Anthony Scaramucci's Skybridge: Fees in the Clouds

Brash Wall Street financier Anthony Scaramucci successfully translated Trumpish at the 2017 billionaire bash in Davos, Switzerland.  Scaramucci announced the sale of Skybridge Capital, his hedge fund of funds, while at the World Economic Forum meeting.  The price tag for China conglomerate HNA Group and RON Transatlantic EG dropped from a rumored $250 million to $180 million over the last six months as hedge fund withdrawals grew.  Bloomberg valued the deal at $200 to $230 million.

Scaramucci  received two appointments by President Donald Trump this summer.  His first was to the Export-Import Bank.

Financier Anthony Scaramucci, a prominent surrogate and fundraiser during President Donald Trump's campaign for the White House, has joined the embattled Export-Import Bank in a top position.

Scaramucci became a senior vice president and chief strategy officer at the agency on June 19.

His second appointment elevated Scaramucci to White House Communications Director.  Oddly he never occupied the Ex-Im Bank slot:

Scaramucci has been on unpaid leave from Ex-Im since the day he started there, June 19, a bank spokeswoman said, forgoing his $172,100 salary as chief strategy officer.

The Ex-Im job was essentially a special purpose vehicle (SPV) for Scaramucci to get to Washington.  Once installed in the White House Scarmucci went to work, employing his sales skills.  It turned out Scaramucci speaks Trumpish directly, as he did to the The New Yorker's Ryan Lizza.

Skybridge G II Fund's prospectus dated 1-30-2013 listed fees and expenses of over 10% per year, according to a SEC filing. 

The purpose of the table above is to assist prospective investors in understanding the various fees and expenses Shareholders are expected to bear directly or indirectly.

That's quite the prospectus showing fees at twice the rate of projected returns.  One's investment could be sucked away over time to pay Anthony Scaramucci and his staff.

In addition Scaramucci earned $200,000 in income from a majority stake in Hastings Capital Group, the principal underwriter for Skybridge's various investment vehicles. It's a form of double dipping, making multiple fees on a transaction.

Hastings Capital Group, LLC, an affiliate of the Adviser, serves as the Company’s Principal Underwriter with authority to sell Shares directly and to appoint Placement Agents to assist the Principal Underwriter in selling Shares.

The Adviser or its affiliates, including the Principal Underwriter, may pay from their own resources compensation to the Placement Agents in connection with placement of Shares or servicing of investors. Prospective investors also should be aware that these payments could create incentives on the part of the Placement Agents to more positively consider the Company relative to investment funds not making payments of this nature or making smaller such payments. 

It's difficult to tell how much Scaramucci will make from the delayed sale of Skybridge Capital as a "principal of the investment advisor."  It will be enough for him to dive into politics without financial worry.  The Blue team's Rahm Emanuel made big money between public service stints.

Chicago is the place where Rahm's personal financial house expanded greatly in terms of resources.  As an investment banker Emanuel made $18.5 million in two and a half years.  His political influence grew as a member of Congress and President Obama's Chief of Staff.   

How far might Anthony Scaramucci go in the Trump White House?  Will he make it to Trump's  #1 advisor once he has his core wealth locked up?  Scaramucci curses like Rahm and is also hyper-competitive.  Both share a potty mouth.  They are but two sides of the same coin, greed and power.  Politicians Red and Blue love PEU.  Scaramucci is the latest appointment in Trump's D.C. swamp. 

Update 7-31-17:  After 10 days on the job the Trump White House dismissed Scaramucci as Communications Director.  

Alaska News Boiling Under the PEU Surface?

Disruption made big profits for The Carlyle Group when it correctly read market geography.  It cost Carlyle big when affiliates experienced unanticipated adverse conditions.  Lately Carlyle bet big on energy, trying to get access to undervalued energy assets.  Less than two years ago it struck a deal with Hilcorp Energy to invest in North America energy.  Carlyle's press release stated:

Hilcorp Energy Company ("Hilcorp"), a privately owned oil and gas exploration and development company based in Houston, Texas, today announced the establishment of a newly formed partnership, Hilcorp Energy Development, L.P. (the "Company"), which seeks to acquire, operate and develop onshore oil and natural gas properties and related assets in North America.  In conjunction with the establishment of the Company, the Carlyle Energy Mezzanine Opportunities Fund, L.P. and Carlyle Energy Mezzanine Opportunities Fund II, L.P. ("Carlyle"), funds controlled by The Carlyle Group, have entered into a definitive agreement to invest up to $1.24 billion in the newly formed partnership.

Fast forward to summer 2017 and Hilcorp Alaska is the only bidder for 14 tracts of potential energy assets under Alaska's Cook Inlet.

Hilcorp Alaska LLC, a unit of privately held Hilcorp Energy Co. and an emerging force in the Alaska oil and gas industry, spent over $3 million for exploration rights to 14 federal offshore leases covering about 76,615 acres in Cook Inlet.

It's also the developer of a pipeline that would run across Cook Inlet.

Hilcorp Alaska is moving ahead with its $75 million plan to transport oil across Cook Inlet by subsea pipeline and close a tank farm that is dangerously close to Redoubt Volcano, according to a permit application filed with the U.S. Army Corps of Engineers.

The company's Alaska operation has the following characteristics:

Hilcorp Alaska has over 500 employees, 90 percent of whom are Alaska residents. Alaska is our home. 

Hilcorp acquired its first Cook Inlet assets in 2011.

Earlier this year Hilcorp had a leaking gas line under Cook Inlet:

This line was previously used to transport oil and was converted to natural gas use a decade before Hilcorp acquired it in 2015.

Carlyle's joint venture with Hilcorp was incorporated on 10-16-2015.  It's not clear how Hilcorp Energy Development, L.P. has invested Carlyle's up to $1.24 billion and whether the partnership put any of that money to work in Alaska.

Carlyle co-founder David Rubenstein's wife Alice Rogoff Rubenstein owns Alaska Dispatch News, which reported a number of stories on Hilcorp.  None of them mentioned any potential conflicts of interest due to Rubenstein family investments..

Rogoff bought into Alaska news in 2014 and 2016 saw her commit to publishing a physical newspaper for fifteen years

The story deepens with reports from Alaskan blogger Craig Medred.  His report from July 3rd:

In Alaska, the state’s largest newspaper and by far largest news organization is teetering on the edge of financial disaster with losses reportedly running to several million dollars per year and owner Alice Rogoff now reported to have tried to shop the publication to at least four different corporations. As of yet, there have been no takers.

His June 26th piece offered details about ADN's financial distress:

Rumors circulating around Anchorage that the Alaska Dispatch News was no longer paying its bill have been given credence by a lawsuit filed by the newspaper’s newsprint provider.

Catalyst Paper went into an Anchorage court on June 22 asking for an order forcing Dispatch, which also does business as ADN.com, to pay its March and April paper bills.

Based in Richmond, British Columbia, Canada, Catalyst is the largest producer of newsprint on the West Coast. 

Its suit against the ADN follows another filed against Arctic Partners, Inc., the Tacoma, Wash., company which owns a building on Arctic Boulevard that Dispatch was renovating  as its new print plant and Alaska news headquarters.

Only last fall, the building was emblazoned with a banner proclaiming “Alaska Dispatch News – COMING SOON.” The banner is gone now, and Dispatch appears to have been locked out of the building housing its new press after running up a bill of approximately $1 million with M&M Wiring, an Anchorage electric contractor.

Should Alaska Dispatch News implode it would follow Rogoff's Alaska House in New York City.  It closed in the summer 2010 despite efforts to obtain private and public funding.

Rogoff-Rubenstein's plan to raise $1 million per year from Alaska Permanent Fund money managers mired in Wall Street's meltdown. Oddly, while her husband's personal finances recovered in 2009 and Carlyle monetized affiliates, donors remained hard to find.

Alice Rogoff-Rubenstein turned to the government, which did not deliver. Senator Murkowski failed to submit a $1.5 million federal earmark to fund operations. The Alaska State Legislature passed on a requested $600,000 appropriation.

Will Rogoff-Rubenstein once again seek public support from the state or feds for her pet project?  Her husband hates throwing good money after bad.  He cut off Alaska House.  Is Alaska Dispatch News next?

Update 8-1-17:  Must Read Alaska ran a story on the missing Mr. Rubenstein. 

Fed Nominee Quarles Profiting from Public Bank Subsidies a "Nothingburger"

Reuters reported how Fed Nominee Randall Quarles personally profited from public subsidies while working at The Carlyle Group, a politically connected private equity underwriter.  Carlyle's Boston Private received $150 million in TARP funding while the FDIC recapitalized BankUnited so four PEUs could make huge profits.

Those investments earned hundreds of millions of dollars for Carlyle, profits that would not have been possible without government support. 

Carlyle completed its highly profitable exit of BankUnited in March 2014.   Three months later Quarles left Carlyle to start The Cynosure Group.

"Profiting in the markets isn't a scarlet letter in this Congress."

Carlyle's profits came not from trading in public markets.   They came courtesy of public subsidies.  Quarles oversaw both investments while at Carlyle.  Carlyle exited Boston Private in July 2013.

Quarles will be President Trump's latest PEU appointment, capable of steering the Fed ship in a way that profits his former peers.  Once upon a time that might have been a concern.  Today it's a badge of honor for both the Red and Blue political teams (who jointly love PEU).

Update 7-16-17:  Denver Post raised concerns about Quarles appointment.

Update 11-30-17:  The latest nothingburger is the Fed dropping enforcement action against an Atlanta area bank that recently had Quarles for an investor.

Update 12-1-19:  Quarles continues loosening bank regulations from the inside the Fed, something he desired while working for Carlyle.  NYT article stated "Other Democrats in Washington breathed a sigh of relief, at least privately. Mr. Quarles was expected to ease the rules without setting fire to the regulatory house"  Politicians Red and Blue love PEU.

PEUs Behind Hamilton Hustle

The Hamilton Project's Advisory Board has benefited greatly from income inequality, something the group purports to reduce.

Launched in 2006 as an economic policy initiative at the Brookings Institution, The Hamilton Project is guided by an Advisory Council of academics, business leaders, and former public policy makers. The Project provides a platform for a broad range of leading economic thinkers to inject innovative and pragmatic policy options into the national debate.

The Hamilton Project "offer(s) a strikingly different vision from the economic policies that contributed to the alarming trends in rising income inequality and a mounting federal deficit."

Private equity underwriters (PEU) are in the top 0.1% and their wealth continues to rise dramatically.  PEU assets under management more than doubled since Bob Rubin founded The Hamilton Project at Brookings.

It's sad that all those pragmatic solutions rooted in evidence and experience failed to improve income inequality since the Hamilton Project's founding.

The Blue team's alignment with wealth and power ended up serving those already with wealth and power.  The greed/leverage boys on the Board of the Hamilton Project have to be grateful.

Carlyle Weaves Profits from Brintons

The Carlyle Group sold British carpet maker Brintons to Argand Partners, another private equity underwriter (PEU).

"Brintons has been a solid investment for us (Carlyle), performing strongly over the last five years in a competitive global market."

"Solid investment" means a multiple on Carlyle's original equity investment, which oddly arose through buying discounted debt and forcing a bankruptcy. Carlyle shed Brintons pension onto the British public.

Carlyle Group took control of Brintons in 2011 by buying an £18m debt it owed to Lloyds Bank and putting it through an insolvency known as a pre-pack administration. The process sent Brintons’ pension scheme, which had 1,600 members, into the Pension Protection Fund (PPF).

The rescue cost the PPF, a lifeboat for troubled schemes, about £21.5m and resulted in benefits cuts of more than 10% for 700 members who were below retirement age.  

Carlyle's profits came on the back of workers, some of who will no longer have jobs.

Historic carpet company Brintons is aiming to axe around 60 jobs at its factory in Kidderminster as it shuts down weaving of Axminster carpets after more than a century.

The latest move comes just 18 months after Brintons cut another 65 jobs from the Kidderminster workforce.

While the sale price is undisclosed some financial information is available:

Its last accounts show earnings after tax had soared 81 per cent to £14.5 million in the 12 months to October 1, 2016.

Often the sale price is a multiple of earnings.  What multiple did Carlyle achieve in its "lucrative sale of a carpet manufacturer that dumped its pension fund?"

Update 7-9-17:  Brintons is "renowned globally for carpeting the White House, the Kremlin and Buckingham Palace."

Temptation Returns: Record $23.5 Billion Apollo Buyout Fund

WSJ reported:

Apollo Global Management LLC, the private-equity firm co-founded by billionaire investor Leon Black, has raised $23.5 billion for the world’s largest-ever buyout fund. 

The record-breaking fundraising is the latest demonstration of a surge in investor appetite for leveraged buyout funds, extending a run of records in recent months. 

NYT reported:

Cash is being raised at a rate not seen since 2008. CVC Capital, based in London, raised more than $18 billion for Europe’s largest buyout vehicle earlier this year, Silver Lake pulled together $15 billion for tech deals, and Kohlberg Kravis Roberts set a record in Asia with a $9.3 billion fund while also putting the finishing touches on a $13.9 billion United States fund.

With so much money sloshing around, it is getting harder to imagine how it all will be invested profitably. The research outfit Preqin estimates there is some $920 billion available in private equity. With leverage, that is more than $3 trillion to deploy.

Private equity underwriters (PEU) count on cheap debt, preferred taxation and rising asset prices.  Take away these advantages and the greed/leverage boys have to scramble to hold things together.  Ironically, Senator Evan Bayh helped Apollo keep its preferred taxation, even as Bayh was interviewing to join the Apollo PEU team.  

Cash being raised at a rate not seen since 2008 brings back memories of the go-go PEU years.  Here's Carlyle Group co-founder David Rubenstein in 2010.  Looking back at the financial crisis he said:

“Debt was offered to you no matter what.  Very few of us were able to resist the temptation”--Carlyle chief David Rubenstein 

So what did Mr. Rubenstein do as that cheap debt imploded?

"The flavor of the day is buying your own debt at below face value. I'm buying bank debt in my deal with leverage from the bank that made me that deal"--David Rubenstein in Forbes, May 2008.

There's plenty of PEU cash to make levered deals and buy back affiliate debt on the cheap should the face value of that debt fall.   Apollo Global has $23.5 billion to do just that.

New Carlyle Idea Exchange Planned for U. of Chicago

Carlyle Group co-founder David Rubernstein sits on the board of the University of Chicago, which plans to name a new building after him.  The Rubenstein Forum will be "a place of intellectual, institutional and educational exchange."

The programs for the building will be designed by several focus groups and consultants along with more than 100 plus faculty and staff from the University of Chicago.

I imagine there will be some parameters for planned programs in the Rubenstein Center.  I'll be shocked if this former financial reporter is invited to speak, given what they had to say about private equity underwriters (PEU) in 2011:

I know from personal experience that the financial press is so eager to break news on "deals" that reporters (who are increasingly compensated on the number of "market moving stories" they write) can't afford to be critical of Carlyle, KKR and Blackstone, and risk losing access to people at those firms.

I have seen so many people -- particularly those in their 50s - 70s -- taken apart by what has happened in their industry as greed has hollowed out the economy. These are people took pride in their jobs and held themselves to this invisible standard that we all just took for granted, but is being wiped out. 

The Carlyle Group scares me more than anything I've ever seen on Wall Street. It seems to exist to corrupt politicians and it's hard to know who they even represent.
I watched a video interview of (David) Rubenstein and his arrogance is really beyond tolerance. He was going on about the debt ceiling problem and how there would need to be cuts in services and higher taxes. When the reporter asked him about tax on carried interest he turned really disdainful and said that this "only" amounted to $22 billion over some number of years and this was not serious money. Boy, nothing like everybody doing their small part to save the country from oblivion!

I expect the Rubenstein Center to be a PEU safe space.

Health Exchange Sale Bagged Gephardt $1.2 Million

The Intercept reported:

The mere prospect of single payer, however, has elicited swift derision from some corners of the party, with Dick Gephardt, the former Democratic House minority leader, laughing off the idea at a health insurance conference earlier this month.

“Not in my lifetime,” scoffed Gephardt, when asked if the United States will ever adopt such a system.

Gephardt, who serves as a Democratic “superdelegate” responsible for choosing the party’s presidential nominee, was asked about the possibility of single payer at the Centene Corporation annual investor day conference at The Pierre, a ritzy five-star hotel in New York City.

Prior to serving on the board of health insurer Centene Dick Gephardt was on the board of Extend Health.  Gephardt grossed $1.2 million from his Extend Health stock holdings when Towers Watson purchased the company in 2012. Targeted markets for Extend Health's exchanges included:

• Retirees with Employer-Sponsored Healthcare Coverage
• Retirees without Employer-Sponsored Healthcare Coverage
• Employees with Employer-Sponsored Healthcare Coverage
• Employees without Employer-Sponsored Healthcare Coverage

(Source Extend Health S-1/A) 

Gephardt may well be expressing his gratitude for being personally enriched by the byzantine health insurance system Democrats foisted on the public, one that eats up more disposable income each year.  Both Extend Health and Centene put millions into Gephardt's pocketbook.  He has blatant conflicts of interest on this issue. 

Update 4-3-22:   The average health insurance premium more than tripled for a family plan since PPACA passed in 2010.  Cost curve bent but in the wrong direction.  Concave went convex.