Monday, July 31, 2023

PEU Devil is Trashing Hospital ERs

Brown Brothers Harriman Capital Partners invested in American Physician Partners (APP) in 2017.  APP recently told hundreds of ER physician employees that the company will declare bankruptcy.  It took no time for the firm to begin welshing on emergency doctor paychecks.    

The same industry that brought patients "surprise medical billing" has now innovated into "unpaid ER doctors."  

Flashback to 2017 when APP's press release stated:

We are excited to have the opportunity to invest in a leading outsourced ED management company alongside the experienced team of former hospital executives and clinical experts that John Rutledge leads,” Bradley M. Langer, managing director at Brown Brothers Harriman & Co. and co-manager of BBHCP, said in the release. “APP’s outsourced solution — which goes beyond physician staffing to encompass complete management of the ED — plays an essential role in helping hospitals to improve clinical outcomes and drive financial performance.”

I imagine stiffing ER doctors has and will cause great harm to clinical outcomes in APP's numerous community hospital ERs.

The people who are supposed to reign in this nonsense are AWOL.  A current member of Congress, Dr. Mark Green, helped start American Physician Partners.

One APP physician said of the current disastrous situation:

"...this is the United States. It doesn’t matter. If no one went to jail over the financial crisis no one is going to jail over this. I’ll tell you, though: Never in a million years would I have imagined members of my profession talk about joining a union."

The greed and leverage boys answer solely to themselves.  Who can find out how much cash BBHCP and its founders bled from the company as well as key asset transfers?    

Moody's credit rating from November 2021 states:

The credit agreement permits the transfer of assets to unrestricted subsidiaries, up to the carve-out capacities...

Despite the turmoil and threat of bankruptcy there has been no update to Moody's credit rating of APP. 

Who stands to be harmed by APP's sudden failure?  Moody's said:

The company has approximately 155 contracts with health systems in 17 U.S. states through which it serves ~4 million patients annually. The company is approximately 50% owned by BBH Capital Partners with the remaining ownership split between the company's management team and physicians in roughly equal proportion.

APP has some geographic concentration with Texas, Florida, Tennessee, and Arizona representing more than 60% of profits.

Here's a flashback to financial crisis and no one going to jail:


The PEU boys have a playbook and lawmakers have facilitated their arrogance and mendacity.  Treating doctors with impunity could not have happened twenty years ago.  That impunity has physicians considering unionizing.  

Many doctors made a deal with the devil and need help re-balancing the obscene power differential.  I'm not sure anyone is available.  

Politicians Red and Blue love PEU (private equity underwriters) and increasingly more are one.

Update 8-1-23:  Former PEU and Virginia Governor Glenn Youngkin showed his lack of respect for rules and physicians by appointing a non-doctor as interim head the state health department.  Ironically, Youngkin and former health department head Dr. Randy Gordon grew up blocks from one another.  

During a recent trip to Richmond, Virginia I exited the men's room to see a giant Glenn Youngkin walking toward me on a massive TV screen.  His welcome video scared the bejesus out of me.

Wednesday, July 19, 2023

Political PEU Sponsorship Means

Independent Senator Kyrsten Sinema continues to rake in huge political donations from private equity underwriters (PEU).  Sludge reported:

Tens of thousands of dollars of Sinema’s second quarter haul came from donors who work at the investment firms Montgomery Capital, First Atlantic LLC, Crescent Capital Group, and TPG Capital

A handful of large donations from employees of the Boston-based private equity firm Advent International, totaling $23,000, were received by Sinema’s joint fundraising committee within a one week period in April, including from David Mussafer, the company’s chairman and managing partner. Other donations in the second quarter to Sinema came from Amir Goldman of private equity company Susquehanna Growth Equity, John Connaughton of Bain Capital, and James Burr, managing director at the Carlyle Group.

The PEU boys are showing their appreciation for Sinema's saving their preferred "carried interest" taxation. 

Donors with private equity giant Kohlberg Kravis Roberts (KKR), the Carlyle Group, Crescent Capital Group, tech investment firm Francisco Partners, and Blackstone contributed tens of thousands of dollars to Sinema’s PAC this year, making up a portion of the more than $226,000 that GSD (a PAC supporting Sinema) has received from investment industry donors.
Politically connected PEUs funnel money to elected officials to get their legislative wishes enacted.  These kingpins are known as "policy making billionaires."  So what do politicians do with these funds?  They circulate them to friends and family via a giant money funnel.  

How would you like to be paid as a full time employee and also own a company that provides services to the Senator's campaign?  Vrindavan Gabbard Bellord owns TOA Group, an Arizona company and is on the congressional payroll, according to LegiStorm.

The Daily Beast gave some color to the relationship:

Since fall 2021, Bellord has been employed as the “security director” in Sinema’s Senate office, a role that has paid her over $50,000, according to Senate records. Bellord has also apparently been the exclusive security provider to Sinema’s campaign. 

Beyond paying Bellord’s salary, Sinema’s campaign committee and personal PAC have spent over $240,000 on other security-related expenses—airfare, lodging, meals, and other benefits for “security detail,”

Sludge indicated the money funnel did not stop there: and security service TOA Group, formed by the sister of Sinema’s friend, former Rep. Tulsi Gabbard, with almost $268,000 paid to it by GSD (a Sinema related PAC). The security company has also received ​​$233,000 from Sinema’s campaign this year.

That's over $500,000 from the Sinema campaign and a mission related PAC.

Several experts commented on the nature of this multiple income arrangement (mixing public and campaign/PAC money):

.....remarked the $300,000-plus sum that Bellord received from Sinema was “eye-opening” and that the fact that the senator is her only apparent client is “one of the biggest red flags.”

That Bellord is being paid with campaign funds for security while drawing a taxpayer-funded salary for the same kind of work is “exceptionally rare,” said Brendan Fischer, executive director of the watchdog group Documented.

It's the PEU way and it's infected our government and society from nearly top to bottom.

Congresswoman Tulsi Gabbard also paid an obscure consultant big bucks during her time in office. Honolulu Civil Beat reported:

Deep in the Washington state wilderness, a highly paid political consultant is raking in hundreds of thousands of dollars from U.S. Rep. Tulsi Gabbard’s presidential campaign.

It’s the kind of money usually spent on national name-brand political operatives with bustling offices and large staffs based in Washington, D.C., or New York.

But few people in the business have ever heard of Kris Robinson, the owner of Northwest Digital, a web design and internet marketing firm working for Gabbard’s campaign. His company address is a P.O. box here in Stehekin, a remote village in the Northern Cascades mountains that’s famous for its isolation.

Federal Election Commission records show that between 2013 and 2019 Gabbard’s congressional and presidential campaigns have paid out more than $531,000 to Robinson, Honu Creative and Northwest Digital.
Tulsi was this man's only political client.  No other politician hired him outside Gabbard.

“If you’re a serious enough agency to be working on a presidential campaign, you would have worked on previous statewide campaigns or national super PACs. The fact that I’ve never heard of this guy or his company is peculiar.”

The insider money funnel continues to churn out big bucks for the connected.  It appears independent members of Congress are as corruptible as the aligned.    

Politicians Red and Blue love PEU and increasingly, more are one.  The "No Labels" addition is of PEU disruption origins.  Very dark money is behind it.  That's what policy making billionaires do.  They pull the strings and manage our political marionettes to the benefit of their power and pocketbook.

For Kyrsten Sinema a bright PEU future awaits.  She has earned it and did so on the backs of the poor and marginalized, which she once was.  Nevermore.

Update 10-24-23:  Kyrsten Sinema said she doesn't care if she loses reelection because she 'saved the Senate by myself' and can go serve 'on any board I want to.'  For saving PEU preferred taxation I'll wager she gets more than a board seat.

Monday, July 17, 2023

Carlyle to Exile Praesidiad?

The Carlyle Group indicated it might turn over affiliate Praesidiad to debt holders.

 Moody's stated in its latest downgrade of the company:

Governance considerations are material to the rating action and related to Praesidiad's aggressive financial policy that reflects in historically very high financial leverage and weak liquidity. Considerations around Praesidiad's failure to address upcoming debt maturities and concurrently reduce leverage to more sustainable levels were among the drivers of today's rating action.

The Carlyle Group acquired Praesidiad in July 2017.  Carlyle CEO Harvey Schwartz indicated it would refinance affiliates as part of its more aggressive credit strategy.  I take it Praesidiad failed to make that cut.  Ironically Praesidiad has its own finance division, Praesidiad Capital.

The question is how much Praesidiad debt Carlyle's numerous buckets hold.  They've ended up with an equity stake before on bankrupted affiliates.  It could well happen again.

Thursday, July 13, 2023

Carlyle Credit Income Fund Coming July 14th

Shareholders of NYSE traded Vertical Capital Income Fund (VCIF) will become shareholders of Carlyle Credit Income Fund.  A SEC filing states:

Vertical Capital Income Fund (NYSE: VCIF) (the “Fund”) announced that all conditions to the closing of the previously-announced and shareholder-approved transaction (the “Transaction”) with an affiliate of global investment firm The Carlyle Group Inc. (NASDAQ: CG) (“Carlyle”) have been met and the Transaction will close shortly after the close of business on Friday, July 14, 2023.

The Carlyle Group is a politically connected private equity underwriter (PEU).

Shareholders saw a significant drop in net asset value after 95% of the fund's assets were sold.  Carlyle wanted a clean slate to charge performance fees going forward.

Shareholders get to pay higher fees to Carlyle.

CGCIM will receive an annual fee from the Fund of 1.75% of the Fund's month end managed assets (total assets minus the Fund's liabilities other than liabilities relating to indebtedness), which is higher than the current advisory fee of 1.25% on average daily net assets. Additionally, CGCIM is also entitled to an incentive fee of 17.5% of the Fund's pre-incentive fee net investment income, for each calendar quarter subject to an 8.0% annualized hurdle rate, with a catch-up (the "Incentive Fee"). For this purpose, "pre-incentive fee net investment income" means interest income, dividend income, income generated from original issue discounts, payment-in-kind income, and any other income earned or accrued during the calendar quarter, minus the Fund's operating expenses (which, for this purpose shall not include any distribution and/or shareholder servicing fees, litigation, any extraordinary expenses or Incentive Fee) for the quarter.

The base fee is up 40% under Carlyle.

The deal required a sale of most fund assets.

"the Fund has adjusted its net asset value per share ("NAV") from $9.96 as last reported on June 30, 2023, to $8.27 as of today." 

As part of the Transaction with an affiliate of Carlyle, Carlyle Global Credit Investment Management L.L.C. ("CGCIM") will become the investment adviser to the Fund.

Shareholders get a new Carlyle stacked board :

Brian Marcus, Lauren Basmadjian, Mark Garbin, Sanjeev Handa, and Joan McCabe, will serve as Trustees of the Fund.

A different Carlyle entity's SEC filings show:

Each of CGCIM, the European Manager and Carlyle CLO Manager is, and the Future Advisers will be, organized and managed such that the individual portfolio managers, as well as the teams and committees of portfolio managers, analysts and senior management (“Investment Teams” and “Investment Committees”),10 responsible for evaluating investment opportunities and making investment decisions on behalf of clients are promptly notified of the opportunities. 

CGCIM controls BDC I, BDC II, BDC III and CTAC, and the European Manager and Carlyle CLO Manager are, and any other Advisers will be, controlling, controlled by or under common control with CGCIM

The CGCIM Investment Committee includes:

Brian Marcus, Managing Director of Carlyle

Lauren Basmadjian, Managing Director of Carlyle, Head of Liquid Credit and Head of US Loans and Structured Credit

So two of fund trustees are charged with holding their "investment advisor" accountable when they are on the investment committee of that advisor?  

Members of the Carlyle Tactical Private Credit Fund (CTAC) Board include:

Mark Garbin (Independent Director) 

Sanjeev Handa (Independent Director) 

Joan McCabe (Independent Director)

The three bios of the "independent directors" did mention their board service on a different Carlyle fund but failed to indicate that fund is under the control of the contracted "investment advisor" and how conflicts of interest are to be avoided. 

New Carlyle CEO Harvey Schwartz talked about their credit division financing and refinancing affiliate debt.  He said paying deal fees to ourselves "is a no-brainer."  

How did Carlyle overran a $100 million closed end fund, change its purpose to include collateralized loan obligations, drive down net asset value 17%, charge 40% higher base fee and install conflicted trustees.  Did shareholders not read the proxy statement?

This is the kind of progress that makes the greed and leverage boys happy.  Its a PEU world.

Update 7-14-23:  It's transaction day!

 NAV is vertical in an undesirable direction.

Update 7-15-23:  Carlyle's sales pitch showed CTAC but didn't disclose the trustee overlap and corresponding conflict of interest.

Update 7-14-23:  It's official!

Monday, July 10, 2023

PEU Sales: Talk vs. Reality


Bloomberg reported that private equity underwriters are monetizing affiliates in a tenuous market.  The story contradicted some basic PEU tenets.  

Why would PE firms need to return capital to investors?  Because many made capital calls, i.e. asked for committed capital from those investors over the last year.  Limited partners don't want the money flows to be only one way (from them to the PEU).

Update 7-11-23:  GTCR co-CEO Collin Roche noted the financial squeeze being put on many PEU affiliates.  He didn't offer to relieve the pressure by waiving annual management fees charged by PEU sponsors.

Update 8-6-23:  NYT ran a story titled "The Risks Hidden in Public Pension Funds" and private equity's risks are significantly understated.  The story noted PEUs are "speculative and arcane asset structures with high fees, heavy debt loads and light regulation."

Sunday, July 9, 2023

Rubenstein Mints "Patriotic Philanthropy"

Capital Research Center wrote:

Carlyle Group co-founder and major philanthropist David M. Rubenstein coined the term “patriotic philanthropy” to describe giving meant to help restore and preserve those tangible reminders of “the history and heritage of our country,” such as documents, buildings, monuments, and more. To Rubenstein, knowledge and appreciation of American history are key to the continued functioning of democracy today.  

The Giving Review reported:

“I guess in many respects, you could say all philanthropy is patriotic because you’re trying to give back to the country,” Rubenstein tell us. He coined the term “patriotic philanthropy,” he continues, " to try to describe some of the type of philanthropy I’ve been doing, and that is to remind people of the history and heritage of our country. My theory has been that people should know more about our history and heritage. Our representative democracy is premised on an informed citizenry and if we don’t have informed citizens—if people don’t know how our government works, know about our history—we’re not going to have as good a democracy as we should like."

Mr. Rubenstein knows exactly how our government works and that's why he has continued to enjoy preferred taxation for decades longer than public will would have allowed.   The politically connected private equity underwriter's (PEU) ex-wife characterized his giving as self-serving:

Mrs. Rubenstein described her husband's patriotic philanthropy as "publicity grabs and claimed all her financier husband really cares about is making money." 

That marriage ended but PEU preferred taxation goes on.  Politicians Red and Blue love PEU and increasingly, more are one.

Update 7-15-23:  Someone else noted the rich getting richer.

Update 11-8-23:   The Chinese recalled pandas from zoos around the world.  

"David is not commenting on the panda situation at this time," Rubenstein's spokesperson Christopher Ullman wrote in an email.

Friday, July 7, 2023

Carlyle Aims at PR0PH3CY (NEVERHACK)

The Carlyle Group will likely acquire yet another cybersecurity firm. Their press release stated:

The Carlyle Group is currently in exclusive negotiations to acquire Pr0ph3cy, a leading “one-stop shop” cybersecurity services company in France.

PR0PH3CY will launch its company rebrand, under the new name “NEVERHACK”, reflecting its evolution into becoming a pure-play cyber security services business.

The company serves a highly diversified blue-chip customer base from a range of sectors, including Financial Services, Transport and Consumer Goods.

Started in 2021 the company grew through acquisitions, Harmonie Technologie, Silicom and OpenCyber (cyber strategy, integration and development, pentest and technical audit), Seela (training center) and weS4FE (risk rating service).

I imagine a number of Carlyle affiliates will soon be using NEVERHACK.  It's the EBITDA of PEU (private equity underwriters).

French legislators passed a bill allowing police surveillance of suspected criminals.  Daily Mail reported:

French police should be able to spy on suspects by remotely activating the camera, microphone and GPS of their phones and other devices, lawmakers agreed late Wednesday.

If the government is spying it's not a hack.  Similarly, if the laws are made to PEU benefit, they would not be considered suspects in any crimes.   

How will NEVERHACK work the new law into their sales pitch and product offerings?  It's the kind of disruption that makes Carlyle money.

Carlyle can read the government tea leaves because it strongly aids in their manufacture.

Thursday, July 6, 2023

GTCR Buys Majority Stake in WorldPay from FIS

An FIS SEC filing stated:

FIS has signed a definitive agreement to sell a majority stake in its Worldpay Merchant Solutions business to private equity funds managed by GTCR in a transaction valuing Worldpay at $18.5 billion, including $1 billion of consideration contingent on the returns realized by GTCR exceeding certain thresholds. 

FIS purchased WorldPay for $43 billion in 2019.  That's a $24.5 billion write down.  This should cast doubt on hefty fintech corporate valuations.

Buyer GTCR invests in four areas:  financial services/fintech, healthcare, business/consumer services and telecom, media and communication technology. 

The private equity underwriter (PEU) recently round tripped fintech Paya.  GTCR bought Paya in 2017, took it public in 2020.  Paya went private again in 2023 after PEU backed Nuvei purchased it in a $1.3 billion deal.

GTCR exited LifeCare Management Services in August 2005 just prior to Hurricane Katrina's landfall.  Twenty six LifeCare patients died in Katrina's aftermath, the highest hospital death toll.  New owner The Carlyle Group and LifeCare avoided any mention in the White House Lessons Learned report.   That omission precipitated my return to blogging and starting PEU Report.

If common people were going to get short shrift from politically connected PEUs I would chronicle it. The cycle continues.

Wednesday, July 5, 2023

Anti-Tax PEU to Buy Unethical PwC Division

BBC News

PwC Australia says it will sell its government business for A$1 (50p) after a scandal over the misuse of confidential government tax plans.

The company also said it would sell its Australian federal and state government business to private equity firm Allegro Funds, with the aim of reaching a binding agreement for the deal by the end of next month.

 A number of PwC partners participated in the scheme.

PwC Australia said it had identified 76 current and former partners linked to the scandal and handed their names to Australian lawmakers.

Lawmakers?  How about sharing those names with criminal justice authorities.   

Reuters reported:

...a former PwC partner who advised the Australian government on anti-tax avoidance laws had shared confidential drafts about the government's plans with colleagues then used this to drum up business with companies.

I don't know Australia's rules on confidential government documents but surely there are legal consequences.

...five of Australia's largest pension funds, managing a total of some A$865 billion, have paused work with PwC, which says it is a "leading adviser" to the sector.

So public pension funds are the new law, instituting consequences for bad behavior?  The other appeaser is PwC plans to essentially give away the division.  I hope the Australian public is smarter than ours.

A tax hating private equity underwriter (PEU) will pay A$1 for a $255m million book of government consulting business because a partner in that firm shared draft government plans to crack down on tax avoiders.  

How many tax hating PEUs were on the receiving end of PwC's ethical lapses?  Did Allegro or any of their affiliates benefit from the direct sharing of confidential government information? 

The new business will be called Scyne Advisory and be fully independent of PwC.  The new oversight board plans to establish an ethics subcommittee, chaired by Andrew Greenwood, a former judge of an Australian federal court.

I imagine PwC had a number of internal mechanisms to reign in tawdry behavior.  Why would PEU Allegro's work any better?  

One only need recall The Carlyle Group's purchase of giant nursing home provider ManorCare.  Former Medicare Chief and ManorCare board member Gail Wilensky served on the newly established Quality Committee.  It took but a few years for patient harm episodes to result in regulatory action.  Allegations of Medicare fraud came afterwards.

The Carlyle ManorCare buyout stunk from the get go.  It took less than a decade for The Carlyle Group to strip the company under the watchful eyes of the Quality Committee.  Carlyle bankrupted ManorCare while charging it management fees.

This story shows the greed and leverage boys can behave badly under the noses of their oversight structures.  PwC's consulting debacle shows how extrinsic motivation schemes distort behavior.  Handing the firm over to someone making a bigger bet is likely to not produce the desired behavior change.  

I'm sure Andrew Greenwood is as good as Gail Wilensky.

Update 7-14-23:  The Guardian reported:

Another big four consultancy firm has confirmed it misused government information last year, widening a scandal that has engulfed global giant PwC.

Deloitte disclosed the breach as part of an ongoing Senate inquiry, but has so far refused to provide any more details about the incident due to client confidentiality.

The ethical race to the bottom continues. 

Tuesday, July 4, 2023

It's PEUdepence Day

Fresh Air

The place where you buy your coffee and doughnut, your child's pre-K learning center, your loved one's nursing home, your dentist or dermatologist's office, the ER and the ambulance that took you there and your pet care provider may be owned or overseen by plunderers. That's what my guest Gretchen Morgenson writes in her new book. The plunderers she's referring to are private equity firms, PEFs, which typically buy companies, then lay off employees and cut costs, services, benefits in order to expand profits. The ultimate goal is to sell off the newly acquired company in a few years, scoring a big profit for the PEF. But it's hard to know whether a company is owned by a private equity firm because PEFs are shrouded in secrecy. Their business model, Morgenson says, widens the income gap by extracting wealth from the many to enrich the few.

"PEF" equates to private equity underwriter (PEU), my pet name for the greed and leverage boys.

The interview hits on a number of PEU targeted industries.

Retail -  "Private equity firms have savaged the retailing industry in recent years....these firms always look for assets that a company owns that they can strip, that they can peel off and sell and generate revenues that way. So retailing was an enormous focus of private equity firms. And in fact, over two decades, ending in 2020, there were 542,000 jobs lost among retail workers because of private equity firms buying them."

Healthcare -  "A recent study found that 30% of private hospitals in the country are owned by private equity. So you are talking immense numbers. Now, we just don't know how many dermatologists, anesthesiology firms, but they have been taking over doctors' practices and amassing them into, you know, large groups. So the takeover has been stealth, but it has been dramatic....the push for profits is absolutely immense. And so I've spoken to many people who have been in the middle of these situations and they just find it to be intolerable and ultimately leave."

Pensions and 401(k)'s:

GROSS: So you have public employee money being invested in private equity firms, which are cutting jobs, cutting benefits for other employees.

MORGENSON: That's right. That's right. Now, you also have - private equity firms are really trying hard to get your 401(k) money, OK? They understand that that's an enormous pot of gold for them. And if they can get access to, you know, the vast majority of people's 401(k)s, then they will be very happy because their fees are very high, and they can actually extract from the 401(k) holder the fees. They also had very high fees in the pension funds.

My wise friend had a few gems that fit the PEU theme.

All funded by the people they are trying to replace and to minimize, i.e. labor retirement funds.  Talk about a kick in the *** 

So what the Fed has actually allowed to happen is they are supporting high valuations for the select few to capture fees not associated with the reality of their positions or assets under management while the plebeians, the masses have salaries that are not keeping up with the cost of living pushing more and more people behind the ball and allowing these guys to maintain lifestyles that are actually unjustly deserved . The crowding out effect this time it's gonna be about people not being able to maintain the income to support the standard of living as things become out of reach for the many.. How about those Apple Mac Pros 7 grand ... Is that a two or four seater ? Holy cow!

Our hypocrisy on a number of fronts is only surpassed by the discrepancy in our GINI ratio engineered by the same policy makers and business goals piloting our vessel or is that the vassal?

Did catering to the greed and leverage boys engender any loyalty? 

..there is no alpha in public markets yet his private market marks have yet to CLEAR ? I'll say one thing about Saudi Arabia, they really improved their infrastructure and they're really preparing for the future And all the big boys from here have jumped over there... Who's leading our ship?

Ironically our ship is led by politicians Red and Blue who love PEU and increasingly, more are one.  Turn over a rock in Washington, D.C. and you'll find a PEU.  

Take Hunter Biden.  Here's his PEU track record

2006  Paradigm Global Advisors

2008  Paradigm Stanford Capital Management Core Alternative Fund

2009  Rosemont Seneca Partners co-founder

2009  Eudora Global founder

2013  Bohai Harvest RST (Shanghai) Equity Investment Fund Management Company.

The Red Team is just as conflicted.  Both political teams have promised to eliminate private equity's preferred "carried interest" taxation but it still exists.  Some promises to remove unjust things are just campaign slogans.   

Update 8-18-23:  Jesse's Cafe Americain wrote

Soft corruption is growing ever brazen, and pervades the corridors of power in the US.

Ignoring these things gives rise to vocal groups who will use it as an excuse for almost anything, any crime, betrayals, greed, cowardice, and eventually murder, in those public figures that flatter them and fatten their wallet.   

The events of this young century confirm this.   History suggests that is the way to national madness.

I am not sure where we're going, but we're on our way.

Monday, July 3, 2023

ISS Dings Board Expert Glenn Hubbard

Glenn Hubbard, the past co-chair of the Study Group on Corporate Boards, was recommended for removal of his BFZ board chairmanship by Institutional Shareholder Services (ISS).  BFZ is the ticker symbol for BlackRock California Municipal Income Trust.

Glenn Hubbard is Dean Emeritus at Columbia Business School and the Russell L. Carson Professor of Finance and Economics.  Russ Carson co-founded Welsh, Carson, Anderson and Stowe (WCAS) in 1979.  WCAS is a private equity underwriter (PEU) focused on technology and healthcare. 

The PEU boys have enjoyed preferred "carried interest" taxation for decades, despite promises from Red and Blue Team candidates to eliminate this unfair advantage.  Hubbard fits into this history.

Hubbard served as deputy assistant secretary for tax policy at the U.S. Treasury Department from 1991 to 1993.

The greed and leverage boys rose from minor players to policy making billionaires.  People who supported PEU efforts to milk Uncle Sam's wallet while reducing taxes were handsomely rewarded.  

Hubbard sits or has sat on 149 boards according to SEC filings.  In 2005 he joined the KKR Financial Corp board.  Most of his board slots are with BlackRock funds.  

I doubt Hubbard has any interest in public service.  BlackRock CEO Larry Fink may not either.  However he does have a Secret Service like private security detail and makes international arrangements.  His outsized influence is similar to storied PEU founders.

Politicians Red and Blue love PEU and increasingly, more are one.  Is there a President Fink with Vice President Hubbard in our future?  If citizens are analogous to shareholders, what might ISS have to say about that?

Note:  ISS is owned by Deutsche Börse Group, along with Genstar Capital and ISS management.

Saturday, July 1, 2023

Carlyle Sells Defense, Buys ESG

The Carlyle Group sold Titan Acquistion to another private equity underwriter (PEU).  

Titan Acquisition Holdings was formed in 2019 through the combination of Vigor Industrial and MHI Holdings. 

Vigor's website had the press release while MHI's did not.  Carlyle offloaded Titan to "an affiliate of Lone Star Funds."

Lone Star, founded by John Grayken, is a leading private equity firm advising funds that invest globally in real estate, equity, credit, and other financial assets. Since the establishment of its first fund in 1995, Lone Star has organized 22 private equity funds with aggregate capital commitments totaling approximately $86 billion.

Terms of the sale were not disclosed.  A potential price of $2 billion was floated in January.   Carlyle cut its teeth on defense stocks and it likes to monetize affiliates while asset prices are high.  

Carlyle bought a majority stake in Anthesis, a European ESG consulting firm.  The deal values the company at roughly $500 million.  Carlyle executives stated a number of  affiliates already use Anthesis and they plan to have others engage the consultancy.  

Former Carlyle co-CEO and Virginia Governor Glenn Youngkin went from ESG proponent to ESG critic.   Carlyle's 2020 Impact Review stated:

Leadership and learning go hand-in-hand, and our portfolio companies continue to lead on ESG issues by learning from each other on these important topics. Our portfolio companies are frequently at the forefront of specific ESG innovations – from how they are managing ESG issues themselves to how they are developing products and services that could help other portfolio companies capitalize on ESG risk management and value creation opportunities. 

These innovations can be leveraged across our companies – something we actively work to facilitate. In December Carlyle hosted its annual Sustainability Workshop for our portfolio companies, welcoming participants from 15 different portfolio companies for a day of discussion, information sharing, and problem solving on pressing ESG topics

Our Co-CEO Glenn Youngkin kicked off the day by highlighting the rising importance of ESG themes such as climate change and diversity and inclusion in his conversions with our global LPs...

Glenn was full on ESG at Carlyle.

The Carlyle Group’s dedicated ESG team is responsible for developing and updating Carlyle’s approach to ESG issues, in conjunction with senior executives across the firm. Any material updates or changes to Carlyle’s approach to ESG are reviewed and approved by Carlyle’s Co-CEOs.

The Carlyle Group’s Board of Directors has formal oversight for the firm’s approach to ESG. It receives routine updates on the firm’s approach to ESG issues, and annually reviews the firm’s ESG report.

Red Team Governor Youngkin changed his stance.  Forbers reported in March:

If Youngkin can convince the General Assembly that ESG is harmful to state investments and the business sector, bipartisan anti-ESG legislation may be possible in some form.

Are Anthesis consultants needed to steer ESG firms through anti-ESG environments?   I sensed Glenn would steer state business to Carlyle and their numerous affiliates.  I didn't expect it to come from a political flip-flop.

This round has defense out and ESG in.  What will the next PEU tea leaf reading show?

Heads PEUs win, tails they also win.  It's all ensured by politicians Red and Blue who love PEU, and increasingly more are one.

Update 7-2-23:  PEU Palatine claims is made 6 times its investment in Anthesis and will become a minority investor under Carlyle.  It's about generating massive "returns with a purpose."  Kind of the antithesis of doing good,  doing good for greed.  It's now called "delivering positive equity."  

Update 7-7-23:  Carlyle released its 2023 ESG report titled "The EBITDA of ESG."  Obscene profits can be made anywhere by the politically connected.