Retirees Aren't Clamoring for PEU Investments

St. Louis Business Journal reported:

Edward Jones CEO and Managing Partner Penny Pennington said her firm's clients are not clamoring for access to investments in private companies but said that could change over time.

Private equity investments, which are less liquid and more risky, historically have been the purview of very wealthy investors and outside the reach of most retail investors. "We're not seeing that demand yet in our marketplace," Pennington said. "Though what we know is what's attractive to ultra-high-net-worth individuals becomes more attractive, and manufacturers look at getting it more into retail investments. So I am hearing a little bit about that, but I think it will take a bit."

Pennington's comments came during an interview with Bloomberg about the economy and the current investing climate. 

As for the risk of private equity investments, Pennington said: "Private equity is illiquid. When you are talking about the need for liquidity, when you are talking about folks getting into a comfortable retirement and needing to produce income, private equity is not set up right now to do that.

Thus private equity investments will need to be dressed in a way that cons the retiree into thinking they have a liquid, predictable income producing asset.   Rest assured it will come with layers of fees.

Harken back to Carlyle Capital Corporation.  Forbes reported Carlyle's sales pitch to Michael Huffington, who sued The Carlyle Group for losing his $20 million investment:

the fund was "conservative,' 'low risk' and that the 'downside [was] very limited"

Huffington was concerned about the safety of private equity underwriters (PEU).

Huffington expressed reservations about the risky nature of private equity, but Rubenstein responded that he would "look for something appropriate for you."

Carlyle Capital Corporation was listed in Amstedam, giving it the appearance of a stable investment.  The mortgage backed security firm was levered 32 times.  Four days ago Carlyle Group co-founder David Rubenstein said on Sunday Morning:

"What we've learned over thousands of years is that history repeats itself," Carlyle Group co-founder David Rubenstein said. "And if you can find the solutions that people came up with or the mistakes they made in trying to deal with these problems, you're probably going to avoid some of the mistakes that people made in the past."

Beware whatever the PEU boys package for retirees needing safe, predictable income.   Someone may be telling you a story. 

Someone has to be the final mark for the greed and leverage boys holding trillions in dry powder.  Beware the spark that makes it go "Boom."

Rise Fund's Bill McGlashan PEU Fall

TPG Capital, a Forth Worth, Texas based private equity underwriter (PEU), targeted social and environmental impact in addition to massive profits in their Rise Fund.  TPG calls that "complete returns."

The Rise Fund, which launched in December 2016, was co-founded by Bill McGlashan, Founder and Managing Partner of TPG Growth and Co-Founder and CEO of The Rise Fund; U2 lead singer Bono, a well-known activist and a special partner with TPG Growth; and Jeff Skoll, a global entrepreneur, film producer, and impact investor. 

“Education is a crucial part of The Rise Fund’s mission. Expanding access to quality education creates a foundation for long-term growth, progress, and prosperity,” said Bill McGlashan. “There is a vast need for improved and expanded educational resources around the world. At the same time, there are exciting opportunities to build innovative and impactful educational businesses and technologies.  

Rise refers to the fund as a "leading global education investor."  Institutional Investor reported:

Bill McGlashan, founder and managing partner at TPG Growth and co-founder of The Rise Fund, a social and environmental impact fund, was accused of allegedly paying bribes to facilitate his children's admission to colleges, federal prosecutors said.

Institutional Investor later added:

TPG was a few months into fundraising for Rise Fund II when co-founder McGlashan was accused of bribing a University of Southern California official to facilitate his son’s admission to the school as a recruited athlete.

CNBC reported Rise co-founder McGlashin was either fired for cause or quit:

“After reviewing the allegations of personal misconduct in the criminal complaint, we believe the behavior described to be inexcusable and antithetical to the values of our entire organization."

McGlashan is disputing the terms of his departure, saying he resigned.

TPG co-founder David Bonderman made a sexist remark at an Uber board meeting which caused his resignation from the Uber board.  I am not aware of any funds pulled from TPG as a result of Bonderman's comment to fellow board member Arianna Huffington.

The impact of McGlashin's actions has not hurt Rise Fund fundraising.  Rise Fund II is at $1.7 billion with a target of $2.5 billion.  Contrast this with Ken Fisher of Fisher Investments.  Pensions and Investments reported:

The toll exacted by asset owners for Kenneth L. Fisher's sexist comments made at a conference earlier this month is $3 billion and counting.

The same groups put money into Rise and Fisher investments.   How does one firm get a free pass while the other gets pummeled?  The big money boys will have to answer. 

It's like the Dubai Ports World brouhaha where the prospect of American ports falling into Middle Eastern hands caused a giant uproar.  Shortly after that The Carlyle Group sold fifty U.S. airport operations to Dubai Aerospace and there was not one peep in the media.  

It's a rising PEU world, even as one of their stars fell. 

Business School Tale Has PEU Odor

A Duke University law professor questioned the purpose of private equity. 

"private equity emerged as a knight in shining armor, reuniting ownership and control in corporate America and turning bloated, inefficient companies into slimmed-down cash machines."

Her thesis is private equity underwriter's (PEU) original purpose was to reform corporate governance.  PEU ownership turned the board into an insider group laser focused on returning large amounts of cash to sponsor via deal fees, management fees, special dividends/distributions and finally flipping the company for a multiple of its original purchase price.  Along the way sponsor PEU placed as little up front cash in the project (equity), saddling the company with massive debt relative to its prior inefficient public ownership.

The professor cites how the corporate world has changed and stated private equity's current distinctive competency might be providing "cheap debt" to companies.  I am not sure that is true as riskier junk bonds pay more in interest than investment grade bonds.  Most private equity transactions are not investment grade so they pay higher interest rates.

Cheap debt is a function of The Federal Reserve Bank and top leaders Jay Powell and Randall Quarles are former PEU boys.  Both worked for Washington, D.C. based The Carlyle Group.

One frequent spinner of the "knight in shining armor" story is Carlyle Group co-founder David Rubenstein.  He sat on the Duke University board until from 2005-2017, serving the last four years as board chair and made significant contributions to a number of Duke programs.  Rubenstein has his own Duke University webpage.

Do knights in shining armor lead on a family owned company, only to foreclose via highly discounted debt?  The deal jettisoned the employee pension.  That's the Carlyle Brintons story.

Do rescuing knights get banned from the World Bank for 33 months for procurement violations?  That's Carlyle and ARINC.

Do knights go bankrupt from bad financial bets not revealed in SEC filings?  That's Carlyle and Semgroup.

There are many more black knight PEU stories for Carlyle.  Older examples include LifeCare, Manorcare, Vought Aircraft, and Synagro.  The newest is Carlyle's abandonment of the Corpus Christi Harbor Island oil terminal.

I don't believe the greed and leverage boys were ever knights in shining armor, not in the '80's and not today.  They are obsessed with image and utilize every lever to shape the world to their advantage.

Rather than White Knight private equity is more like a Great White Shark.  The PEU appetite for money is insatiable.  Watch out for financial sharks when they gather in groups at Davos in Desert, like their great white counterparts, currently off North Carolina's Outer Banks.

Washington's Blog Ending

Washington's Blog will cease operation at the end of October.  I will miss a cohort in reigning in the out-sized influence of private equity in our country.  Washington's Blog stated:

We are not calling for lawlessness. We are calling for an end to lawlessness and lack of accountability and a return to the rule of law. 

Rather than trying to subvert the constitution, we are calling for its enforcement.

We are patriotic Americans born and raised in this country. We love the U.S. We don't seek to destroy or attack America ... we seek to restore her to strength, prosperity, liberty and respect.

And that strength comes from an aware electorate.  I recall September 2008 trying to understand how an economy could be taken to its knees by the failure of a few financial firms.  Washington's Blog delved into the crisis, as did I.

PEUReport began in July 2007 after noticing preferential treatment given to The Carlyle Group in its sale of Landmark Aviation (the first time) and Standard Aero to Dubai Aerospace.  Washington's Blog archives show a similar time start.  

I appreciate the good fight Washington's Blog gave, even as junk statistics smeared their reputation to give Hillary Clinton a better night's sleep.  Unfortunately politicians red and blue love PEU (private equity underwriters).  Fighting the PEU stain means taking on their sponsored politicians.  It's a daunting effort, one made better by numbers.  

Thank you, Washington's Blog from PEUReport.

Jilted Berry Drops Lawsuit Against Carlyle Group

Shipping media sources referred to Carlyle's abandonment of a $1 billion crude oil shipping facility in Corpus Christi:  (Tradewinds, Lloyd's, Big and Kallanish)

Drops out, quits, dissolves.  The change in language is noticeably different from the announcement in which Carlyle "agreed to lead the construction and ongoing operations of the Terminal on an exclusive basis".

Exclusive turned into a joint venture with The Berry Group, which became a solo deal without Carlyle.  

How many companies drop a lawsuit after failing to reach an amicable separation?  Isn't that the purpose of a lawsuit?  The Berry Group and Lone Star Ports let Carlyle (with its $223 billion in AUM) off the hook..  

It's a move reminiscent of The Carlyle Group's abandonment of nursing home giant ManorCare.  In that case Carlyle handed the company over to debtholders, not a joint venture partner.

It would appear Carlyle foisted its equity stake on Berry.  How many government agencies will trust Carlyle to carry the ball on infrastructure projects going forward?  How many will trust Carlyle as a potential partner?

Update 11-2-19:  Corpus Christi BizNews reported Berry and Carlyle reached a settlement on the lawsuit.

Port of Corpus Christi gets PEU'd by Carlyle

Last year The Carlyle Group announced it would develop a new oil export terminal for the Port of Corpus Christi.  Carlyle's website stated:

Under the terms of the Agreement, the Port will work exclusively with Carlyle to bring together world-class oil producers, marketers, pipeline operators and marine terminal operators to ensure a significant portion of the new oil production in Texas will have a reliable gateway to international markets. As part of the Agreement, Carlyle agreed to lead the construction and ongoing operations of the Terminal on an exclusive basis. Carlyle also agreed that it would arrange for a private funding solution for a dredging project to bring fully-laden VLCCs to Harbor Island (at least a 75-foot main channel depth).

The Terminal is expected to be operational in late 2020. Carlyle’s equity for this investment will come from its Global Infrastructure Fund. 

Reuter's reported that Carlyle is out of the Corpus Christi project, as did the Corpus Christi Caller Times and KRIS TV.  Carlyle's joint venture signed a fifty year lease with the Port in March.

The Port of Corpus Christi Port Commission met on October 15 and the board packet made no mention of The Carlyle Group.  The agenda had the following item for Lone Star Ports, the joint venture between Carlyle and The Berry Group:

Receive legal advice from PCCA's counsel in connection with Lease Agreement between the PCCA and Lone Star Ports, LLC

That was in executive session. The Port's September commission packet had this agenda item for Lone Star Ports (before Carlyle officially pulled out).

10h. Professional Engineering Services Contract with Schneider Electric: Staff recommended approval, in the form presented to the meeting, of a Professional Engineering Services Contract with Schneider Electric in an amount not to exceed $251,502 to provide the engineering services necessary to assess facts and optimal power choices to meet Lone Star Ports’ project schedule, cost, resilience, and sustainability options at Harbor Island.

Schneider Electric and The Carlyle Group announced a partnership/joint venture in April:

Global investment firm, The Carlyle Group (NASDAQ: CG) and Schneider Electric SE (EPA: SU), the leader in the digital transformation of energy management and automation, today announced the enhancement of their partnership to develop new and innovative infrastructure projects. 

In addition to creating new investment and energy-as-a-service opportunities, this collaboration will apply Schneider Electric’s capabilities in advanced connectivity and real-time insights to current and future Carlyle infrastructure and microgrid investments. In a market which faced sustained underinvestment in critical infrastructure due to funding constraints, the new partnership will offer innovative and efficient solutions meeting the needs of a rapidly changing energy landscape. 

The Carlyle Group recently announced several large infrastructure projects, including the JFK Airport Terminal One Redevelopment, Munich Airport Joint Venture (Reach Airports) and Lone Star Ports Harbor Island Crude Export Terminal, which are expected to benefit from this partnership and Schneider’s breadth of technology-enabled products, solutions and services. 

The new partnership also entails the formation of a joint venture, named AlphaStruxure to drive from the design and engineering phase the development of smarter infrastructure projects and more reliable distributed energy and microgrid networks.  

Carlyle cut its teeth on government contractors, has connections to leverage Uncle Sam's checkbook and learned long ago to layer businesses.  It also knows how to contain responsibility and liability, which makes it easier to abandon a project once profits aren't big enough or public opposition gets too great.  The Carlyle Group embodies greed and leverage.  They pulled out when they couldn't get enough of either.

Corpus isn't alone in Carlyle abandoning a project they'd started. Boise, Idaho had a similar experience with its tank farm project.

Update 10-30-19:  Hellenic Shipping News reported "Carlyle quit the venture without providing a reason.  Ferris Hussein, a Carlyle managing director, declined to comment on the reason for its withdrawal.

Update 1-14-22:  After bailing as lead developer for Harbor Island Carlyle plans to start a new infrastructure offering.  Time to mine more of Uncle Sam's wallet?

Denka Executives Dishonor Cancer Victims

The Guardian reported:

Residents of Reserve, Louisiana aimed to present evidence to Denka that its plant’s toxic emissions are responsible for high rates of cancer in their town.

Lydia Gerard and Robert Taylor never came close to losing their composure, even when it became clear that that their 7,000-mile journey from the southern United States to Japan was about to come to nought.

Denied even the courtesy of a brief meeting – in a country fabled for its levels of civility – with representatives of a Japanese company they blame for spewing a toxic chemical into the air above their home town, they listened patiently as uniformed guards repeatedly told them to turn around and leave – immediately.

Denka executives dishonored their visitors from Cancer Town, USA, as they pursue medical ventures.

Denka's President prioritized private equity underwriting (PEU) over basic courtesy.

That's not sound social development.  It's the way of the word-twisting greed and leverage boys. 

Soft Pedaling Deluxe Entertainment Bankruptcy

Forbes reported in 2005:

Through his main investment vehicle, MacAndrews & Forbes Holdings and its subsidiary DX III Holdings, Perelman has bought Deluxe Film, one of the world's largest replicators of film for the global movie industry, for some $745 million. 

Under MacAndrews and Forbes Deluxe's debt grew to almost $1.3 billion.  Moody's downgraded Deluxe's debt in August and estimated leverage to be around 12x.  

On October 3rd Deluxe entered Chapter 11 bankruptcy.  Deluxe's press release omitted the word bankruptcy altogether. 

All parties involved determined that the best way to implement the debt-for-equity exchange is through a controlled, efficient Court-supervised process, and today the Company took steps to start that process. "We have been working to put Deluxe in a strong financial position, and these steps are the best and most efficient way to finalize and implement the comprehensive financial restructuring,"

MacAndrews and Forbes did not include Deluxe's bankruptcy news on their website.

Frances Townsend is Executive Vice President, Worldwide Government, Legal and Business Affairs for MacAndrews and Forbes.  She omitted the hospital with the highest death toll after Hurricane Katrina.  Carlyle Group affiliate LifeCare Hospitals had 26 deaths after Katrina made landfall. 

Whitewashing remains alive and well and the PEU boys are particularly adept at it. 

Politicians Red and Blue Cater to PEU

Bloomberg had two stories on federal laws that helped private equity underwriters (PEU).  The first dealt their latest massive lobbying push to preserve PEU preferred taxation, the billionaire tax break known as carried interest.

As Republicans set out to overhaul the federal tax code in 2017, the private equity world leveraged its influence. The mission: protect the wildly lucrative tax break that’s helped mint more billionaires than almost any other industry.

An industry that’s reshaped the American economy now appears to be heading into an even bigger war to preserve the generous tax breaks and loose oversight that helped it amass more than $4 trillion in assets and launch a new Gilded Age.

A different article on imploding unicorns mentioned:

....deregulation efforts in the investing industry in the 1990s, particularly the National Securities Markets Improvement Act of 1996. That law made it easier for startups to raise funds by reducing some disclosure requirements. It also increased the number of investors allowed in a fund before it was required to register under the Investment Company Act. The result, according to the authors, is that the spigots of private equity and venture capital were opened wide.

President Bill Clinton sold the government background check division to the PEU boys.  The Carlyle Group ended up owning the company twice.  USIS changed to Altegrity but ended up bankrupt, like many over-leveraged companies batted back and forth under various PEU ownership.

Clinton's team also brought deregulation through the repeal of Glass-Steagal.  This enabled financial shenanigans that put many retirees savings in jeopardy.  Guess who wants to help workers grow their retiree nest egss?  The same PEU boys that successfully got the Obama and Trump White Houses to ignore their campaign pledges to take away carried interest and tax PEU profits as income.  Their has to be a final bagholder and who better than America's elderly.

Politicians Red and Blue love PEU.   Clinton, Bush, Obama and Trump have all served the greed and leverage boys.  All have been and will be rewarded for a PEU job well done.  

Update 10-3-19:  Someone else figured out the PEU way:  "the billionaire class has already proven with its actions that it cannot exist without actively working to manipulate governments in a way that undeniably subverts democracy and the will of the people."  Another researcher noted the bipartisan Wall Street White House.

Carlyle to Shakedown Active Seniors?

The Carlyle Group sees dollar signs around America's aging population.  From California trailer parks to North Alabama medical office buildings, active senior housing to Atlanta luxury apartments Carlyle wants rent/lease money.

Senior Housing News reported:

Seasoned players in the active adult market — including private equity giant The Carlyle Group — say that it is a product where average lengths of stay are more than two times the average of independent living, and at profit margins that outperform senior housing. 

Active seniors would be wise to consider Carlyle's ownership of nursing home giant ManorCare.  It ended in bankruptcy after Carlyle bled ManorCare with management fees, dividends and asset sell offs. 

NY Post reported on ManorCare's demise:

The stumble could sully Carlyle’s reputation, it may escape the investment with a profit thanks to a dividend in the wake of the real estate sale-lease back deal, sources said.

Active seniors might wish to understand Carlyle's handling of tenants in a California trailer park.

The Real Deal reported last month:

Carlyle, one of the country’s largest private equity firms, made a splash in 2015 when it bought a manufactured home community in Silicon Valley for $152 million.

Tenants in the area soon complained of exorbitant rent hikes and a deterioration in management responsiveness — sparking new calls for statewide rent control in California. The D.C.-based investment group recently flipped the complex, selling it to Chicago-based Hometown America for $237.4 million this August, according to California property records.

How does one charge massively more in rent and reduce management responsiveness?  It's the private equity underwriter (PEU) way.  

Addendum:  PEUReport did many pieces on Carlyle-Manorcare over the years. 

Update 9-8-21:  Manufactured home communities, aka trailer parks, are evicting people.  ZeroHedge blames the Federal Reserve Bank's low cost debt provided to PEU investors through Fannie Mae and Freddie Mac.  Fed Chair Jay Powell once worked for The Carlyle Group.  

Update 6-9-22: