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.

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%. 

Alpha Males at FII7

CNBC reported:

Carlyle Group CEO Harvey Schwartz stressed the presence of alpha opportunities even in the face of high interest rates and geopolitical conflict.

Harvey Schwartz had an "alpha male" reputation prior to Carlyle hiring him as CEO.  His alpha attitude came through loud and clear in the FII7 interview.  

After giving a PEUmercial for Carlyle's financial offerings Harvey schooled the interviewer:

Interviewer:  "I want to do a rapid fire round if we can." 

Schwartz:  "I thought that was really my job.  I didn't even know I was scripted for that, but I'm glad I fulfilled that for you."

Interviewer: "Ha, hah"

I wonder if Schwartz would have given David Rubenstein the same treatment?  Rubenstein served as interviewer for the Jamie Dimon, Stephen Schwarzman et al PEU panel.

It was interesting to hear all the references to the intelligence in the room at FII7 and how that would change the world for the good.  

The "Davos in the Desert" group has been changing the world to increase their power, their pocketbook and enrich other members of their exclusive club.  

China used the PEU boys and its Saudi Arabia's turn.  Crown Prince MBS plays by his own rules and they can change in an instant.  The greed and leverage boys should enjoy it while it lasts.

The smartest people are needed to stem a looming conflagration in the Middle East.  So far, the language is of retaliation at increasing orders of magnitude.  That kind of "rapid fire" usually leads to something bad.

Update 11-1-23:  Effective altruistic (changing the world for the good) Sam Bankman-Fried, another brilliant person, is unable to remember many actions he took as CEO of FTX.  Temporary memory failure is not unusual among the insider crowd.  Texaco/BP's Lord John Browne and Ivanka Trump had similar lapses.  The common element:  a courtroom.

A NASA climate scientist who predicted weather impacts from increased greenhouse gas emissions stated he:

"cannot help but feel “a sense of disappointment that we scientists did not communicate more clearly and that we did not elect leaders capable of a more intelligent response.”

Those elected leaders listened to the PEU class, supposedly the most intelligent people, the very people attending FII7 to get access to Saudi money. 

Update 11-7-23:  Schwartz has cut costs at Carlyle as the PEU under performed relative to peers on fundraising.  FT reported:

When pressed by an analyst to outline new financial targets for Carlyle, Schwartz declined to give a specific timeframe, stating his review of the group was ongoing.

Update 11-16-23:  The Carlyle Group cut its latest Asian fund target from $8.5 billion to $6 billion.

MBS Hosts Policy Making Billionaires

The Future Investment Initiative or "Davos in the Desert" met this past week in Riyadh, Saudi Arabia.  Crown Prince Mohammed bin Salman heads the country's sovereign wealth fund, essentially the power behind the event.  The seventh version's theme was "A New Compass."  A graphic showed a compass with two dials going in opposite directions.

America's policy making billionaires turned out in droves, even with the Israel-Hamas war raging.  Many stayed away after the murder of Washington Post journalist Jamal Khoshoggi.  The Carlyle Group's David Rubenstein served as a panel moderator.   

J.P. Morgan's Jamie Dimon, BlackRock's Larry Fink and Blackstone's Stephen Schwarzman served on that panel.

Schwarzman took a shot at people working from home.  He wants people back in the office to prop up Blackstone's commercial real estate holdings.

The greed and leverage boys turned out for the Crown Prince's signature event.  How will what was discussed in Riyadh turn into U.S. government policy?  Stay tuned.

MBS and the PEU boys get their way while everyone else gets a different form of MBS, mighty bowel syndrome. How much pressure can the little people stand?

Update 10-29-23:  National Security Advisor Jake Sullivan will meet with Saudi officials tomorrow on the Israel-Hamas war.

CNBC ran this story just after the gang was in Saudi Arabia for the MBS Investfest:

Update 10-30-23: Saudi Defense Minister Khalid bin Salman, the brother of Crown Prince Mohanned bin Salman is in Washington, D.C. to meet with White House officials on the Israel-Hamas war.  KBS will meet with Defense Sec. Lloyd Austin and Secretary of State Anthony Blinken, both former PEUs with Pine Island Capital.  

Update 10-31-23:  A theme of FII7 was how the people in attendance are some of the smartest people on the planet.  They're needed elsewhere to solve an intractable conflict, not far from Riyadh.

World Champion boxier Tyson Fury is the latest sports celebrity to endorse Saudi Arabia.  His next two fights will be there and Fury will get a whopping £160m for his efforts.

Update 11-2-23:  The scientist who warned about global warming in the 1980's expressed:

“a sense of disappointment that we scientists did not communicate more clearly and that we did not elect leaders capable of a more intelligent response”.

The 80's birthed a number of private equity underwriters (PEU), now referenced as the intelligent people who are going to solve our problems and the people who influence government policy (much more than scientists).   In the U.S. politicians Red and Blue love PEU and increasingly more are one.

Believing in Freedom: PEU Style

Someone recently said:

"I believe in Freedom and I'm delighted to join..."  

Was it a Red Team candidate for Speaker of the House?  No.  

A Presidential contender?  No.  

A Supreme Court Justice?  No.

It was Sue Gordon, former Principal Deputy Director of National Intelligence and former Deputy Director of the National Geospatial-Intelligence Agency.

Freedom is Freedom Consulting Group and Gordon just joined their board of directors.  Freedom is a new affiliate of WGD Capital.  

WGD doesn't stand for "What would Greed Do?", although it easily could.  It's an acronym, the initials of several super rich investors.

Sue Gordon wasn't the only new board member.  General Michael Hayden and Tom Donohue (the D in WGD) will also join Freedom's board.  

With additional financial resources, the company will also explore selected acquisitions to expand capabilities and customer segments. The additions to the Board of Directors will provide national security expertise and strategic insights to support the planned growth.

They will also provide non-lobbying political connections (should Uncle Sam's assistance or wallet be needed). 

I found this obscure story while researching the fake fight between Senator Tommy Tuberville and General Michael Hayden.  Hayden delivered an insult to Tuberville for holding up military promotions in a time of instability.  Tuberville fumbled the insult, so badly he harmed himself.  Embarrassed over his clumsiness the Senator turned the insult into a "death threat."  (Maybe South Park can do something with that.  They did make a cripple fight palatable.)

The "death threat" story sent me researching the parties new PEU ties.  I'd already written about Hayden's Chertoff Group and Tuberville's TS Capital (which imploded in a fraudulent fireball that somehow spared Coach Tommy).

Hayden's new board appointment led to Sue Gordon's "Freedom" quote, the unexpected nugget in that research.

“I believe in Freedom, and I’m delighted to join such esteemed colleagues on this board.”

That sums up our PEU world where politicians Red and Blue love PEU and increasingly, more are one.

Clarence's RV Angel

News reports indicate Clarence Thomas' was gifted ownership of a $267,000 recreational vehicle.  Anthony Welkins provided an "interest only" loan to Thomas which was forgiven in 2008.

Thomas' benefactor went on to serve on The Carlyle Group's Board of Directors.  Carlyle is a politically connected private equity underwriter (PEU).  Welters is Executive Chairman of BlackIvy Group, another PEU.  

Carlyle located in Washington, D.C. to pull the political levers of influence and tap Uncle Sam's wallet.  I assume BlackIvy Group had a similar motivation.

Politicians Red and Blue love PEU and increasingly, more are one.  PEUs provide significant fuel for the insider money funnel.  Supreme Court Justice Clarence Thomas is but one beneficiary.

China Threat: PEU Enabled

60 Minutes interviewed intelligence chiefs from the U.S., the United Kingdom, Canada, Australia, and New Zealand.  FBI Chief Chris Wray spoke about the Chinese "stealing more of personal and corporate data than every other nation combined."

Flashback to 2005:

....TPG, Newbridge Asia (an Asian affiliate of TPG) and General Atlantic teamed up to buy into Lenovo in 2005 to help strengthen the Chinese firm’s financial position at the time of its takeover of IBM's PC business.

Note: the former CEO of General Atlantic currently heads the World Bank.

The three private equity underwriters (PEU) cashed in their stakes in 2010.  I noted national security concerns that same year.

Turn to 2014:

 Lenovo bought IBM’s server business in 2014.

Google said it plans to sell the Motorola handset business to Chinese computer maker Lenovo Group Ltd.

The acquisitions were ultimately cleared by CFIUS.

WaPo reported on a schism inside the U.S. government on whether Lenovo products were safe to use.  The State Department and Air Force indicated they were not safe due to espionage concerns. The article said:

Lenovo tapped celebrities such as Kobe Bryant and Ashton Kutcher as spokesmen to broaden its appeal.

Recall that tens of thousands of U.S. jobs were sent to China in the 2000's and 2010's.  Virginia Governor Glenn Youngkin helped The Carlyle Group send auto parts manufacturing jobs to China.  

Carlyle and the Chinese government reached an accord.  A former major business reporter wrote in 2011:

I can't tell if the PE guys are being insincere when they talk about China or they are actually stupid. There is no way that the Chinese govt would let American firms come in and strip cash out of Chinese companies the way they've been allowed to in the US! I imagine the Chinese welcome the PE guys because they see it as another way (through PE orchestrated mergers) to get hold of more American technology and companies and jobs.

What is going on with the theme of the article that these guys never agree with each other? As if there are these deep philosophical differences in how they operate?!? Makes one just despair.

People spoke up along the way, Mr. Wray.  And we continue speaking.  Please aim the Five Eyes at the PEU boys.  Scrutiny is needed.

Update 10-24-23:  A decade from now the Five Eyes will be concerned about this:

"Powerful generative AI spyware in any location where data is created...." 

Update 11-16-23:  "PE firms trapped in China after $1.5 trillion spending spree" (Bloomberg) 

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%.