it this is code for bankruptcy, not having the cash to make principal and interest payments.  Willis Tower's owners flip commercial real estate for profit and include Middle East sovereign wealth funds as investors. Owners include Joe Chetrit and Joseph MoinianCrain's NY Business had this to say about the first Joe:

"Never bet against Joe Chetrit," said Robert Rosania, an executive at Stellar Management, which co-developed five residential rental towers called Columbus Square with Mr. Chetrit and sold off the complex last year for $630 million. "There are very few [real estate] investors in the city of New York who have made as much money as he has in the last decade."

Crain's Chicago Business gave details on Willis Tower's debts:

The senior CMBS loan, which matures in 2017, has nearly $499 million remaining. Including other loans not rated by Fitch, Willis Tower's owners have more than $774 million in total CMBS debt on the tower, according to Fitch.

How much of any packaged debt, rated or unrated, on Willis Tower went to owners and investors via special fees or distributions?

What's interesting is Fitch Ratings doesn't seem to know if owners are truly in trouble or twisting creditors for lower interest rates.

The loan transfer could be a step by ownership to renegotiate terms of the loan, rather than a sign it is prepared to stop making payments.

Imagine a homeowner telling their bank they're in imminent monetary default.  Do you think they'd get a break on their loan?  Hardly.

If there is trouble in the CMBS world it brings back The Carlyle Group's huge mortgage backed securities fiasco, Carlyle Capital Corporation.  It went belly up in a flurry of capital calls.  Not even special servicing could save CCC (and Carlyle warrants lots of special service).

Update 3-15-15:  Crain's reported Blackstone has a preliminary agreement to pay almost $1.5 billion for Willis Tower.  Owners Joe Chetrit and American Landmark Properties paid $840 million for the building in 2004.   This makes the "loan modification" move look more like a creditor shakedown.

Sunday, June 1, 2014

Unable to Resist PEUrges

Bloomberg reported how private equity is once again gaming debt in their search for returns:

Lenders are increasingly allowing junk-rated borrowers to adjust their earnings to make them look more creditworthy as U.S. regulators increase pressure on banks to refrain from underwriting too-risky deals.

Such tweaks, which are permissible under more and more credit agreements, can help companies stay in compliance with their loan terms or to raise debt. 

More than half of loans this year for issuers backed by private-equity firms allow them to boost earnings by an unlimited amount through projected cost savings from acquisitions and “any other action contemplated by the borrower.”

This brings back the image of Carlyle co-founder comparing easy debt terms to sex.  The urge was there and he couldn't resist.  Those days are back in spades.

Bilderberg Ends Today

The Bilderberg Group, an annual gathering of government leaders and policy making billionaires, ends today.  Up to 3,000 officers were on standby to protect a mere 150 attendees.

The Guardian has recently provided the most comprehensive coverage of the event.  Take attendee Eric Schmidt, Google's Executive Chairman.  While he sat in Copenhagen with the global elite, Google announced its Motorola Mobility plant in Fort Worth would close.  The plant opened in May 2013, with great fanfare.  Texas Governor and former Bildeberger Rick Perry attended.  The plant employed as many as 3800 people, but was down to 700 when the company delivered the closing announcement.

The plant-closing announcement comes four months after Google said it plans to sell the Motorola handset business to Chinese computer maker Lenovo Group Ltd. for $2.9 billion.

Google bought Motorola Mobility in 2011.  Buying and selling companies is a private equity underwriter (PEU) like move. 

The annual Bilderberg meeting is popular with the PEU class.  On the publicly released participant list were Henry Kravis and David Petraeus of KKR, Bob Rubin of Centerbridge Partners, Robert Zoellick of Goldman Sachs, Peter Thiel of Thiel Capital, Peter Mandelson of Global Counsel LLC, Mustafa Koç of Koç Holding (joint investor with Carlyle Group on Turkish hospital chain), James A. Johnson of Johnson Capital Partners and Roger Altman of Evercore.

Global tamperers Henry Kissinger, Richard Perle, James Wolfensohn and Tom Donilon attended, as did spy company extraordinaire Palantir Technologies CEO Alex Karp.  Bilderberg usually has other unannounced guests, but as this isn't a U.S. Presidential election year, there are no rumors of potential future candidates dropping by.  It's hard to believe Donald Graham (formerly of WaPo fame) didn't merit an invite.