Count the Caymans: Part Deux

PEUReport readers may recall a past challenge of counting the Cayman Island subsidiaries of The Carlyle Group, a private equity underwriter (PEU) with $199 billion in assets under management. 

This challenge becomes more meaningful knowing U.S. parent corporations made $51 billion in Cayman profits, while the Caymans had a mere $3 billion in gross domestic product. 

This year's subsidiary list is included in Carlyle's 10-k filing with the SEC.  One could count Carlyle's subs in each of the dozen tax haven countries.  Enjoy!

Update 3-16-22:  New Yorker reported:

Freedom House, a Washington think tank, has described the use of tax havens and other hidden maneuvers as a “multifaceted threat to democratic governance.” The efforts to escape an ordinary obligation of citizenship, while sometimes legal, “hollow out public services, and they fuel populist resentment by magnifying the perception that the system is rigged in favor of wealthy elites,” the group declared. Over time, they “set a country on a path toward institutional breakdown or even state failure.”

 

PEU Billionaire Khosla Shafts Public in Multiple Ways

SFGate reported billionaire Vinod Khosla claims he owns what was a public road and beach, as well as the tides:

“Martin’s beach is private property, including the sandy beach and the submerged tidelands seaward of the mean high tide,”  argued lobbyists hired by Khosla in a letter to state lawmakers. “There are no existing ‘public’ lands to which access is needed.”

Private equity underwriters are happy to make money off the public.  Khosla affiliate Gevo Energy happily sold the Air Force jet fuel for $59 a gallon.  After enriching himself from citizen taxpayers, some of which live in California, Khosla asserted it's all his.

“It’s preposterous,”  said Joe Cotchett, the lead attorney for Surfrider, which is awaiting a decision on a lawsuit claiming that Khosla needed a California Coastal Commission permit before he could close the road or make other improvements.

Gary Redenbacher, who argued the case before Judge Buchwald, said even under Mexican law beaches were public property below the highest tide line.

“The beach itself has always been public,” he wrote in an e-mail.  ”Therefore, the claim by the lobbyists that it is a private beach has zero credibility in the law whether part of a Mexican Land Grant or not.”

“This,” Redenbacher said, ” is a blatant attempt by Khosla to abscond with public property.”

It won't be the first time a private equity underwriter (PEU) absconded with public property.  It's integral to the PEU model.

Carlyle's Love-Hate Relationship with Municipalities

The Carlyle Group is a tale of two city relationships.  Suburban Atlanta is the best of PEU times, while Missoula, Montana is the worst.  Cobb County, Georgia will put nearly $400 million toward the Atlanta Braves' new baseball stadium.

The proposed new stadium will cost $622 million, with $392 million coming from the public. That includes $368 million in bonds, $14 million in transportation sales tax and $10 million in cash from businesses in the Cumberland Community Improvement District.

The Carlyle Group leverages public money as well as anyone.  In this case Carlyle is leveraging location for a real estate deal.

Atlanta real estate company Atlantic Realty Partners recently paid $7.6 million for 8 acres next to the planned ballfield and mixed-use project, according to Cobb County records.

Atlantic Realty will develop more than 600 apartments. The first phase — a 5-story project with 320 units — would break ground this July and could wrap up by late 2015.

Atlantic Realty Partners formed a joint venture with Carlyle Group of Washington D.C. on the first phase.

Contrast this with Carlyle's convoluted position on its ownership of Missoula's Mountain Water.

The Carlyle Group claims it does not own Missoula’s water system and therefore cannot be named as a defendant in the city’s condemnation lawsuit, according to court documents filed by Carlyle’s lawyers on Tuesday.

The global investment firm is asking Missoula County District Judge Karen Townsend to dismiss it from the case, leaving Mountain Water Co. as the sole defendant in the city’s bid to force a sale of the utility under eminent domain laws.

Carlyle’s claim that it doesn’t own the water system seemingly contradicts that it would have to approve any sale of Mountain Water, as well as a 2013 letter from Carlyle Infrastructure managing director Robert Dove to Missoula Mayor John Engen indicating a willingness to listen to offers to buy Mountain Water. In the letter, Dove stated that “Carlyle Infrastructure is honored to be the ultimate owner of Mountain Water.” Carlyle ultimately rejected two city offers to buy Mountain Water in the past.

Carlyle’s argument to the court is based on the fact that Missoula’s water system falls under a tangled web of corporate ownership. Mountain Water owns and operates the water system, and is itself owned by California-based Park Water Co. Park Water and two California water utilities are owned by Western Water Holdings, and Carlyle Infrastructure Partners LP is the managing member of Western Water Holdings. Carlyle Infrastructure is a division of the global firm The Carlyle Group, which invests in public and private infrastructure projects and businesses.

In short, the essence of Carlyle’s argument is that although it owns the companies that own Mountain Water, it does not own the water system. And that means the city of Missoula has the right to sue only the direct owner of the water system, Mountain Water.

This isn't the first time Carlyle lawyers have offered absurd legal defenses.  They did so with LifeCare Hospitals after 25 patients died in their long term acute care unit in Hurricane Katrina's aftermath.  Carlyle's crack legal team defended SemGroup's implosion with a puffery defense to angry investors.  This brings back memories of Carlyle's turning away from Carlyle Capital Corporations' reeking carcass. 

The only consistent principal is Carlyle will do what's best for itself, frequently at the public's expense.

PEUxclusive to Become PEUbiquity

Reuters reported:

Private equity funds are also eyeing the retail space. David Rubenstein, co-founder of industry giant The Carlyle Group, said that there will be a time for private clients to enter his types of funds, adding "that will be an enormous growth opportunity for people like us."

If private equity underwriters (PEU's) can cheat sophisticated investors, like public pensions and sovereign wealth funds, think of what they can do to the small investor. 

The enormous growth opportunity is for PEU founders to cash in on the wallets of little people.  Chasing return will end badly for many, just as it did nearly six years ago.

Small PEU Investors Are the Final Mark?

Dean LeBaron on private equity:

Finally you get very concerned about bubbles.  In the United States private equity, which has been so popular for fifteen years, has now been made available for small investors.  Woe the tide, beware small investors.  You are about to go in to be fleeced.

He also said he's "trying to learn why flash trading is not front running and dark pools are not a criminal repository for past bad trades."  I suspect LeBaron understands how unethical behavior is redefined as OK over time so the politically powerful can profit.

PEU's dangling 30% annual returns is enough to bewitch the staunchest small investor desperate for yield. 

I can hear PT Barnum or Carlyle co-founder David Rubenstein calling out to the crowd:  "Small Investors!  Step this way for the Great PEU Co-founder Egress."

Rubenstein Cites Rights at GMU Graduation

Carlye Group co-founder and private equity underwriter (PEU) David Rubenstein offered these wise words to George Mason University graduates:

George Mason resisted pressure from other founding members of the United States and did not sign the Constitution until it was amended to include a Bill of Rights, which made the document much more powerful, Rubenstein said.

How may GMU grads know the rights of Carlyle Group's NASDAQ unitholders?  They have no right to select Carlyle's Board of Directors nor do they have any say on pay.   George Mason was against the wealthy and powerful running over the common man's rights.  

In the process of becoming a billionaire many people felt run over by Carlyle's preference for interest expense over payroll and benefits.  More than a handful of employees lost their pension due to Rubenstein.  How many people lost their job to fund a special dividend to their billionaire PEU owners?  

Leadership is as leadership does.  Policy making billionaires are not what George Mason had in mind, yet that's just what the university had for Graduation 2014.

PEU Rubenstein "Froth Returns"

The Sydney Morning Herald reported:

Mr Rubenstein, who was speaking at the SALT hedge fund conference in Las Vegas, said private equity firms were paying 2007 prices but were using more debt.

"In 2007 the average EBITDA multiple was 9.7x Now its 9.7x again but the average leverage 5.3 times, now which is higher than 2007."

Going back to 2007 on PEU deals is not making the world better.  Also, PEU's are using debt for more than acquisitions.   The debt for dividend play remains strong.  Leon Black's Apollo plans to pull $175 million from Hostess.

This may be the "sweetest dividend bite in the history of ever."  Employees sacrifice, billionaires benefit.  It's the PEU way.