Carlyle Group Helped Jared Kushner, GP for Thrive Capital

The Trump White House stands to embody economic elitism, a primary concern of financially beleaguered voters.  President elect Trump is a billionaire.  His son-in-law Jared Kushner helped Trump get elected.

SantaFe-NewMexican reported:

Kushner has hired a Washington law firm, WilmerHale, to advise him on how to comply with federal ethics laws should he join the White House staff as an adviser to the president. 

Jamie S. Gorelick, a WilmerHale partner who served in the Clinton administration, said that while plans were not final, Kushner was taking significant steps to extricate himself from the family business.

Jamie Gorelick is the greed queen of disaster,having served as Chief Operating Officer of Fannie Mae during a time of fraudulent accounting and represented BP for its 2010 Deepwater Horizon Gulf Oil Spew.  Kushner hired a prominent Blue Team attorney in Gorelick.

He will resign as chief executive of Kushner Cos., and though the law does not require it, she said he would divest “substantial assets.” She did not name them, but Heller said they would include his stake in 666 Fifth Ave.

The Carlyle Group invested $525 million in 666 Fifth Avenue in June 2008 as financial markets deteriorated.

The overheated lending market seized up and Kushner Cos. struggled to repay its considerable loans — and to hold on to 666 Fifth Ave. To the rescue came the Carlyle Group, a giant private equity firm.

Carlyle flipped their holdings for over $1 billion four years later.  Little did Carlyle know the man they helped would get Donald Trump elected and stands to serve as one of his main advisers.

Kushner’s representatives declined to detail his personal financial interest in Kushner Cos.’ properties, and they said he intended to keep his interest in other properties beyond 666 Fifth Ave. He also has a stake, through a family investment vehicle, in a private equity firm run by his brother, Joshua.

Thrive Capital is that private equity underwriter (PEU).  A 2011 SEC document lists Jared Kushner as a General Partner in Thrive.

Private equity exploded under Red and Blue White Houses.  President Bill Clinton set the stage for private equity to thrive with it's repeal of Glass-Steagall.  Clinton privatized the government security check function.  It became USIS and endured a number of PEU purchases and flips.  Presidents Bush and Obama hosted legendary PEU founders at the White House.

As for Kushner's employ:

WilmerHale has concluded that one potential sticking point, a federal anti-nepotism law, is not applicable, though not all ethics experts agree. While the law prohibits federal officials from hiring relatives for agencies they lead, Kushner’s lawyers argue the White House is not an agency and is therefore exempt.  As for conflicts of interest, Kushner would be required to make limited financial disclosures.

If Jamie Gorelick's stance holds President Trump's White House may well employ a PEU owner.  That's degrees beyond an Obama White House official getting a private equity payout, not formerly disclosed.

Washington is the swamp of insider connections and huge financial paybacks.  How ironic that voters who wanted this eliminated could find it ramped up.

Update 1-31-17:  Kushner transferred his stake in 666 Fifth Avenue to a family trust.  As for the Greed Queen Jamie Gorelick, Kushner's attorney, she said Kushner's vast holdings would be sold to his brother Josh or a trust held by his mother.   

Update 3-13-17:  Chinese conglomerate Anbang Insurance struck a deal for 666 Fifth Avenue where the Kushners get $400 million in a $4 billion transaction. 

 

Update 1-25-23:   In July 2020 CNBC reported:

President Donald Trump’s son-in-law and senior advisor has decided to remain an investor for the time being in real estate tech start-up Cadre, which he co-founded.

Update 11-7-25:  Josh Kushner is raising billions for Thrive Capital's newest fund. 

PEU New Fund Size Hits Record for 2016

Pensions+Investments reported:

807 private equity funds closed on a total of $345 billion in 2016, up from $328 billion by 944 private equity funds in 2015. Half of the private equity funds exceeded their target sizes. The average private equity fund size was a record $476 million, exceeding the previous high of $446 million in 2007. 

PE fund size's previous reported high was a mere nine months before the September 2008 financial crisis.  Harbinger Carlyle Capital Corporation imploded in March 2008.  Consider the words of two Carlyle co-founders on CCC's failure:

“I’m at a loss to say how the whole market can be wrong about the product at this time and we are right,”Carlyle co-founder David Rubenstein

“Maybe,” Carlyle co-founder Bill Conway wrote, “panic is appropriate.”

One burned CCC investor is financing a $1 billion lawsuit against Carlyle.  The judge's decision is due in early 2017.  As litigation funding is now an asset class of its own the decision will be bullish for one party and bearish to the other.

On the real estate side private funds shifted from equity to debt in 2016.  The Real Deal reported:

Private real estate funds raised near-record levels of capital in 2016, as the industry saw a noticeable shift away from equity investments toward debt.

The global shift toward debt mirrors a trend within New York’s real estate industry. Several development firms have launched debt businesses over the past year, as inflated property prices make equity investments less appealing and cautious banks create an opening to issue loans.

The overall volume of dry powder – or money that has been committed by fund investors but has not been invested in properties yet – rose to a record $237 billion, up from $229 billion in 2015 and $136 billion in 2012. The Blackstone Group’s real estate funds alone sat on $33.2 billion in dry powder as of September..

Debt holders have recourse when equity is wiped out, be it corporate or real estate.  Private equity underwriters (PEU) have been known to force a prepackaged bankruptcy.  Ask the Brintons' family about their experience with The Carlyle Group.  It was distinctly distasteful.

Trump Refills Swamp with Goldmanders

Presidential candidate Donald Trump's harsh words for Goldman Sachs evaporated after his election victory.  He's now a full fledged admirer of the Goldman boys, having appointed a number to official positions within his looming administration.  Goldman has long prioritized greed over ethics and real people over multiple White House reigns.  Serial criminal behavior results in relatively minuscule fines relative to the size of their fraudulent enterprise.  More Goldmanders are under consideration for the Trump swamp refill.

Update 1-30-17:  ZeroHedge noted same with their Nomi Prins observation.

Update 1-31-17:  Wall Street on Parade did likewise.

Update 2-12-17:  Trump is now worried about it.

Update 11-9-17:  The Trump swamp stinks.

Trump Tax Cut = Gaming Capital

The Intercept reported on corporate plans should the Trump's repatriation tax break windfall materialize:

Executives are telling analysts at large banks that they are eager to take the money to increase dividends and stock buybacks as well as snap up competitors.

Those are common private equity underwriter (PEU) moves.  Increasing pay/benefits or adding jobs are not high on any list.

Cisco’s CFO Kelly Kramer told securities analyst:

First it would make changes to its debt structure, and then “we would have a blend of actions we can certainly take with our dividend as well as our share buyback, as well as leading flexibility for us to be able to do M&A and strategic investments.”

HP reported a similar interest:

When asked in an earnings call whether HP would use a Trump repatriation tax cut “for a dividend, or to raise the buyback,” the company’s CFO answered “yes” and then extolled the company’s “aggressive” policy on share repurchases.

 Other firms expressed:

CEO of the $2 billion Florida food service company Manitowoc, explained that “of course, we would like to use [it] for industry consolidation purposes” — i.e., buying other companies.

Agilent CEO Mike McMullen explained they’d use the money “for U.S.-based M&A” — that is, mergers and acquisitions — and “situations where we’ve been using debt, such as our share repurchases.”  

Corporations adopted PEU management methods to game quarterly results and maximize executive incentive pay.  Industry consolidation has not produced the benefits projected by expensive economic consultants, many hired by PEU firms.

Housing and PEU bubbles led to the 2008 financial crisis.  The aftermath led to and the eventual merging of housing and private equity, to the bane of many home renters

The last tax repatriation break for corporations, intended to boost employment, occurred in 2004.

Instead they used the money for stock buybacks and increased executive compensation, while the prime beneficiaries actually cut their U.S. payroll.

Private equity was in serious stealth growth mode in 2004.  That year Carlyle Group received $35 million from Texas Governor Rick Perry to add 3,000 Vought Aircraft Industries jobs.  By 2010 Vought's website showed the company reduced 35 jobs in Texas (for a public subsidy of $1 million per job cut).  Somehow Rick Perry took a 35 job cut and turned it into a 29,000 gain with his special economic development calculator.

Private equity underwriters will game the system to their advantage and politicians, like Rick Perry, will distort the most egregious behavior as success.

Oddly, if trillions in capital inflows are competing for corporate buyouts the next PEU bubble may be on its way, courtesy of a huge Trump tax break.

Behind Monopoly Power Stands Private Equity

ProPublica reported:

American industry is more highly concentrated than at any time since the gilded age.

Insider economist Larry Summers blamed this on "monopoly power," missing the impact of private equity underwriters, a chief buyer and integrator of companies.  President Bill Clinton privatized government security checks, which enable The Carlyle Group to profit more than once from its stake in U.S.I.S.   PEUs became ubiquitous the last few decades. 

Mergers peaked last year at $2 trillion in the U.S. The top 50 companies in a majority of American industries gained share between 1997 and 2012.

A common PEU tactic is to buy a company and add acquisitions to it over time. The Carlyle Group's assets under management grew from $3.3 billion in 2000 to $170.2 billion at the end of 2012.  Likely a number of the companies gaining market share over the fifteen year people were PEU owned.

While the impact of this wave of mergers is much debated, prominent economists such as Lawrence Summers and Joseph Stiglitz suggest that it is one important reason why, even as corporate profits hit records, economic growth is slow, wages are stagnant, business formation is halting, and productivity is lagging. “Only the monopoly-power story can convincingly account” for high business profits and low corporate investment, Summers wrote earlier this year.

PEU practices can account for high business profits and low corporate investment. Private equity underwriters prioritize interest, dividends and management/deal fees over capital and human resource investments.  Money is frequently spent on interest expenses several orders higher than pre-buyout levels.  Once cash begins to build it's spun off to PEU sponsors as dividends.

The story highlighted the role of economic consultants in facilitating mergers and buyouts.
  

Economists who specialize in antitrust — affiliated with Chicago, Harvard, Princeton, the University of California, Berkeley, and other prestigious universities — reshaped their field through scholarly work showing that mergers create efficiencies of scale that benefit consumers. But they reap their most lucrative paydays by lending their academic authority to mergers their corporate clients propose. Corporate lawyers hire them from Compass Lexecon and half a dozen other firms to sway the government by documenting that a merger won’t be “anti-competitive”: in other words, that it won’t raise retail prices, stifle innovation, or restrict product offerings. Their optimistic forecasts, though, often turn out to be wrong, and the mergers they champion may be hurting the economy.

The piece noted the role Jonathan and Peter Orszag have in facilitating deals.   Peter Orszag became Lazard's Managing Director and Vice Chair of Investment Banking in February 2016.  The World Economic Forum highlights Lazard's role in mergers and acquisitions.

Lazard's website shows two pages of deal consulting for The Carlyle Group.

Any merger over a certain dollar size — currently, $78 million — requires government approval. The government passes most mergers without question. On rare occasions, it requests more data from the merging parties. Then the companies often hire consulting firms to produce economic analyses supporting the deal.

Peter Orszag, former Obama OMB Chief, is a good fit for Lazard.  Federal News Radio reported in 2012:

Private equity involvement in the government contracting market has grown during the past few years, with major players including Carlyle Group, Cerberus Capital Management and others buying consulting, information technology and logistics vendors.

Brother Jonathan is Managing Director for Compass Lexecon, the premier economic consulting firm on antitrust/mergers.

At Orszag’s urging, the firm relaxed its conflict of interest rules, according to multiple people who have worked with or for Compass. Now, Compass Lexecon experts can, and do, advise both sides in disputes.  

Compass economists can reach very different answers to the same question, depending on who is paying them.

Compass Lexecon's July 2016 annual letter shows work on behalf of private equity firms.  There a a number of notable items in the company's list of accomplishments.

1.  Compass helped Goldman Sachs go free in September 2015 on bad RMBS investments from 2006-2007.  Goldman settled with the Justice Department for $5 billion "related to Goldman’s conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007."

Goldman has today acknowledged that, “Goldman received information indicating that, for certain loan pools, significant percentages of the loans reviewed did not conform to the representations made to investors about the pools of loans to be securitized.”

2.  Jon Orszag's Compass Lexecon aided Citigroup with an RMBS settlement.  Brother Peter served as Vice Chairman of Global Banking for Citi at the time of the $1.125 billion settlement.

3.  The ultimate irony was Compass' work on behalf of BP for its May 2010 Oil Spew in the Gulf of Mexico.  They helped BP with Deepwater Horizon Oil Spill Phase III Litigation.  OMB Chief Peter Orszag helped BP's risk management after rig explosion by low balling the amount of oil spewing from the wellhead.

Compass Lexecon was retained by counsel for British Petroleum (BP) to analyze corporate governance issues and the economic implications of the magnitude of BP’s fines under the Clean Water Act (CWA) relating to the Deepwater Horizon oil spill.  BP later settled with the United States.

4.  Compass helped defend PEU Thomas H. Lee's private equity fee abuse case with the SEC.  Naked Capitalism took the other side by asking for public pension refunds.

5.  The firm aided four private equity firms in squeezing more money from the buyout of Dole Foods. Compass Lexeco worked for Merion Capital Group, Magnetar Capital, Hudson Bay Capital Management and Fortress Investment Group, LLC.  Dole and its predecessor United Fruit had a rich history of government assistance, such that President Eisenhower overthrew a foreign government (Guatemala) to benefit the banana grower.

I thank ProPublica for enlightening me on the role economic consultants play in buyouts, the majority of which today have a private equity link.  I believe the insidious connection between the billionaire boys and corporate sponsored government led to the two decade decline in income for the common person and the outsized enrichment for club members, like the Orszag brothers.

A mere decade ago President George W. Bush lectured the world that democracy requires a rising middle class.  PEU power led to the dismantling of America's middle class.   Larry Summers is once again defending the insider club and not listening to "outsiders."

Update 1-15-17:  Nine men have as much money as half the world.   That's a change from 62 men last year.  Wealth concentration continues for the monopoly PEU class. 

Update 1-20-17:  Carlyle co-founder David Rubenstein spoke to WSJ at Davos. 

Update 5-5-22:  The PEU "public pension savior" narrative may burst if one New York Assemblyman gets his wish for PEUs to reveal their contracts and fee arrangements with New York's public pension funds.   

Update 5-20-23:  A judge smacked down Compass Lexecon's economic analysis in an airline competition case.  Matt Stoller has the story.

PEU Sponsored Cylance President Offers Davos Mea Culpa

Quartz offered a confession from a ten year attendee of the World Economic Forum in Davos, Switzerland.  Cylance President Felix Marquardt called the billionaire populated Davos "the good guys."

If educated progressive elites worldwide are serious about sharing the proceeds of globalization in a much fairer way, then we need to not just talk the talk, but walk the walk.

Marquardt's company is sponsored by the greed and leverage boys, who love to buy companies with government clients and ones they can cross sell within their holdings.  Cylance fits both bills.

And the fact that some of Cylance’s clients are in Blackstone’s portfolio was one of the reasons why the PE and venture funding icon chose to invest in it.

Will Felix rub elbows with other "progressive elites" like KKR's Henry Kravis or Blackstone's Stephen Schwarzman at Davos?   Davos has been the place for deals that decimated the middle class the last decade.  Machine intelligence Cylance has at least four PEU sponsors as a result of such deals.  There are few signs that is changing as the global economy turns to machine employment vs. actual people.. 

It's a PEU New Year!

Billionaires will gather in Davos, Switzerland later this month for the annual World Economic Forum meeting.  Private jets will swarm the Swiss Alps and the lucky ones will safely settle in hangars.  The unlucky will have to drop off their star passengers and spend the night elsewhere 

The Federal Council has also imposed security restrictions on the airspace over Davos to safeguard air sovereignty. 

The Swiss people will go all out to protect the Western globalist ruling and corporate elite:

All cantons in Switzerland make personnel and equipment available for maintaining security and for protecting people and property as part of an inter-cantonal police operation. The Federal Assembly has also authorised the deployment of up to 5,000 armed forces personnel for civil support duties to assist the canton of Graubünden.

Anyone trying to enter Davos will undergo scrutiny:

Precautionary personal, vehicle and baggage checks will however be carried out on all access roads. The primary concern is to prevent any dangerous items, such as firearms and other weapons from being brought into Davos. The checks are intended to protect people attending the conferences, residents and visitors. The Graubünden authorities guarantee that the checks on access routes to Davos will take place quickly and without harassment. However, delays at checkpoints remain possible. 

The Davos elite are the mix of political and corporate power that have undone so many the last few decades. Inequality has been a theme at Davos since 2013.  A symbol of this growing inequality is the shipping container accommodation staff may endure at Davos 2018.  Another symbol is of worsening inequality is CEO vs. employee retirement funding.

It will be interesting to see whose private plane jets out early to attend the January 20 inauguration of President Donald Trump.  Might Trump, himself a billionaire, make an appearance at the World Economic Forum?  Interesting questions as the world becomes less predictable on an event by event basis.  The arc of the greed and power boys winning remains firmly in place.