Motivation guru Tony Robbins released his new book, the third in a trilogy, titled "The Holy Grail of Investing." It's about private equity underwriters (PEU). Tony and co-author Chris Zook are huge PEU fans.
Brian Sullivan of CNBC interviewed Tony about his new book. Tony shared the following framework in the interview.
They started with general partnerships. Robbins explained how PEU fees go to the general partner, 2% annual management fee and 20% of profits from any investment. Tony said:
"You can get the 2 and 20."
Robbins cited a firm in Houston, CAZ investments that sells GP stakes in private equity firms. And the head of that firm is Tony's co-author Chris Zook.
Caz Investments fund listing has the same seven strategies as Robbins interview. The only difference is Tony added "disruptive technologies" after venture capital. Caz uses those words in their website description of venture capital
Tony owns GP stakes in 65 PEUs thanks to CAZ. He didn't say anything about fees associated with buying those stakes.
Robbins did not mention that "the 2 and 20" are topline revenues. From those PEU expenses are paid. "You get the difference between the 2 and 20 and operating costs in proportion to your holdings."
Flashback to 2015 when Tony released "Money: Master the Game." Investment News reported:
The move into financial services has been several years in the making, according to Mr. Robbins, who said he began to turn his attention to investing after 2008. “I saw so many people suffering,” he remembers.He watched “Inside Job,” a 2010 documentary that charged top players in financial services, enforcement and politics had caused the market collapse, and decided that he wanted to advocate for the average investor."It’s not an evil industry. It’s an industry that has been set up where making a profit is the largest goal.” Tony RobbinsHe spent the next four years interviewing well-known figures in financial services, including Charles Schwab, Warren Buffett and Ray Dalio, founder of hedge fund investment firm Bridgewater Associates.(The book is) a fierce indictment of an industry he says is not acting in clients’ best interests and is selling overpriced products to investors who don’t understand what they are paying for. One of the myths in his book is, “I’m your broker, and I’m here to help.”
Robbins told CNBC's Sullivan he wasn't looking to write a third book.
"But I had a chance to interview thirteen of the Masters' of the Universe, masters of private equity."
These guys don't give their time away lightly. It's not clear why Tony changed his mind but I imagine it involves personal PEU investments that he wants to grow exponentially.
Tony quoted annual returns of 20%, even 30%, numbers the PEU boys have thrown around for decades.
Institutional Investor recently ran a story on a University of Southern California economics professor:
Professor Phalippou has also become the bête noire of private equity, which he has deconstructed in academic research dating back to 2003, when he first learned that “data point after data point . . . I found that virtually everything sold as a fact was not quite so,”
The professor’s fame exploded in 2020 with a blockbuster paper titled “An Inconvenient Fact: Private Equity Returns & the Billionaire Factory,” which laid out how the asset class has created massive fortunes for the owners of private equity firms.
Phalippou's analysis poked large holes in PEU outsized returns, the tantalizing ones tossed around by Robbins.
The Institutional Investor story noted difficulties facing PEUs.
Fundraising is down, firms have been unable to unload their portfolio companies at a profit, and high interest rates are beginning to take a toll on their heavily indebted holdings.
Bloomberg reiterated those facts with their story:
Who better for Robbins to motivate? Downtrodden greed and leverage boys in need of a capital injection.
What is a PEU to do if they can't flip affiliates for grand returns? Sell some of their equity, i.e. GP stakes at a premium.
A decade ago Tony Robbins purported to "clean up" the investment advisory industry.
“And he’s really coming in as an amazing champion of the concept of the fiduciary standard, where the investor really deserves to have someone who is looking out primarily or solely in their best interests.”
One publicly traded private equity disclosed in 2015 under "risks":
Investments in highly leveraged entities are also inherently more sensitive to declines in revenue, increases in expenses and interest rates and adverse economic, market and industry developments.
That same PEU disclosed in 2012:
Contracts between us, on the one hand, and our general partner and its affiliates, on the other, will not be the result of arm’s-length negotiations.Cleanup is needed. Tony Robbins is far away from a fiduciary standard in his blatant promotion of the greed and leverage boys.
My wise friend recently wrote in two different communications:
We are going from "who took the cheese" to "we are on the cheese plate."
No one wants price stability or prices to come down. Everyone wants to be saved no matter how reckless they behave in the way they finance, in the way they take risk, in the way they leverage BUT if the little guy needs A crumb to make it through the day or if it was his investments in the tank, they would coat him in tar and flatten him with a roller pushed by an 18 wheeler with turbocharged diesels. I don't know how more people aren't disgusted.
Private equity wants individual investor money (cheese plate) while they try to save their highly leveraged entities (affiliate values not going down).
Robbins did not talk about Pro Sports Ownership in the Sullivan interview but the public saw Carlyle Group co-founder and Declaration Partners founder David Rubenstein lead a PEU club deal for the Baltimore Orioles. I asked my wise friend how Rubenstein might change the rule of baseball. He stated:
Change the rules? Rubenstein will figure out a way to borrow three times the high end estimate in the shadow market non-recourse. He will then transfer ownership into another entity avoiding all tax liabilities. The players will have to buy their own benches. Any fan will be tokenized and have to pay a fee to park at the stadium. Rules are made to be broken.I trust my wise friend more than Tony Robbins.
Full disclosure: I invested in Robbins' DreamLife when it went public via a "reverse merger into a shell" in 1999-2000 and lost money. That was Robbins first PEU dance but clearly not his last. He's Texas Two Stepping with CAZ.
Update 2-15-24: More billionaire non-arm's length transactions, one involving private jets.
Update 2-17-24: FT reported:
Last quarter, Carlyle earned a 37 per cent margin on its fee revenue, while Blackstone earned 57 per cent.
You don't get the whole "2 and 20."
Update 2-21-24: Fresh off the press is another PEU book by former Carlyle Communications Chief Chris Ullman.
Update 6-12-24: Bloomberg reported on the peril of private equity:
