Carlyle Group's Smoking Tobacco Investment

Claren Road, a hedge fund owned by the Carlyle Group, made big money buying lowly rated state tobacco bonds, then worked deals with state finance officers to boost their value.  ProPublica reported Claren's deal with New Jersey garnered $92 million for the state and over $100 million in profits for Claren Road.

This echoes the Great Eskimo Tax Scam, which preceded Carlyle's founding.

In 1984, a law was passed allowing native corporations in Alaska—that is, Eskimo owned companies created by Congress to manage native lands—to sell their losses to businesses looking for tax write-offs. The Marriott executives, working with David Rubenstein at Shaw Pittman, discovered the Eskimo clause and vigorously bought the losses to offset gains. The adventure has become known in some quarters as the Great Eskimo Tax Scam.

More recently, a Carlyle affiliate pursued Florida "wetlands credits."  PEU's know how to wring out profit, on the backs of people.  In fact, it's an American tradition.

PEU Dry Powder in for a LeBron-like 2015

Bloomberg reported:

For The Carlyle Group and its peers, there are mounds of cash waiting to be deployed in 2015. Blackstone’s so-called dry powder stands at $42 billion, Apollo Global Management LLC’s is $34 billion and KKR’s is $18 billion. Carlyle’s is $56 billion.

Carlyle was the busiest private equity underwriter (PEU) in 2014.  It will be interesting to see how Carlyle's energy investments do in the current era of $55 a barrel oil.  Carlyle lost its mortgaged backed security fund in spring 2008 during a time of imploding real estate loans.  It rolled up Blue Wave Partners, a hedge fund that same spring, at large losses for investors.

PEU's count on valuations cycling.  They mine affiliates for cash via annual management fees, deal fees, added debt for dividends and then the final cash explosion, an IPO or sale of the firm.

It's interesting how many politicians cross back and forth from the PEU world.  Those in office understand their role of servicing the greed and leverage boys.  Dry powder must be deployed.

Thus industries must alternatively be stressed, then favored.  Carlyle and company don't like mobilizing their cash hoards on high priced assets. 

Catering to Banksters

FT reported former Fed Chief Paul Volcker's reaction to the postponement of financial reform that required banks to divest risky, illiquid investments from units that have federal backing::

“It is striking, that the world's leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries, however complicated, apparently can't manage the orderly reorganisation of their own activities in more than five years.”

It's about the big money boys.  No one else is in the room.

Carlyle's DD Rap Jam LLC

Business Insider reported Carlyle Group co-founders David Rubenstein and Daniel D'Aniello rapped a holiday message for investors:

It takes a lot of brains to do what we do,
Looking for a way to make some dough for you.
Energy, commodity, we do it all,
So pick up the phone and give us a call.
Corporate mezzanine, private equity,
Carlyle Group is the place to be.
We’re global, we’re mobile, we’re aiming to please.
Only goal in mind: serve the LPs

Take dat unitholders...

Dodd Frank Toothless for PEU's Until 2017

BBC News reported on the sweet hand Congress and regulators continue giving taxpayer backed banks:

The new extension applies to other types of "legacy covered funds", according to a release on the Fed's website, which include "having certain relationships with a hedge fund or private equity fund".

Dodd Frank's PEU tooth may come in by mid-2017.

Carlyle, Warburg Could Have Captive Rating Agency

Reuters reported:

A private equity consortium of Carlyle Group LP and Warburg Pincus LLC is in advanced talks to acquire privately held credit rating agency DBRS Ltd for more than $500 million, according to people familiar with the matter.

After final bids were submitted this week, Carlyle and Warburg Pincus have so far prevailed in the auction for DBRS, which also attracted Canadian private equity firm Birch Hill Equity Partners Management Inc, the people said on Friday.

No exclusivity has been awarded to any bidder and the outcome could still change, the people cautioned. Carlyle and Warburg Pincus are in the lead partly because they have a global footprint that can help DBRS expand further internationally, one of the people said.

The Carlyle Group has been known to bleed affiliates for dividends by floating debt.  How might a captive rating agency help Carlyle's cause?  

Carlyle junk:  never too hot to loan.  Might this be DBRS new mantra?

This Week's Signs of Political Elder Abuse

It was a rough week for America's retired seniors.  First, PPACA architect and physician Ezekial Emanuel suggested people over age 75 should stop taking any life extending medications.  He framed it as his personal decision before talking about "population based" medicine.

“It is really about what you are doing to contributing and enriching the world.  I want people to stop focusing on just more years, focusing on quality,” Emanuel says.

Older people can die early to save other people money.  This leads to the second abuse of retirees.  Kansas Governor Sam Brownback cut funding for the Kansas state employee pension.

The governor cut state contributions to KPERS $40.7 million for the next six months, dropping the employer contribution rate to 9.5 percent from 12.1 percent.

Read more here: http://www.kansas.com/news/politics-government/article4413431.html#storylink=cpy

This reduction does not impact the pension liability, so theoretically the state of Kansas will make up the shortfall over time.  Then again, maybe not.

The third harming of retirees came from Congress and it jeopardizes any pension promise.   Congress considered and passed:

A measure that would for the first time allow the benefits of current retirees to be severely cut is set to be attached to a massive spending bill, part of an effort to save some of the nation’s most distressed pension plans.

The rule would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets.

Congress included a bankster bonus feature.  Government insured banks will keep their derivatives franchises, which write and sell financial wagers.  How many bets will they make on pensions going under?  It's derivitable.

Thank heaven Congress is keeping billionaire, bankster and PEU taxes low.  America's politicians, for the most part,serve one class.  They regularly tell the rest to sod off.  For seniors that's could be an early six feet under.  

Frist Joins Carrick Capital as Senior Advisor

Carrick Capital announced former Senator and Dr. William H.Frist joined its stable of special advisors.  Frist already is a private equity underwriter (PEU) with Cressey and Co.  Carrick Carrick is an investment firm focused on fast growing software and technology-enabled services firms and it's targeting health care technology companies.  Thus the need for Dr. Frist's sage advice.  The company's press release stated:

“Healthcare technology services companies are a primary focus for Carrick. We see an opportunity to deliver better healthcare and address industry pain points through great business models and the application of innovative technology. Bill’s expertise and policy insights are invaluable to our portfolio companies that are serving this market,” added Carrick Capital Partners Co-Founder and Managing Director Marc McMorris. 

Those pain points are purposely designed by the U.S. Congress and regulators charged with implementing healthcare legislation.  Former Senator Frist knows of such legislative pain points.  Carrick invests more than capital.  It's betting its investment in Dr. Frist pays off.  I expect it will do so handsomely.

Uncle Sam to Backstop Bankster Derivatives & PEU Stakes

Bloomberg reported:

Goldman Sachs Group Inc. (GS) has $7 billion invested in private equity that it might have to sell at a loss. For Morgan Stanley (MS), it’s $2.5 billion. 

The big sums explain why Wall Street has been lobbying regulators to delay a July deadline for complying with the Volcker Rule, which restricts banks from investing in private equity as part of a ban on making market bets with their own capital. 

This makes it sound like bank money is invested in a myriad of private equity funds, as opposed to the bank having a private equity subsidiary within the holding company.   Banks frequently spin off and sell subsidiaries.  Why not their PEU divisions?

HuffPo noted the second barbarian run at Dodd-Frank's gate:

Wall Street lobbyists are trying to secure taxpayer backing for many derivatives trades as part of budget talks to avert a government shutdown.

According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said.

The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. -- potentially putting taxpayers on the hook for losses caused by the risky contracts. Big Wall Street banks had typically traded derivatives from these FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers.

Four banks dominate the derivatives market, J.P. Morgan, Bank of America, Citi and Goldman Sachs.

Big banks may get to keep their PEU stakes and keep public backing for risky derivative trades. Time reported last year.

While there’s no way of knowing for sure, estimates of the face value of all derivatives outstanding tops a quadrillion (1,000 trillion) dollars, or more than 14 times the entire world’s annual GDP.  

The risk underlying derivatives is they are sold for little to no money relative to the underlying bet.

Each actual dollar in the derivatives market is supporting between $35 and $70 of nominal value. Losses of only a few percent of face value therefore would be enough to wipe out even the best-capitalized derivatives traders. 

Leverage of 35 to one (potential risk to underlying fund) brings to mind Carlyle Capital Corporation which levered 36 to 1 (debt to equity).  CCC was the canary in the financial services coal mine imploding in Spring 2008, months before Lehman Brothers fall. 

The more things change the more they stay the same.  Same sponsors, same political system which requires huge fundraising to be elected.

Politicians Red and Blue love PEU.

Update 2-14-15:  The best bankster lament comes from across the pond.   "I’m sick of this stuff. I’m sick of hearing about rich people avoiding and evading tax. I’m sick of rich companies paying next to no tax and bleating that they are doing nothing illegal. And I’m sick of hearing about powerful people presiding over these malpractices and swanning ever onwards and upwards to yet more power and riches." 

Ukrainian Finance Minister is a PEU

Vice President Joe Biden recently visited Ukraine telling President Petro Poroshenko that he needed to form a new government "within days, not weeks."  Disclosure:  Biden's son Hunter sits on the Board of Directors of Burisma, Ukraine's largest gas producer.  Thus, it would be helpful to appoint Western oriented cabinet members.

Poroshenko's party proposed three foreigners (to his new cabinet):  Natalie Jaresko, a U.S. citizen, for finance minister, Lithuanian Aivaras Abromavicius for economics minister and Georgian Alexander Kvitashvili for health minister. Poroshenko granted them Ukrainian citizenship yesterday, hours before the parliamentary vote that approved the appointments.

Ukraine's new finance minister is a private equity underwriter (PEU), having co-founded Horizon Capital.  Jaresko served as President of Western NIS Enterprise Fund, capitalized with $150 million in U.S Government funds.

WNISEF is managed by Horizon Capital, a private equity fund manager that originates and manages investments in mid-cap companies with outstanding growth and profit potential in Ukraine and Moldova. 

The Lithuanian works at Swedish investment firm East Capital and the Georgian oversaw the large scale privatization of his country's health care system.  It sounds like a corporafornication paradise.

Update 12-5-14:  NakedCapitalism ran a piece on Jaresko.   The success Horizon Capital claims for its funds appears not to have been reported in the lossmaking years, 2003, 2004, 2005, 2006, 2008, 2009, 2010, and 2012. In the only two years which Jaresko managed in the black, 2007 and 2011, the net gains reported were $1.8 million and $401,662, respectively.

Update 3-26-17:   EPJ reported Jaresko has been named chief executive of the Financial Oversight and Management Board for Puerto Rico

Update 9-28-19:  ZeroHedge reported Hunter Biden and his partner Devon Archer received $3 million from Burisma.  The story mentions opportunistic USAID funding. 

Update 1-16-20:   President Trump will speak at the World Economic Forum in Davos, Switzerland next week.  The billionaire boys will attend.  Horizon Capital is sponsoring Davos' Ukraine House.  The Ukraine Venture Capital and Private Equity Association will meet at the Ukraine House   Ukrainian President Volodymyr Zelensky.will host the invitation-only meeting of the National Investment Council of Ukraine at the Ukraine House  

Update 3-1-22:  Biden partner Devon Archer was convicted of fraud for defrauding a Native American tribe.  Oddly, doing deals with Native Alaskans is how David Rubenstein got his Carlyle Group seed money.  

Update 8-1-23:  ZeroHedge reported Hunter's partner Devon Archer shed light on Vice President Joe Biden's influence on the Burisma board appointment.  Archer said the family's "brand" had value at a time when the firm was facing corruption allegations.

Pensions Sue Carlyle Group for Cobalt Losses

Courthouse News reported two pensions filed suit against Cobalt Energy and its PEU sponsors:

On the morning of August 5, 2014, Bloomberg reported that an anti-corruption organization had determined that Cobalt had made an apparent bribe to the Angolan government, because Cobalt had paid the Angolan government millions of dollars to support an Angolan research center that Cobalt could not confirm actually exists," the complaint states.

On Nov. 5, Cobalt disclosed that contrary to its previous claims that one of its Angolan wells was oil-rich, testing revealed the well contained neither oil nor gas.

PEU Report wrote about Cobalt numerous times with one post exploring possible bribes. 

Update 3-29-15:  A U.S. newspaper columnist reported "Tom Burgis of The Financial Times has a powerful new book, “The Looting Machine,” asserting that firms, including Goldman Sachs and Carlyle Group, backed an oil company called Cobalt in investing in oil operations in which Angolan officials secretly held stakes worth staggering sums."  It's not an assertion.  

Bring Us Your Rich

The United States will sell anything, including access to immigration visas for a $500,000 infrastructure investment.

The Pennsylvania Turnpike Commission is counting on 400 wealthy foreign investors, mostly from China, to provide $200 million for the $420 million project.

The rest of the money will come from federal and turnpike funds.

The heavily indebted Turnpike Commission is borrowing the $200 million from foreign investors under the federal Immigrant Investor Program that grants "EB-5" immigration visas to foreigners who provide at least $500,000 to U.S. projects that create 10 or more American jobs.

It's no longer:

"Give me your tired, your poor.  
Your huddled masses yearning to breathe free."

The America of 2014 is "Give me your investors, your wealthy.  Your landed gentry wishing to purchase access to our shores."  Who needs a receipt?

Update 12-13-14:  WSJ reported on rich foreigners purchasing visas via real estate investments