Carlyle's Newest NYC Retailer

Business of Fashion reported:

Carlyle-Backed Twinset Plots Expansion
The Italian fashion brand will open its first US store in New York, with plans to take on London in 2018.

Other Carlyle retailers in the Big Apple include Supreme:

Golden Goose Deluxe Brand:

And former holding Moncler:

Most are European imports.  American based Supreme went the other way to London, Paris and Japan.  Carlyle's dream is to expand affiliates, mine them for cash and flip them for a multiple of their original equity investment.  It's the PEU way. 

Update 11-25-18:   Netflix comedy show takes on Supreme and The Carlyle Group.

Double Digit PEU Raises

Bloomberg reported:

The most junior PE professionals saw base salaries increase by 14 percent to $125,000.

Private equity is now an employer of choice for former politicians, however they don't enter at the junior level.

As for the PEU pay survey, Bloomberg included a caveat:

And that doesn’t include bonuses and carried interest, or their cut of deal profits.

Private equity underwriters (PEU) fare well in tax reform, keeping their preferred carried interest taxation under both the House and Senate bills.   Are they looking after their supporters, their future income or both?

Politicians Red and Blue love PEU.

Update 12-9-17:  Jacobin reported:  "The Obama presidency was a disaster for middle-class wealth in the United States. Between 2007 and 2016, the average wealth of the bottom 99 percent dropped by $4,500. Over the same period, the average wealth of the top 1 percent rose by $4.9 million."

Carried Interest Remains!

Congressional' tax reform proposals carried water for private equity underwriters by preserving lower carried interest taxation.  Presidential candidates Barack Obama (Blue team) and Donald Trump (Red team) both ran on eliminating what's became known as the billionaire's loophole.  Under tax reform it remains large enough for PEU founders to fly their private jets through.

Washington would have it no other way as politicians Red and Blue love PEU.

Update 12-3-17:  The Hill reported more than 6,000 lobbyists worked to shape tax reform.  The story did not indicate how many were PEU lobbyists.

Update 12-10-17:  Trump's tax plan has Kansas roots.   Will it turn much of the U.S. into dust in the wind?

Update 12-22-17:  Fox Business reported " Bannon's advisers say he found it impossible to convince members of Congress to take away the tax benefit from the powerful private equity business. This is the same line of reasoning that was recently used by Trump’s National Economic Council Director Gary Cohn, who said the private equity lobby was too powerful for the White House to compete with, and that he and others behind the new tax bill unsuccessfully tried to eliminate the deduction “25 times.”

D.C. based Carlyle Group Celebrates 30 Years

The Carlyle Group issued a video celebrating its teamwork and innovation after 30 years operating in Washington, D. C..  The video views more like a handoff from Carlyle's DBD co-founders to its next generation of leaders.

Not mentioned are Carlyle's stumbles, bankrupt investments (detailed above) or numerous failed ventures in the hedge fund and mutual fund space.

The video failed to mention core drivers of Carlyle's success as a private equity underwriter (PEU).  One of those is preferred carried interest taxation:

At a Credit Suisse forum in Miami, in 2013, Rubenstein said of private equity, “Carried interest is really what the business has historically been about—producing distributions for your investors from good sales and I.P.O.s . . . and getting twenty per cent of the profits for yourself.” He went on, “That’s how we’ve really grown our business.”

At the end of the puff piece are several humorous bits.  Rubenstein closes the video exhorting rowers to "get into private equity, the highest calling of mankind."

Consider the above example of integrity:

"H.J. Heinz determined to pay all creditors back, although it would not be required legally.  His reputation and moral obligations had priority in his life.  He started a ledger of what was owed and to whom."  

Contrast Heinz's behavior with that of The Carlyle Group in its many failed ventures, where it simply walked away, refusing to put good money (which it had plenty of) after bad.  Integrity, one of Carlyle's espoused values did not get one mention in their video.

A different calling saved PEU core driver carried interest according to the New Yorker:

On June 8th, Rubenstein’s cell phone rang as he was speaking to supporters of the Economic Club, at the Phillips Collection. He left the stage to take the call. Among those in the audience was Gary Shapiro, the consumer-electronics lobbyist who was Rubenstein’s travel companion to Japan in the eighties. After a few minutes, Shapiro recalls, Rubenstein returned and said, “That was a senator. That one call just saved us on carried interest.”

And saved Carlyle's business.  The greed and leverage boys live on.  They know how much they are owed by politicians Red and Blue (who both love PEU). 

Update 12-3-17:  Tony Blair's wife launched a private equity fund, which later went belly up, like Carlyle Capital Corporation.  

Carlyle Bullish on Saudi Arabia prior to Prince's Detention

Carlyle Group co-founder David Rubenstein said the following a week before the Saudi Prince purge began:

"I have been in Saudi Arabia for more than 25 years and I am already investing in Saudi Arabia, but the atmosphere is now more encouraging and will encourage more capital attraction."

The wealthy Saudi Arabian Bin Laden family began investing with Carlyle in 1995.

In 2000 George Bush Sr and John Major traveled to Riyadh to talk with senior Saudi businessmen (on behalf of Carlyle). 

In 1991 Carlyle landed one of Saudi Arabia's wealthiest Princes:

Prince al-Waleed bin Talal of Saudi Arabia pondered the notion of spending a spare half-billion dollars. Then last month, on the recommendation of American advisers, he used the money to buy up a sizable piece of America's largest banking company, Citicorp. 

The advisers were the Carlyle Group -- not a familiar name on Wall Street, certainly. In fact, its only New York connection is that it takes its name from the city's famed luxury hotel, a favorite of the Carlyle partners. 

The Carlyle Group, relatively new and based in Washington, is led by people with little experience in the investment business but with strong connections, especially in Washington. 

David Rubenstein is the consummate salesman.  He had this to say in 1991.

Whether the deal with the Saudi Prince will lead to further business for Carlyle remains to be seen. But Carlyle has hopes: "We were mostly interested in developing a relationship with him that might lead to other things in the future," Mr. Rubenstein said. 

It's not clear if Prince Alwaleed bin Talal is one of Carlyle's 1,750 investors from over 82 countries.
Rubenstein has not publicly said if he is worried about the billionaire Prince, however a $1.3 loan to Kingdom Holdings has been held up due to the Prince's detention.

A senior banker at a Saudi financial institution, said the loan deal would not go ahead until the situation facing the prince was resolved.

Also in October PwC and UBS referenced the billionaire prince in a study on the undetained super rich.  

The allegations against Prince Alwaleed, who owns 95 percent of Kingdom, include money laundering, bribery and extorting officials, a Saudi official has previously told Reuters. 

The question is how intertwined are Carlyle and the detained prince?   The Carlyle Group settled more than one bribery allegation in the past.  Will the Prince come out as unscathed as Carlyle?  Will he endure a purge like Libya's Saif al Islam Gaddafi, another Carlyle Group courtee?

Might The David Rubenstein Show on Bloomberg TV entertain any of these questions?  Only the host knows for sure.

Update 11-25-17:  NYT Columnist Thomas Friedman spoke to new prince in charge with a "firehose of new ideas."  Friedman sees changes in Saudi Arabia as their Arab Spring.  Friedman made no mention of Prince Alaweed bin Talal but he wrote. the mood among Saudis he spoke with was: “Just turn them all upside down, shake the money out of their pockets and don’t stop shaking them until it’s all out!”  Who will end up with bin Talal's Citi, Four Seasons and Kingdom Holdings shares?  How do those fall out of the pockets of someone hanging upside down?    I'm not sure how Friedman sees freedom arriving under a barrage of torture reference.

Update 11-26-17:  Bloomberg reported a second deal is held up as a different billionaire Saudi Prince is detained in the Ritz-Carlton.

Update 12-3-17:  CNBC noticed om 12-1-17 what PEUReport observed.  No friends of Prince bin Talal have spoken out on his behalf.

Update 12-7-17:  Bloomberg did a piece on the Saudi crackdown but no word yet from Bloomberg TV's David Rubenstein.

Update 12-9-17:  NPR noted "detaining a key international financial player of Alwaleed's stature could harm potential investment in Saudi Arabia."  Has David Rubenstein changed his mind on Saudi Arabia being an attractive place to invest?  He's been busy ending a different relationship, given his divorce from wife Alice Rogoff.  Did he divorce Prince Alaweed bin Talal as well?

Update 12-4-18:  U.S. Senators heard evidence of the Crown Prince's ordering the murder of a Saudi journalist.  Carlyle's Rubenstein will speak at Indiana University's upcoming commencement.  The university's motto is "Truth and Light." 

Update 10-9-21:   The Khashoggi murder is such old news that the man behind the execution is being promoted for his public service by Crown Prince bin Salman.  Further evidence that Khashoggi's brutal killing is in the rear view mirror came from bin Salman led Saudi Public Investment Fund's purchase of Newcastle United.

New Tax Break for PEU Billionaire Private Jets

Congress added a new tax break for private jets.  Carlyle Group co-founders David (D) Rubenstein, William (B) Conway and Daniel (D) A'niello each own a private jet.

Yipppeeee!

Core Drivers of PEU Riches

The Carlyle Group presented recently at the Future of Financials conference hosted by Bank of America Merrill Lynch.  The private equity underwriter (PEU) had a slide on core drivers of their performance.  I adapted the slide to show how billionaire PEU founders achieved their outsized wealth (pictured above).

Another slide showed Carlyle serves 1,750 investors from over 82 countries.  It is these people Carlyle co-founder David Rubenstein has in mind when he meets with President Trump, just as he met with Presidents George H. W. Bush, Bill Clinton, George W. Bush and Barack Obama.  Carlyle's pervasive political influence is not mobilized on behalf of the average citizen.  It is steered toward the international billionaire class.

Politicians Red and Blue love PEU.   That'sbecause the greed and leverage boys may be their next employer.  That's the world we live in.

Carlyle Says It's Not a Spent Force

FT reported:

The private equity model “is starting to look like a spent force” because more competition and record cash available is leading to lower returns as operators are forced to take on more risk, an adviser to the industry has said.

Carlyle Group co-founder David Rubenstein, ever the salesman, offered a different view:

Speaking at a trade conference in Amsterdam, David Rubenstein, the billionaire co-founder of the Carlyle Group, said the model of private equity had worked “pretty well” for both managers and investors and that was likely to continue for the next three decades, with minor adjustments.

Carlyle has roughly $100 billion to raise.  Carlyle knows when not to throw good money after bad, as it did with bankrupt Carlyle Capital Corporation (CCC).  The question is if and when investors decide PEU stakes are a bad deal.

The model of asset management charged no carried interest — the cut managers share with investors — for 200 years, he said, but private equity in the 1960s changed it because “money would be committed but not actually invested and more or less 20 per cent of the profits would go to the [manager]”.

The greed and leverage boys became ubiquitous in the last two decades.  The rise of the billionaire founders coincided with the decimation of the middle class.

Ironically, PEUs want to become part of that middle class retirement account, what's left of it.  Is more risk the tonic, or will it be toxic?    Ask the robot what you need to do the pay a management fee plus carried interest.  Surely, Carlyle funded artificial intelligence will give you an answer.  

Billionaire Report Highlights Detained Saudi Prince

The PwC-UBS billionaire report highlighted a joint deal between Bill Gates' Cascade Investment Group and Kingdom Holding,  directed by Prince Alwaleed Bin Talal, one of the world’s leading investors.  The pair bought out Four Seasons just before the 2008 financial crisis.

PwC-UBS released the billionaire report in October, before the corruption crackdown in Saudi Arabia that engulfed the Prince.  Money reported:

He’s the richest man in the Middle East.  And now he’s under house arrest.  Prince Alwaleed Bin Talal—best known for sporting a distinctive throwback mustache, trading in traditional Saudi garb for fine suits, and making a series of high-profile, brand-name investments—was detained this week as part of what the Saudis have called a corruption crackdown. It is not clear what specific charges have been leveled against the prince.

Four Seasons issued debt twice under billionaire ownership, according to Moody's.  The company floated $1.1 billion in debt in June 2013.  Part of those proceeds went to preferred shareholders.  It refinanced $950 million of debt in November 2016, with $36 million going to owners in the form of dividends.

Money noted the Prince's propensity for leverage:

Yet the New York Times also speculates that Prince Alwaleed may have gone bankrupt during the 2008 financial crisis—which might be connected to his detention. 

“He had been highly leveraged and somehow got elements of the government to bail him out, through his connections to then-King Abdullah and the finance minister, who is also said to have been arrested.

The United States rescued private money with trillions in public funds during the financial crisis.  Surely, the Saudi's did likewise.

Kingdom Holding Company: The World’s Foremost Value Investor 

Directed by Prince Under House Arrest in Corruption Crackdown

Billionaires, leverage, corruption and bailouts.  It can be a sordid tale.

Update 11-20-17:  A $1.3 billion bank loan for Kingdom Holdings is on hold pending the fate of  Prince Alwaleed Bin Talal.

Update 11-23-17:  Rumors have former Blackwater thugs tormenting and torturing Prince Alwaleed bin Talal while he remains in custody at the Riyadh Ritz Carlton.  The last fall of similar magnitude happened to Libya's Saif al-Islam Gaddafi when the west shifted from courting his father to ousting him.

Update 11-27-17:  Bill Gates publicly spoke about the plight of Prince Alwaleed bin Tabal, saying he only knew what he read in the press.  Gates called the detained Prince an important partner in improving health conditions around the globe.

Update 12-3-17:  CNBC noticed om 12-1-17 what PEUReport observed.  No friends of Prince bin Talal have spoken out on his behalf. 

PwC-UBS Fawn Over Billionaires in Report

The Guardian reported:

Yet the 2017 billionaires report compiled by the Swiss bank UBS and the consultancy firm PwC finds that the clock would have to be turned back to 1905 – when the Russians were having a trial run for their revolution and Queen Victoria had been dead only four years – to find a time when wealth was so concentrated.

Josef Stadler, the author of the UBS/PwC report, said: “We are now two years into the peak of the second Gilded Age,” and he added that the 1,542 dollar billionaires around the world were concerned about how concentrated wealth has become. But not, it seems, concerned enough to do anything about it. The rich show real tenacity when it comes to holding on to their wealth and the system that generates it.

The newspaper piece missed the marketing nature of the PwC/UBS billionaire report.  First, it calls then "new value creators" vs. "systemic wealth concentrators."  Second, the intent is to advise more of the world's wealthy billionaires.

America's political system under Republicans and Democrats fostered the rich getting richer, as shown by a graph in the billionaire report. I added colored arrows and presidential names to the graph.  The growing of billionaires has been a bipartisan effort for decades.

PwC and UBS join politicians Red and Blue.  All love PEU, private equity underwriters. 

Interesting aside:  The report shows U.S. billionaire's preference for holding companies private (63%) vs. public (37%).  That fits squarely with the PEU meme.  

Bloomberg Columnist Likes PEU Powell Nomination

Fed Chair nominee Jerome Powell has a strong supporter in the author of "Fed Up:  An Insider's Take on Why the Federal Reserve is Bad for America."  Danielle DiMartino Booth wrote:

The sheer breadth of Powell’s experience is refreshing compared to what we’ve had for the past 30 years. Powell has a deep understanding of the law and politics. 

At the Carlyle Group, Powell founded and ran the Industrial Group within the Buyout Fund. A separate missing characteristic among Fed leaders for the past 30 years has been a woeful lack of understanding as to how Fed policy effects corporations and the decisions CEOs and CFOs make driven by Fed policy, the most obvious of which has been debt-financed share buybacks at the expense of capital expenditures.

Future Fed Chair Powell's Carlyle Group executes a private form of the above strategy, debt financed dividends at the expense of capital expenditures and my addition, employee raises..  

Author Danielle DiMartino Booth and Carlyle co-founder David Rubenstein share frequent appearances on Bloomberg and CNBC.  Rubenstein has his own show on Bloomberg. 

DiMartino Booth is a full-time columnist for Bloomberg View, a business speaker, and a commentator frequently featured on CNBC, Bloomberg, Bloomberg Radio, Fox News, Fox Business News and other major media outlets.

Below is a core message of Fed Up, according to Amazon.

While easy money has kept Wall Street and the wealthy afloat and thriving, Main Street isn’t doing so well. 

America's new Fed Chair grew wealthy from his time with The Carlyle Group, a politically connected private equity underwriter (PEU).

In 2017, Powell reported that he had a net worth of between $19.7 million and $55 million, making him the richest member of the Federal Reserve Board of Governors.

I expect Jerome Powell to look after his wealthy peers as Fed Chair.  He should face easy approval as politicians Red and Blue love PEU.

Update 11-9-17:  Billionaire peer lover and corporate fan Trump's Fed will help whom?  Fed Chief Alligator Powell will govern one corner of Trump's D.C. swamp.

Fed Officially Goes Carlyle

God's favor for The Carlyle Group's co-founders continued with President Trump's appointment of another Carlyle alumus for Federal Reserve Chair, Jerome Powell.  As they turn their politically connected private equity underwriter (PEU) over to younger hands they will have two friends working on the macroeconomic scene.  The irony is the last few decades have been tilted toward the greed and leverage boys and not the average citizen.