Wednesday, November 29, 2023

Billionaire Boys Talking Up Nikki Haley

A number of billionaires expressed support for Red Team Presidential candidate Nikki Haley.  Citadel's Ken Griffin highlighted her foreign policy experience in a David Rubenstein interview.  Rubenstein is co-founder of The Carlyle Group, a politically connected private equity underwriter (PEU) based in Washington, D.C.  Rubenstein also Declaration Partners, has his family office.

Rubenstein coined the term "patriotic philanthropy" and inspired another, "policy making billionaire."  The Carlyle co-founder interviewed Griffin at Mount Vernon, the home of George Washington, America's first President.  Griffin sounded like he might run for office at the end of his interview.

In another David Rubenstein interview Nikki got the nod from billionaire Bill Ackman, normally a Blue Team supporter.  

The Red Team oriented Koch network is backing Haley.  Former PEU and Red Team Senator Mitt Romney said:

Haley has proved naysayers wrong before “and she’s doing it again." He added: "I think it’s a huge boost for her campaign and may create the kind of momentum she needs.”

Billionaire Ken Langone plans to meet with former South Carolina Gov. Nikki Haley next week.

Billionaire Ray Dalio wants anything other than a "Biden vs. Trump" rematch.  

These guys tend to get their needs met.  We'll see if that happens.  Politicians Red and Blue love PEU and increasingly, more are one.

Update 11-30-23:  JP Morgan CEO Jamie Dimon talked up Nikki as an alternative to Trump.  Former House Speaker and Solamere Capital partner Paul Ryan recommends Nikki Haley.  Solamere Capital is a Boston PEU.

Update 12-8-23:  Linked In co-founder Reid Hoffman made a $250,000 in support of Nikki Haley.

Update 12-9-23:  Ken Langone is now firmly in the Haley camp.

Monday, November 27, 2023

MidCap 400 Index to Include Carlyle

The Carlyle Group will join the S&P MidCap 400 starting November 30.  Carlyle will replace ICU Medical which will drop to the SmallCap 600.

Ironically both Carlyle and ICU Medical expressed interest in buying two Medtronic divisions.  Carlyle is currently under exclusive negotiations with Medtronic for those businesses.  Carlyle hopes to use debt that turns interest payments into more debt.  That's like a homeowner's mortgage interest being added to the mortgage principal. 

One index deletion involves private equity underwriter (PEU) Clayton, Dubilier and Rice, which is buying Veritiv Corporation.  Aretec Group is acquiring Avantax, which delivers tax-intelligent wealth management solutions for financial professionals.  The PEU boys hate paying taxes.

Index investors can buy a chunk of Carlyle stock, which lagged a different index, according to Pensions&Investments:

Over the last 10 years, Carlyle had a 6.6% annualized return vs. 9% for the DJ US Asset Managers index and 12.3% for the S&P 500 index.

Irony upon irony.

Saturday, November 25, 2023

Hall Suing Oates Suit Over Primary Wave Deal

The Associate Press reported:

Daryl Hall has sued his longtime music partner John Oates, arguing that his plan to sell off his share of a joint venture would violate the terms of their business agreement.

The move quickly prompted a judge to temporarily block the sale while legal proceedings and a previously initiated arbitration continue.

A Nashville chancery court judge issued the temporary restraining order on Nov. 16, writing that Oates and others involved in his trust can't move to close the sale of their share of Whole Oats Enterprises LLP to Primary Wave IP Investment Management LLC until an arbitrator in a separately filed case weighs in on the deal, or until the judge's order expires. 

Primary Wave has four registered investment funds according to SEC filings.  The initial fund had its first sale in June 2016.  In September that same year Primary Wave announced a partnership with BlackRock.

Primary Wave, the leading U.S-based independent music publishing, marketing, talent management and television production company, announced today that it has finalized a new investing partnership with BlackRock Alternative Investors, (a unit of BlackRock, Inc.).

In October 2022 Primary Wave announced a new partnership.  Variety reported:

Primary Wave Music, a top player in the music-catalog and publishing boom, has joined forces with Brookfield Asset Management in a $2 billion deal to invest in music copyrights, the companies confirmed.

Primary Wave can flip investments in its early funds to its newer ones.

Brookfield could also purchase the assets from any of Primary Wave’s existing three funds. Already, the new vehicle has bought over $700 million of music rights from Primary Wave’s first and second funds.

Arm's length deals?  I can't go for that.

PEU deals. layer upon layer. are everywhere.  Say it isn't so.  I'm afraid it is.

Wednesday, November 22, 2023

Xi Dines with PEU Boys

Fresh off warning Chinese Communist leaders to avoid private equity investments, China's President Xi Jinping dined with U.S. business executives.  Private equity underwriters (PEU) included Blackstone's Stephen Schwarzman and KKR's Joseph Bae.  Each PEU ponied up $40,000 for the privilege.

Xi courted American business leaders with soothing messages:

'The number one question for us is: are we adversaries, or partners?' Xi asked during his remarks.

'China is ready to be a partner and friend of the United States,' he assured while explaining that seeing each other as competitors would lead to misinformed policy.

So Xi needs U.S. business investment.  The PEU boys know all about partnership, the limited liability kind.  PEUs love preferred taxation (lower) and strategically placed affiliates (that do alot of government business).

Was Xi warning off Chinese PEUs from poaching deals from storied U.S. firms?  

President Joe Biden is back at the Nantucket home of PEU David Rubenstein, co-founder of The Carlyle Group and family office Declaration Partners. 

The globe is "greed and leverage boy" friendly.  Where will they invest their billions in dry powder?

Update:  FT reported Carlyle will sell its stake in McDonald's China operations for $1.8 billion.

Carlyle has calculated that the deal will make investors more than six times their money, before fees, one of the people said.

Will that entice new PEU investments in China?

Monday, November 20, 2023

Biden Returns to Nantucket for Thanksgiving

Cape Cod Times

President Joe Biden will once again be spending Thanksgiving on Nantucket, continuing his four-decade-long tradition that has seen him evolve through elected positions in public life.

There is no official word from the White House.

The Nantucket Current added:

Nantucket Police Lt. Angus MacVicar told the Current he anticipates there won’t be any changes from President Biden’s visit to the island last year. If that’s correct, it would entail a stay at billionaire David Rubenstein’s compound on Nantucket Harbor, Thanksgiving dinner from Faregrounds restaurant, a visit to the downtown area for dining, shopping and the tree lighting ceremony on Friday, and time with his family.

Carlyle co-founder David Rubenstein has big bets on crypto's resurgence, healthcare artificial intelligence, fintech and defense/security through his family office, Declaration Partners.  He's also the face of private equity's preferred "carried interest" taxation, showing up on Capital Hill every time there is a serious challenge.

While many are outraged by Supreme Court Justice Clarence Thomas' non-declaration of expensive trips gifted by rich friends, consider the rules in place regarding Presidential trips:

When Biden receives free lodging, he’s supposed to disclose it on annual financial disclosure forms that are released publicly each May. The form requires the president and vice president to disclose free lodging worth more than $390. Ethics experts say the “personal hospitality” reporting exception on that form doesn’t cover instances where the homeowner isn’t present.
Historically, Rubenstein only spends twelve days a year at his Nantucket estate.  That means the odds are good that citizens won't see the value of this trip on an annual disclosure form.  Nearby properties rent for $25,000 to $75,000 per week.

David Rubenstein recently interviewed Citadel Chief Ken Griffin at Mount Vernon, the estate of President George Washington.  They did talk about money in politics but viewed the ignorant masses as a larger problem for democracy.  They also discussed the ballooning federal deficit but did not offer to give up their preferred taxation or pay higher income tax rates.

Griffin mentioned Nikki Haley as his preferred Red Team Presidential candidate.  Rubenstein did not cite his horse for the 2024 Presidential race, but rest assured David is poised to benefit regardless of the outcome.  

So few have so much to be thankful for.

Update 11-24-23:  President Biden called for Americans to "put unity above politics" from Nantucket.  The Hill piece did not mention Biden's stay at the Rubenstein compound.  From the Biden cabinet to his Thanksgiving vacation host it's clear the President feels strongly about peunity.

...if capitalism and its moneyed interests are in charge, those excesses inevitably grow to the point where they are able to extinguish democracy and ride roughshod over the common good.

Politicians Red and Blue love PEU and increasingly, more are one.

Update 4-26-24:  Hard times for some Nantucket homeowners as storms and rising tides have taken out homes.

Sunday, November 19, 2023

Thoughtful Money Launched

Wealthion followers were shocked when founder Adam Taggart announced his departure.  It happened on Halloween and most considered the move an awful trick.

Adam shared in a Wealthion video that his departure came over "control issues."  He said it was amicable and the parties were working through the details.  That video is no longer available on the site.  


His reasons for leaving are on Adam's new Substack.  They include:

At its core, my decision to leave was all about control. While Wealthion was my brainchild and I ran nearly all aspects of its operation from Day 1, I did not own the company. 

Going independent gives me the liberty to runs things exactly the way I want to for you.

Thoughtful Money is Adam's new baby.  Like Wealthion, Thoughtful Money LLC is a Registered Investment Advisor Solicitor.  Adam makes money by connecting investors to RIAs.

Two of Adam's Substack posts are available without subscribing.  Four videos are posted and only available to paid members.  

A video with Lance Roberts RIA is one of the free posts.  There are hundreds of comments with most appreciative of Adam's and Lance's rapid resurgence.

Everyone has to make a living.  I wish Adam much success and trust he will be upfront about the ways he benefits from Thoughtful Money LLC.  

Update 11-24-23:  Adam's Thoughtful Money YouTube site is up and running.  Video view numbers at the new site (22,000 to 70,000) and Wealthion (4,500 to 20,000) indicate most people followed Adam.  

Update 12-10-23:   In ten hours Adam's interview with Felix Zulauf gets 38,000 views. Wealthion's interview with the Mooch garnered 4,400 views over the last 12 days.

Saturday, November 18, 2023

New PEU Greed Cycle: Capital Pools, Packaged Debt

Private equity underwriters (PEU) charge fees on committed capital, not just on the amount they've invested.  It's a business founded on leverage, political connections and preferred taxation.  

Over the last twenty years private equity exploded as an asset class.  They bought and sold thousands of companies.  PEU founders grew so influential the media called them "policy making billionaires."

Several years ago private equity firms began buying insurance companies and steering those pools of capital to their PEU offerings.  This was framed as smart capitalism vs. a conflict of interest.  

Carlyle has raised $2.1 billion in equity capital for Fortitude Re from existing investors.  Carlyle will provide Fortitude Re with M&A, transaction origination and execution, and capital management services, as well as source new growth opportunities.

Fortitude Re will have substantial financial flexibility arising from adjusted equity capital of more than $6 billion inclusive of this capital raise. Including the previously announced acquisition of Prudential Annuities Life Assurance Corporation 

Rising interest rates imperiled the value of PEU affiliates.  Higher rates raised the specter of future bankruptcies should those affiliates not be able to refinance their debt when it came due, either to it being prohibitively expensive or not available at all.  Wiping out all that private equity got the wheels turning.  

What if the PEU boys could package, sell and earn fees on large debt pools, using fund funds to refinance affiliate debt (the ones worth saving)?  It'd be only a few years at higher rates, if Fed Chair and former PEU Jay Powell can knock inflation and rates back down.  

Public pension funds are investing an increasing amount of their capital into private equity offerings, rolling the dice for greater returns.  PEUs have engaged in shady behavior trying to get public pension commitments for their fund offerings.   

The greed and leverage boys are extremely interested in pension and insurance capital pools.  Two moves by IBM in the pension arena may end up helping PEUs.  The first happened last year:

International Business Machines, Armonk, N.Y., purchased group annuity contracts from Prudential and Metropolitan Life Insurance to transfer a total of $16 billion in U.S. pension plan liabilities. The purchases, which closed Sept. 13, transferred the benefit-paying responsibility for about 100,000 retirees and beneficiaries covered by the IBM Personal Pension Plan.
The other happened last week:

"Starting Jan. 1, 2024, IBM is introducing a new company-provided benefit for U.S. employees called the Retirement Benefit Account," company spokesman Tim Davidson confirmed to us in an email. "The RBA will replace current company contributions to the IBM 401(k) Plan." 

IBM under the new plan will still be making contributions to employees' retirement accounts--but it will be forcing them to lend the money back to the company, on terms usually reserved for the U.S. government. 

The move enables IBM to turn debt payments into pension funding, killing two financial birds with one stone and places responsibility for any failure onto the Pension Benefit Guarantee Corporation, i.e. taxpayers.  

"This move will save IBM lots of money," Prince tells me. "IBM won't have to make 401(k) contributions anymore." Those contributions cost the company $489 million last year

I'm sure this excited the PEU boys and they trained their AI models on doing something similar across their affiliates.

There's nothing better than free money backed by the full faith and credit of the government.  Earning fees on that while keeping overvalued assets from imploding.... it's the PEU way.

To sum up, the new PEU greed cycle is packaging debt, selling it and earning fees.  It's also creating and leveraging new capital pools.  Dive in, the water's fine.

Update:  Semafor recently had articles on 777 Partners and their recent PEU buying spree.

Update 11-30-23:  The Department of Justice is investigating 777 Partners use of captive insurance company capital.  Semafor characterized 777 Partners as:

....the little-known firm that’s been investing insurance cash into sports teams and other edgy deals. 
...much of 777’s money comes from various insurance operations, much of it bankrolled by a U.S. insurer whose CEO held significant sway over its operations and, on at least one occasion, received a personal loan from the firm.

As for investing in private credit Porter Collins said to avoid them at all costs.

Update 12-10-23:  The Carlyle Group may play in the pension dump to insurers trend.  Those are big capital pools.

Update 12-14-23:  Seeking Alpha reported:

U.S. private equity firms KKR (NYSE:KKR), Apollo Global Management (NYSE:APO) and Carlyle Group (NASDAQ:CG) are considering separate bids for U.K.-based Pension Insurance Corp. in the runup to a deadline this week, according to a Thursday media report.  

Another capital pool and likely another conflict of interest.

Update 5-6-24:  Nearly every PEU has an insurance tie up.  Meanwhile, 777 Partners has been accused of putting up fraudulent collateral for $350 million in loans.  

Thursday, November 16, 2023

Former Digital PEU, Red Congressman Santos Clings to Job

A House Ethics Committee investigation excoriated Congressman George Santos for ample evidence of criminal behavior but made no recommendations, despite stating he "cannot be trusted."

Santos claimed to be a digital private equity underwriter (PEU) before winning his House seat.  Ironically, George is in a position to further crypto and digital currencies now that FTX's Sam Bankman-Fried has been found guilty of fraud.  The industry is regrouping and ready for a major push.

Carlyle co-founder and policy making billionaire David Rubenstein has a family office, Declaration Partners.  Declaration has a number of affiliates focused on digital and cryptocurrencies.  

Rubenstein started by investing in Paxos.  FTX's SBF was also an early Paxos investor.  The pair didn't discuss their holdings in a September 2022 Bloomberg interview.

Declaration Partners holds a stake in Varo, an "all digital, fully chartered U.S. bank."  Also in the portfolio, Immutable,  which offers "massively scalable layer 2 blockchain secured by Ethereum."  Rubenstein's family office also believes in Figment, "a blockchain infrastructure provider offering staking services and tools for Web3 developers."  It also has a stake in Solidus Labs, a "platform surveilling and preventing abuses in crypto markets."

That's at least five Rubenstein bets on crypto's ethical recovery.  It would be telling if the winning vote for any cryptocurrency legislation came from George Santos.  I imagine his goal is to ride his term to the end and gather those lifetime benefits.

David Rubenstein stands to help Santos with his lifetime healthcare given Declaration's deep focus on healthcare AI.  Also, Declaration "prioritizes reputation" and may be able to help George once he leaves "public service."  

Once a digital PEU, always a digital PEU?  

Update 11-17-23:  The Ethics Committee report indicated Santos received $250,000 for raising $255 million for A-RU Holdings.  Santos stood to get an additional $750,000 at the conclusion of the project.  The funds were paid to Santos' Devolder Organization via a "capital introduction" contract.  Santos funneled other large political donations through RedStone Strategies LLC.  

Update 11-20-23:  The New Republic had a story on Santos and it ended with:

His biggest mistake was getting elected. His second-biggest was doing corruption the wrong way.

Update 11-21-23:  Santos neglected to accumulate enough money for a proper settlement, like crypto exchange Binance,  Binance settled with the Justice Department according to news sources:

“Binance willfully enabled hundreds of millions of dollars in transactions between American users and users subject to US sanctions. Its platform accommodated criminals across the world who used Binance to move stolen funds and other criminal proceeds.”

The penalty is $4.3 billion, CEO loses his job and pays a mere $50 million

Binance engaged in “consistent and egregious violations” of US law that “allowed illicit actors to transact freely” on the platform and “supporting activities from child sexual abuse, to illegal narcotics and terrorism across more than 100,000 transactions”.

Is the deck cleared for a sparkling crypto future? 

Update 11-23-23:  Coinbase CEO Brian Armstrong noted after the Binance settlement:

“Since the founding of Coinbase back in 2012 we have taken a long-term view. I knew we needed to embrace compliance to become a generational company that stood the test of time”

“Today’s news reinforces that doing it the hard way was the right decision. We now have an opportunity to start a new chapter for this industry.”

New chapter or PEU chapter? 

Some reports out late on Tuesday suggested that Zhao’s deal with the Department of Justice could allow him to keep the majority of Binance’s shares. 

I smell a new Michael Milken.   Forty years from now who'll pull out the pardon pen?  

Politicians Red and Blue love PEU and increasingly, more are one.

Thursday, November 9, 2023

Chelsea Clinton's NonVC Firm Sponsors Healthcare AI

Fox News reported Chelsea Clinton's latest investment soiree, Metrodora Ventures, is backing a healthcare artificial intelligence company focused on new drug discovery.

BioPhy announced this week it will launch with $4.5 million in pre-seed funding led by Metrodora.
It's not clear if Metrodora Partners I, Metrodora Partners II or a combination of the funds posted the pre-seed money.

Axios reported on Chelsea Clinton's interest in starting Metrodora in 2020 and referred to her startup as a venture capital firm.

SEC filings show Metrodora's first two LP funds are pooled investment funds focusing on equity. 

Neither fund checked the Venture Capital box.  They also skipped private equity.  They did state a portion of the proceeds could go to the General Partner for fees and incentive allocations.

Chelsea is also on the board of Clover Health which came public via a SPAC, sponsored by Chamath Palihapitiya.  Investors are suing Chamath for failure to disclose material information on Clover during the go public process.  SPACs are noted for the outsized proceeds that go to sponsors.

What did Chelsea learn from Chamath that she is putting to work at Metrodora?

Politicians Red and Blue love PEU and increasingly, more are one.  The Carlyle Group appreciates what Chelsea's Dad for the PEU boys in their formative years.  It seems right that Chelsea should play in the same financial sandbox, one where the players don't like to share.

Saturday, November 4, 2023

PEU Conflict of Interest: China vs. U.S.

China's leadership is concerned about officials with private equity stakes abusing their power for personal gain.

Chinese party officials were found to have set up PE funds after they learned of firms seeking to go public & made “huge gains” after the IPOs...Others provided financing for firms they indirectly owned...They also became secretive channels for bribery"

U.S. private equity underwriters (PEU) are concerned about the slightest limitations on their immense power.  At issue ares fee disclosures and preferred exits from funds for certain investors.

Another concern is the pledging of affiliate equity as collateral for net asset value loans and the use of payment- in-kind or PIK loans.  Such loans are used to pay current investors while holding assets with the hope/expectation valuations will increase.

PIK loans have the interest added to the principal and the whole shebang comes due at the end of the loan.   Bloomberg reported:

“The inherent issue with PIK debt is that it is issued explicitly because the underlying company does not believe that it can service its current debt load.”

Private equity rolling the dice on current affiliate debt is one thing.  Doing a new deal with PIK debt is another.

Carlyle is considering a PIK option on a $2.6 billion loan as the firm pursues some units of Medtronic Plc. The borrower gets the choice of paying half the spread in PIK.

 A PEU refinancing wave is on the horizon.

There’s also a growing need to refinance portfolio companies carrying leveraged loans, according to Alan Schrager, senior partner at Oak Hill Advisors. “We have seen a few opportunistic refinancings to clean up capital structures, but we are going to hit a huge wave of these transactions in the next year as existing indebtedness matures,” he said. 

About half a trillion dollars of leveraged loans are due through 2025, according to S&P Global Ratings, including junk-rated issuers who barely earn more than their interest payments or whose cash flow is already negative.

The greed and leverage boys are lining up to refinance each other's junk.  

PEU founders are called "policy making billionaires" in the U.S.  Those same people courted Chinese leaders in the 2000s.  Twenty years later the Chinese are warning about conflicts of interest while Washington, D. C. pushes the conflicted interests of PEU sponsors.

Politicians Red and Blue love PEU and increasingly, more are one. 

Update 11-16-23:   Chinese President Xi dined with executives from Blackstone and KKR last night.  The PEU boys paid $40,000 a plate.

The Carlyle Group cut its latest Asian fund target from $8.5 billion to $6 billion.  

Private equity firms are struggling to sell China affiliates.  Reports say secondary buyers are demanding discounts of 30 to 60%.  Discounts in the U.S. and Europe run 10 to 15%.