Rubenstein Says One Last Bank to Fail

Carlyle Group co-founder David Rubenstein told Yahoo Finance:

“I think First Republic Bank is clearly on a watchlist, and probably somebody at some point will buy it. But the challenge there is that it needs government assistance.”

Will Carlyle be part of that somebody at some point who buys First Republic?  

“There's a big hole in the balance sheet of First Republic Bank, I've been told. And therefore, I suspect the government will have to provide some assistance if that deal's gonna get done.”

Sheila Bair's FDIC gifted BankUnited to a consortium of private equity underwriters (PEU) during the last financial meltdown.  It was a hugely profitable venture for Carlyle, Blackstone, Centerbridge and W.L. Ross.  

Rubenstein says he isn’t seeing the same type of contagion in the financial system as occurred in 2008 when over-leveraged investment banks like Lehman Brothers and Bear Stearns went bust.

Carlyle Capital Corporation, a highly leveraged mortgage back securities fund, failed in March 2008.  Some saw it and Bear Sterns as canaries in the financial crisis coalmine, which collapsed in September 2008.

Carlyle wins no matter what in First Republic's failure.  Tighter bank lending has pushed borrowers to private equity for credit.

Avenue Capital CEO Marc Lasry said banks should be lending at 5% but since they're not his firm gets to offer loans at 15%.  

The story described Rubenstein as "one of the most plugged-in high financiers."  Fed Chief Jay Powell once worked for Carlyle.  Rubenstein sits on an Investor Advisory Committee for the New York Fed.

He's also been called a "policy making billionaire."  How will Uncle Sam's largess benefit Rubenstein and his PEU brethren, directly or indirectly?  Time will tell.

Rest assured that politicians Red and Blue love PEU and increasingly, more are one.  

Update 4-18-23:   Private equity has the same issue as banks in that their holdings are worth less today.  The Spread Thread tweeted:

... credit rationing carries forward to small/mid-sized businesses. The leveraged loan market is probably most representative of mid-sized companies, and here, borrowing costs have surged. Small business borrowing costs are in the teens in many cases at this point. That matters.

FT noted that public pension funds are starting to write down their commercial real estate holdings. 

Update 4-22-23:  Fox Business News reported:

"These PE funds overpaid for stuff and now we’re saying ‘you’re not generating good returns, so go pound sand,’" said one official at a major public pension fund who spoke on the condition of anonymity. "They have taken their eyes off the collective ball and they’re now collectively panicking that they’re badly missing their numbers."

Update 5-4-23:  Insurance companies are next to fall into the asset devaluation sinkhole.  Carlyle highlighted their partnership with Fortitude Re and how that will drive fees and profits.  Prudential reported a 12% decrease in AUM in their Q1 earnings report.  Can Fed Chair Jay Powell get interest rates low enough in time to save Carlyle and its wave of affiliate refinancings starting in 2025?

Update 4-6-25:  "Is the flow of toxic waste pouring from busted private equity portfolios into credit trades a threat to insurance companies? Yup."

Will SEC Stand Up to PEUs and their Lobby?

 

The private equity trade group helped produce research indicating their industry does not need to be transparent regarding fees paid by public pensions, many funded by teachers or firefighters.  The Committee on Capital Markets Regulation published the paper.  

Committee members are mostly from Wall Street with a business professor or two scattered in the mix.  One professor is the Russel L.Carson Professor of Finance.  Carson founded Welsh, Carson, Anderson and Stowe, a private equity underwriter (PEU).  PEU representatives on the committee come from Blackstone and Apollo.  

 

I get the sense that this is not an impartial review given the PEU lobby provided research support and committee members include PEU executives.

The report paints an egalitarian world in several of its findings:

....finds that the concentration in the U.S. private equity fund market is very low, far lower than that of industries in public markets and registered funds, and that the number of private equity fund advisers and funds is steadily growing. Both are signs of a highly competitive market and one that is growing increasingly competitive.

....finds that the Proposed Rule will reduce competition in the U.S. private equity fund market in several respects. Most importantly, the Proposed Rule risks reducing returns for private equity fund investors and reducing the variety of investment strategies available to investors. The Proposed Rule will also increase barriers to entry to the U.S. private equity fund market with a particularly negative impact on women and minority-led private equity fund advisers.

The report makes it sound like there are few barriers to entry into private equity and that any requirement to publish fees and allowable costs will drive away legions of women and minorities clamoring to open their own PEU shop.  

A March 2023 McKinsey report on private markets noted:

Amid a pullback in commitments, an outsized share of capital flowed to the largest funds, as investors re-upped with their existing managers but reduced backing smaller and new funds. Funds over $5 billion collected a record $445 billion in aggregate, a 51 percent increase over funds of a similar size in 2021. Conversely, dollars raised by sub–$5 billion funds decreased by 28 percent. Just 2,141 funds were closed during the year, 1,600 fewer than in 2021 and the fewest of any year since 2013. First-time fund launches also decreased by 40 percent.

That massive shift of business to the majors and contraction for smaller players occurred without a SEC rule requiring the disclosure of price and allowable cost information.  

Coke has its secret formula, KFC has its secret recipe and the PEU boys have their secret fees, nonstandard return formulas and preferred taxation.  

Enough Americans have worked for a PEU affiliate to have a bad after taste.  It doesn't go away after a Dunkin Donut or Baskin-Robbins ice cream cone.

Can the SEC rise above the PEU air occupying our hallowed halls of government?  My guess is no, given PEU preferred "carried interest" taxation is still around despite widespread public opposition.  Preserving carried interest is the second bullet under AIC "top priorities" (middle image in this piece).

If huge pensions can't get access to this most basic pricing information what chance will you have when the SEC opens up your IRA or 401k to private equity investments?  Zero.  The small investor will pay the magically derived, yet never clearly spelled out PEU fee.  

Update:  Carlyle Group co-founder David Rubenstein was referred to in a story as "one of the most plugged-in high financiers."  PEUs win, teachers and firefighters lose.  That's the benefit of being plugged in, also known as "insidership" according to Larry Summers.

Bain's Evident Might Help Carlyle

Bain Capital closed its deal for Evident, a life sciences company formerly owned by Olympus.  Evident was once Olympus Scientific Solutions business.  Yahoo Finance reported:

At Evident, we are guided by the scientific spirit—innovation and exploration are at the heart of what we do. Committed to making people’s lives healthier, safer, and more fulfilling, we support our customers with solutions that solve their challenges and advance their work—whether it’s researching medical breakthroughs, inspecting infrastructure, or exposing hidden toxins in consumer products.

Several Carlyle Group affiliates could have used help identifying hidden toxins in consumer products.  Infant milk formula maker Yashili had toxic melamine in its products.

At least six children died and 300,000 others were poisoned by milk formula tainted with melamine in 2008.

Carlyle affiliate Oriental Trading sold children's rings made with toxic cadmium.

A spokeswoman for the ring importer identified by the CPSC in Wednesday’s recall - Fun Express Oriental Trading Company, of Omaha, Neb. - did not return calls or an e-mail seeking comment. The Carlyle Group, a private investment firm that owns Oriental Trading Company, referred a request for comment to the company.

Carlyle now owns Medline, a giant healthcare supplier, as well as dozens more healthcare companies.   Might it need Evident's service to keep toxins out?  

Carlyle affiliates failed patients at LifeCare Hospitals and ManorCare, before sending both companies into bankruptcy.   

Bain Capital drove Toys R Us into bankruptcy.  Toys R Us creditors sued citing:

...nearly $18 million in fees paid by Toys R Us to executives at Bain Capital, KKR and Vornado and Brandon from 2014 to 2017 while they served on the company's board. In addition, the lawsuit alleges Brandon paid himself $2.8 million in bonuses days before the Chapter 11 filing, knowing the payout wouldn't be approved in bankruptcy court. 

Employees shared concerns about their treatment by private equity underwriters (PEU).  It was culturally toxic.  

Many things are evident to people who've worked for the greed and leverage boys.  A new book chronicles some of the damage done by the PEU boys. 

Healthcare will not get cheaper or better as greedy management drives away talented physicians, nurses, clinical and support staff.  Someday, that will become evident.

Alaska Permanent Fund to Add $1 Billion in PEU Investments

The Alaska Permanent Fund plans to put half of its new investments into private equity.  That's a hefty $1 billion for private equity underwriters (PEU).

One of the newest APF Trustees is Gabrielle Rubenstein, daughter of Carlyle Group co-founder David Rubenstein and Alice Rogoff, an advisory board member for Pt Capital.  Gabrielle is co-founder and managing partner for MannaTree and her resume shows she helped found Pt Capital LLC.

The fund's investment staff has concerns about private equity investments as the asset class appears overvalued.  Sudden changes in cost structure have bankrupted many a PEU affiliate.  It remains to be seen how rapidly rising interest rates will work through the PEU python.  Will it be the writhing alligator that obliterates its devourer?

How might the younger Rubenstein's board service help her parents' or her PEU holdings?  It's worth watching.  

History buffs may appreciate the irony of seed money for The Carlyle Group arose from selling Alaskan Native tax losses. 

Update 6-9-24:  As predicted APF board Vice Chair Elle Rubenstein set up meetings between her PEUs and corporation staff.  This is fully expected in our PEU world.  Conflicts be damned.

Update 6-23-24:  The Alaska Permanent Fund board hired a law firm to look into the leak of Elle Rubenstein's e-mails to a political reporter and examine their disconcerting revelations.

PEU Plunderers Identified

A new book exposes private equity underwriters (PEU) and the widespread damage the greed and leverage boys have done over the last several decades.  That has been the aim of PEU Report since I began this blog in July 2007.

Elected officials have not reigned in corporate flippers, much less fulfilled their promises to remove PEU preferred "carried interest" taxation.  That's because politicians Red and Blue love PEU and increasingly, more are one.

Update 4-26-23:  Preying on the Dying: Private Equity Gets Rich in Hospice Care

Another book on the plundering greed and leverage boys will be out this summer. 

Update 6-2-23:   The American Prospect ran a piece called "Days of Plunder."

Two new books call ‘private equity’ what it actually is, but neither offers much hope for emancipation from our eternal hostile takeover.

I suggest the piece be renamed "Decades of Plunder" enabled by both Red and Blue political teams.

Update 8-12-23:  Adam Taggert from Wealthion interviewed Morgenson.  This is a shift from his recent interview on the benefits of private equity and the possibility of endorsing a PEU firm for followers.

U.S. Has Supreme Court Influencing Billionaire

The U.S. has evolved the "policy making billionaire" (Congress and White House) into the "court influencing billionaire" (Supreme Court).

ProPublica reported how Supreme Court Justice Clarence Thomas benefited from the largess of billionaire Harlan Crow:

For more than two decades, Thomas has accepted luxury trips virtually every year from the Dallas businessman without disclosing them, documents and interviews show. A public servant who has a salary of $285,000, he has vacationed on Crow’s superyacht around the globe. He flies on Crow’s Bombardier Global 5000 jet. He has gone with Crow to the Bohemian Grove, the exclusive California all-male retreat, and to Crow’s sprawling ranch in East Texas. And Thomas typically spends about a week every summer at Crow’s private resort in the Adirondacks.

The extent and frequency of Crow’s apparent gifts to Thomas have no known precedent in the modern history of the U.S. Supreme Court.

These trips appeared nowhere on Thomas’ financial disclosures. 

The big money funnel can be seen elsewhere in this story:

Crow had given half a million dollars to a Tea Party group founded by Ginni Thomas, which also paid her a $120,000 salary.

The people now see the addition of a Supreme Court Justice to the "Just Us" preferred people clan, Larry Summers' "insiders".  

These are the benefits of insidership, funded by the recipients of government beneficence.  Preferred taxation, a light to no regulatory touch, direct access to Uncle Sam's wallet are but a few of these billionaire oriented benefits.  Many of those billionaires founded storied private equity underwriters (PEU).

Politicians Red and Blue have long loved PEU and increasingly, more are one.   Now that Clarence got his PEU wings, the "Just Us" system appears to be a part of the grift. 

Update 4-8-23:  Clarence Thomas opined about the benefits of insidership.  President Biden knows it courtesy of Nantucket hospitality from Carlyle Group co-founder David Rubenstein.  

The Supreme Court influencing billionaire has a "garden of evil."  It's full of memorabilia from inhumane leaders.   

Update 4-14-23:  Thomas did not disclose the sale of property and lots to billionaire Harlan Crow.  One citizen wrote Thomas "is showing us how to be free from morality and transparency."

Update 4-17-23:  Billionaire Harlan Crow is not charging Clarence Thomas' mother rent.

Rubenstein Offers SBF's "Effective Altruism" at Harvard

Carlyle Group co-founder David Rubenstein promoted his "patriotic philanthropy" at a recent Harvard University event.  Rubenstein's patriotic philanthropy is similar to FTX CEO Sam Bankman-Fried's "effective altruism."

Rubenstein hosted peer SBF on his Bloomberg program a few months prior to FTX's fraud driven financial implosion.  Both suggest greed is good as long as you give a small amount of it away.  He told the audience.

“Public service is a great way to give back to your country..."

Public service to Rubenstein does not include paying his fair share of taxes.  The Carlyle founder spent considerable time and energy over the years convincing elected officials to not remove private equity's preferred taxation.  One might expect the Harvard Institute of Politics to point this fact out.  Nope.

Private equity underwriters (PEU) have some of the lowest tax rates while amassing billions in wealth.

Politicians Red and Blue love PEU and increasingly, more are one.

Update 9-19-23:  FTX's insider money funnel included SBF's parents.