The State of PEU's

The Economist reported the state of private equity underwriters (PEU's):

“PRETTY much everybody hates us,” admits one private-equity executive.

Odd, PEU's are the solution to America's ills in healthcare, banking, infrastructure, education, green energy and underfunded pensions. The White House loves them. Congress gave PEU's a free pass in financial reform.

Will Senate Corporacrats water carry on carried interest taxation? Stay tuned.

Carlyle Group's David Rubenstein is Saying

Reuters reported:

Carlyle Group co-founder David Rubenstein said on Friday that he expects a greater share of capital invested in private equity to come from sovereign wealth funds, particularly from China.

Rubenstein spoke from the U.S. SuperReturn conference. He dissed hedge funds in his talk:

"They see that when you look across the alternative investment landscape, private equity probably did better during this period of time than many other alternative forms of investment," Rubenstein said, speaking at the Super Return U.S. private equity conference.

He compared the asset class to hedge funds, adding that a lot of those went out of business, causing some people to lose all of their money.

Like Carlyle investor Michael Huffington? Rubenstein failed to mention alternative investment Carlyle Capital Corporation, where investors lost all their money or BlueWave Partners, Carlyle's hedge fund which lost most of client investments. Rubenstein told McKinsey the firm would reenter such risky alternative investments.

Is this Rubenstein political speech or puffery?

people are saying -- private equity isn't as risky as maybe other types of alternative investments."

Private equity underwriters (PEU's) live off sovereign wealth fund and public pension fund investments.

Rubenstein said that public pension funds will also increase their allocations as they try and recoup losses they may have made in other parts of their portfolios.

Losses from other parts of their portfolios? Bloomberg reported Carlyle made over $680 million in capital calls on CALPERS during the financial meltdown. Private equity may have made some of that money back, but it clearly blew a huge hole in pension stability.

PEU's roll the dice for public pensions, which are backstopped by Uncle Sam. One might expect a modicum of oversight. However Congress and the White House gave private equity and sovereign wealth funds free passes in financial regulatory reform.

Rubenstein's greed translated:

Unsupervised China will probably become a huge back door investor in America.

That may give Carlyle a super return, but what does it leave for the rest of the country, especially those without access to champagne round tables?

Update: Rubenstein also said PEU deal sizes were increasing. A contrary opinion was on the future of finance was shared by Pete Briger of Fortress.

Big Oil Goes Boarding in Gulf Oil Catastrophe

Corporate board member's business acumen and connections are valuable commodities in a crisis. Two Big Oil board members, William Reilly and Robert Dudley, occupy key positions in the Deepwater Horizon oil catastrophe.

William Reilly - co-chair of President Obama's Oil Spew Commission & member of ConocoPhillips board of directors

Robert Dudley - head of BP's spill management division and BP board member

Reilly received roughly $250,000 from ConocoPhillips in 2009 compensation and controls over $2 million in stock. ConocoPhillips is a joint venture partner with BP in the massive Tiber field in the Gulf of Mexico.

Dudley survived the Russian mafia, which somehow prepares him for the U.S. media. He did learn to go underground, i.e. not open his mouth and repeatedly insert "risk management" foot (like BP CEO Tony "Wayward" Hayward).

Another BP board member serves with Reilly on the National Commission on Energy Policy. Errol B. Davis, Jr., has been on the board of BP since 1998. Davis provided governance during BP's various fiascoes. How might Errol influence Bill, especially in light of their joint ventures and common corporate interests?

Big Oil's guns are on the water. Watch them closely.

Carlyle Group Steers Government Pocketbook

The Carlyle Group's corporate office is 1101 Pennsylvania Avenue, blocks down from the White House. It grew from $12 billion to $91 billion in managed funds during the Bush II Presidency. In 2008 Carlyle purchased huge government consulting firm, Booz, Allen, Hamilton (BAH), for $2.54 billion.

Booz Allen Hamilton, Inc. is a leading provider of consulting services to government agencies including the military and intelligence communities.

FT reported that Booz is in talks with AT Kearney, another huge consulting firm.

AT Kearney is a leading management consulting firm focused on providing strategic and operational advisory to the world's largest corporations.

Marrying corporate capabilities with Uncle Sam's checkbook via public private partnerships? That would be a winner, at least for Carlyle affiliates.

Carlyle co-founder William Conway hates a level playing field. A Booz-Kearney marriage could further tilt the table in Carlyle's favor.

If this seems a bit over the top, consider who's in charge of the BP oil catastrophe. Those with capabilities make the rules. For the most part, that's not Uncle Sam.

Booz knows his fat wallet pays. In 2009 BAH returned $550 million to investors.

Update: Talks between Booz & Co. and AT Kearney are off. Booz & Co. is different than Booz Allen Hamilton and not owned by the Carlyle Group. My apology for the error.

Carlyle Group Made Offer for Tenet

Moves around Healthscope, an Australian for-profit hospital chain, suggest "don't fight, switch."

I didn't think things could get stranger than serial ethics abuser Carlyle Group competing against ethically challenged Tenet Healthcare for HealthScope, an Australian for-profit hospital company. Yet, in a "down the Rabbit Hole" move, Bloomberg reported:

A group comprised of Blackstone Group LP, TPG Capital and Carlyle Group, has also made an offer for Tenet, according to a person familiar with the matter.

Carlyle has a long history of "pay to plan" on public pensions, while Tenet has numerous settlements, including a $900 million fine to Medicare/Medicaid.

They share more than a sordid ethics record. Tenet and Carlyle affiliate LifeCare combined for 35 patient deaths in Memorial Medical Center after Hurricane Katrina. Here's the odd thing. The Bush White House made no mention of Memorial Medical Center in its Lessons Learned report.

Who omits the hospital with the highest patient death toll from a disaster investigation? Frances Townsend did in a corporate risk management move. I'm sure Carlyle and Tenet were grateful.

Tenet lobbied the White House on corporate governance in early 2006. One year after Bush's whitewash was foisted on the public, Jeb Bush landed a high paying Tenet board slot.

Should Carlyle et al buyout Tenet, Jeb Bush will benefit financially. I'll wait for details of the deal before calculating Jeb's possible take.

Private equity underwriters (PEU's) interest in hospitals is clear. PEU's are known for making a killing.

Update: HealthScope threatened to block due diligence for Carlyle & company's shenanigans. Tenet Healthcare dropped out of bidding for Healthscope.

Carlyle Group's $1.75 billion Nielsen IPO

The Carlyle Group and five other private equity underwriters (PEU's) purchased Nielsen for $10.2 billion in 2006. Washington Business Journal reported:

Private equity investors plan to raise as much as $1.75 billion in an initial public offering of Nielsen Holdings BV, the television audience ratings company.

It's not clear how much money they've siphoned from Nielsen via dividends and management fees, but they're ready for a $1.75 billion payday. Carlyle continues ringing the register.

Update: Nielsen's S-1 shows $46 million in Sponsor Monitoring Fees from 2006-2010. Interest expense over the period ranged from $640 million to $675 million. Their provision for income taxes was a negative $263 million. The company lost $32 million on derivatives the last two years. It undertook a transformation initiative which expanded "the outsourcing or off-shoring of certain other operational production processes."

Carlyle Group's Timely IPO for Cobalt Energy

The Carlyle Group/Riverstone Holdings conducted an IPO on Cobalt Energy in December 2009. It raised $851 million for the deepwater energy company months before BP's Deepwater Horizon blew out.

The market wasn't excited about Cobalt as shares priced at $13.50, well below the targeted $15 to $17 range. Today, Cobalt trades at $6.65, down 50% in six months. The company expects a six month delay from the government's suspension of all drilling operations in the Gulf of Mexico.

Cobalt's future is linked to BP's handling of the disaster. Oddly, BP's prior CEO, Lord John Browne, hangs his hat at Riverstone, Carlyle's joint venture energy partner. Will the Good Lord call Tony Hayward? The pair would love to get drilling back on track.