Beware of Black Holes

CNBC reported:

“What we found was a really strong connection between feeling badly about your money situation and how much time you spend on social media,” said Isabel Barrow, director of financial planning at Edelman Financial Engines.“

"There’s this perception that you have to portray yourself as successful and that means having an expensive watch or nice car....."

Social media can take good kids and turn them into black holes, endlessly sucking ever increasing amounts of external validation.  

It should be no surprise the false god of luxury lifestyle has poisoned their minds.  

And what is social media pushing now?  Cryptocurrencies, especially Bitcoin, and private equity, Tony Robbin's financial Holy Grail.

Better Markets has been battling crypto:

Given crypto has no legitimate use & the industry’s long rap sheet of, criminal convictions, bankruptcies, lawsuits, & scandals, it has to use its predatory profits for campaign contributions to buy political allies to keep its scams going.

It's up to candidates and elected officials to reject the crypto industry's special interests and protect the public from this worthless, speculative, high-risk gambling.

The same people who won't protect constituents from the clear harms of social media created a giant on ramp for crypto legitimacy by allowing Bitcoin ETFs'  

There are two burgeoning ways social media users can feel bad about their financial situation.  One, missing the Bitcoin speculation party and two, not snorting PEU stakes alongside the greed and leverage boys.  

Semafor reported:

Josh Harris’ investment firm, 26North, fired a top executive because of concerns over his previous work at 777, the investment firm and would-be Everton soccer club buyer that is under criminal investigation by federal prosecutors, people familiar with the matter said. 

26North hired Jorge Beruff in September to help lead its insurance business. Beruff had spent six years at 777, including at its Bermudan reinsurance arm, which invested policyholders’ money into risky and illiquid deals including European soccer teams, payday lenders, and failing airlines. 

Over the past few months I’ve been hearing from executives at Apollo, KKR, and other firms active in this space who are worried about the scrutiny that 777 is putting on the entire business model, which rests on being seen as responsible stewards. The 26North moves suggest that the blast radius is starting to widen.

Josh Harris co-founded Apollo before leaving to start a new PEU, 26North.  Harris bought the Washington Commanders for $6 billion, calling it a bargain.  The jury is out on Harris' impact on the team.  The "hands on" leader recently sat in on quarterback interviews at the NFL combine.

There is a track record for Harris' control stake in Crystal Palace, an English Premier League soccer team.  When Harris bought his stake in 2015 Crystal Palace stood at 6th out of twenty teams.  Since then they've been below that mark, 15th, 14th, 11th, 12th, 14th, 14th, 12th, 11th and currently 14th.  That's consistently in the bottom half of the table, or underperforming.

Washington Commanders tickets are a unique currency for PEU Josh Harris in our nation's capital.  

There is zero chance elected officials will reign in private equity underwriters (PEU).  Politicians Red and Blue love PEU and increasingly, more are one.

Beware of black holes.  They will suck you in....

Update 3-17-24:  WaPo reported:

....777  Partners has financed several businesses that have been accused of profiting from what critics deem predatory financial practices that target economically vulnerable people\ 

“They prey on individuals who are very young or very naive or drug addicts or people with problems,” said Farva Jafri, a former executive at a 777 subsidiary   

In the case of one person taken advantage of by a 777 subsidiary:

For years, her mother, Lori Goney, had sent letters to politicians and law enforcement officials, calling on them to investigate 777’s business practices. “Nobody did anything about it,” she said. “Nobody helped me.”

Beware the PEU black hole.

Update 4-3-24:  British crypto firm Copper used a scantily dressed woman and man as sushi platters for a reception at a crypto conference.  Former British Chancellor Phillip Hammond is Chairman of Copper.

A judge ruled in favor of a former Apollo executive who'd submitted fraudulent expense reports, saying the PEU's accounting/billing department had approved similar expenses for others in the past and that the fraudster did not know his fraudulent expenses would be billed to limited partners.

The evidence is now clear that smartphones have caused widespread harm to children, not only in the U.S. but around the globe.

Update 4-11-24:  Dan Rasmussen warned individual investors away from putting money into private equity.  Levered money borrowed at floating rates in microcaps with zero margin is the opposite of safe.  The risk is hidden by PEU portfolio smoothing.

Sign of PEU Times

 It is the golden age of the private equity underwriter (PEU).  

Update 3-19-24:  Welcome to the PEUniverse where Blackstone harmed kids with autism in their pursuit of outsized returns.  That gets one on the cover of Forbes?  Really?

My wise friend wrote after reading "Her son was doing well at a clinic serving kids with autism. Then private equity (Blackstone) took over.":

Gretchen Morgensen's article on private equity damaging the treatment of children with autism should have been followed by a thunder of outrage but not so much. The indifference from WHOM private equity extracts payment via dilution of services and treatments to the most vulnerable should have every pension, foundation, university, state demanding changes in behavior. i.e. boycott/ no business until there are changes in operating procedure by private equity. 

Or are we all Gaza to the boys with the bazookas of money?  Did not see all the righteous politicians defending the children? Did not hear President Biden come out to defend the children?  I wonder to myself ... think of the damage they've done to the population of the whole country and yet we glorify their money?  Is that the money you wanna spend on yourself ? Rolling over the children? Exploiting the parents of these children? What have we become?  Fortunes built on the suffering of others and we call that winning!  Exceptionalism defined?  And we point to others outside our borders maybe we should clean up our house or as others have said this den of thieves.

New Energy Pathways: Old Related Party Transactions

The Carlyle Group named a new head of energy strategy, Jeff Currie.  Their press release stated:

Carlyle believes the energy transition is entering a new phase amidst the backdrop of significant geopolitical and macroeconomic shifts globally. Decarbonizing our global economy is not a simple linear transition from carbon-intensive energy generation to lower-carbon energy sources. It is a complex, multi-dimensional transition that involves energy production, distribution, transportation, refining, efficiency, and end usage, along with decarbonizing all other sectors of the economy. An effective and orderly energy transition will require new energy pathways – balancing energy availability, security, and affordability, as our energy systems simultaneously decarbonize. Carlyle has a large and diverse global energy platform that invests across the full spectrum of electrons and molecules necessary to develop these new energy pathways.

Marcel van Poecke is Carlyle's Chair of Energy.  That's not his only job.  Marcel founded AtlasInvest in 2007. 

Through its partnership with the Carlyle Group, AtlasInvest also manages the Carlyle International Energy Partners funds. These Carlyle Group funds manage more than $7bn of assets and invest in conventional energy businesses globally (outside of North America).

While not listed as a family office AtlasInvest employs a number of van Poeckes.

SEC filings show Marcel van Poecke as an officer for Regalwood Global Energy.

Regalwood Global Energy Ltd. is an international energy-focused special purpose acquisition company sponsored by an affiliate of Carlyle International Energy Partners, L.P., formed as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. Regalwood Global Energy Ltd. is led by Marcel Q. H. van Poecke, Chairman of the Board of Directors; Robert Maguire, a member of the Board of Directors; Brooke B. Coburn, President; and Kevin R. Gasque, Chief Financial Officer.

SPAC Regalwood rolled up in late 2019 without making any business combinations.

AtlasInvest and two Poeckes formed Tree Energy Solutions (TES) in 2019.  

Carlyle Energy offered its second renewable and sustainable fund in 2023, hoping to raise up to $2 billion.  It states the fund will use a "private equity value creation approach."  That generally involves nondemocratic means in profit making.

And that brings us back to Marcel van Poecke's first stint with Carlyle.  

1993 - Dutchmen Marcel Van Poecke and Willem Willemstein found Petroplus International B.V. from a management buyout.

2005 - Private equity firms Carlyle and Riverstone Holdings buy Petroplus,

2006 - Petroplus lists company on the Swiss exchange, raising $2.4 billion and making big profits for Carlyle and Riverstone.  Marcel van Poecke resigns from the company.

Carlyle executed a number of PEU moves at Petroplus.  It spun off noncore assets in December 2005:

As part of the new strategy of Petroplus, all the LNG activities of Petroplus will be operated on a stand-alone basis with a management team dedicated entirely to LNG and power in a new entity called "4Gas".

The CEO of 4Gas was none other than Paul van Poecke.  

And who did they spin 4Gas off to?  Their owners, Carlyle/Riverstone.

The holding company of Petroplus sold off "noncore assets" to other entities run by Carlyle/Riverstone.  That hardly seems arms length.  

Petroplus sold one asset to SemGroup LP, a fellow Carlyle/Riverstone affiliate.

Carlyle only controlled 30% of SemGroup.

"We are very excited about the opportunity to work with Carlyle/Riverstone and believe that our partnership will build upon SemGroup's financial and operating success. Carlyle/Riverstone is known as one of the premier private equity players in the energy and power sectors. The transaction will provide SemGroup with a strategic partner that offers a distinct combination of investment and industry professionals who have highly successful track records," Tom Kivisto, SemGroup president and chief executive officer, said.

So what role did the strategic partner play in the sale of Petroplus' noncore assets to another holding of that same strategic partner?  

Private equity underwriters (PEU) revel in leverage, whether they be personal or family relationships, sitting on both sides of the table in deals and driving affiliate business inside the PEU corporate family.

.  

New energy pathways will likely come with Carlyle's same old tricks, deal fees, management fees, debt for dividends and cross selling services within the One Carlyle family.  

Ride up the boom while generating fees, monetize and get out before the bust.  That's the PEU way.

Other interesting facts:

Ironically Petroplus went on to do a joint venture with Blackstone and First Reserve.  Unfortunately, refining margins fell too far to support Petroplus' massive debt and the company declared bankruptcy in 2012.

In 2008 SemGroup declared bankruptcy under Carlyle's 30% ownership due to billions in bad energy bets.  SemGroup's owners sucked $56 million in dividends before the firm imploded.

Update 3-19-24:  Carlyle's Jeff Currie predicts much higher oil prices if the Fed cuts interest rates.

PEU Legend Aims at Poor

Carlyle Group cofounder David Rubenstein wants individual investors to have access to private equity investments.  At Private Equity International's Nexus 2024 event Rubenstein said: 

"We should allow people who need to invest in things that get a higher rate of return because they don't have much income."

Carlyle launched a PE secondaries fund, Carlyle AlpInvest Private Markets Fund.  It abbreviates to an appropriate, CAP-MF.  That should sell to the homies.  

Rubenstein can help the masses invest in cyprotcurrencies via Paxos, a holding in his family office.

If they can con poor people into crypto investing, selling PEU vehicles should be a breeze.  We may get another David Rubenstein rap video.  "Need income?  CAP that MF...."

We Live in PEU Times

The average person knows something isn't right.  They may or may not have worked for a private equity affiliate.  If so, they've experienced a hard change in priorities, seen co-workers lose their job so money could be repurposed to interest expenses, management fees and or sponsor dividends.

The image above came from an excellent story by FT, "Is private equity actually worth it?"  A Norwegian Sovereign Wealth fund wants to dedicate more money to private equity underwriters (PEU), my pet name for the greed and leverage boys.  

I started PEU Report in 2007 to shine the light on this burgeoning asset class that seemed to be a parasite on the federal budget.  Non-lobbyist PEU founders ponied up to the political class in ways that preserved their preferred "carried interest" taxation to this day.  They became known as "policy making billionaires."

Last night comedian Stephen Colbert described his "not right" as "a constant, grinding existential dread."

The Real News Network's Chris Hedges did a two part story on private equity, "How private equity conquered America."  The second part of Chris' interview with author Gretchen Morgenson is below:

Naked Capitalism did an outstanding piece on private equity in mid February.  It highlighted an FT story on a pension fund executive stepping down.  That executive said private equity needed to share more with workers and their communities.

Limited partners like CalSTRS, who are, in Wall Street parlance, the money, have not even been able to get basic disclosures from the general partners like how much in total the private equity firms hoover out in fees and expenses, despite many years of pleading. Mind you, it’s a requirement for a fiduciary to evaluate the costs and risks of any investment, yet these investors have accepted this abuse. 

Limited partners don’t get P&Ls of portfolio companies. They don’t get independent valuations even though that is considered to be essential for every other type of investment. So it’s ludicrous to think that general partners will share money with one of the very weakest parties in the picture, mere workers, when they won’t give information to the limited partners.

There is a significant power imbalance and throw away statements won't impact anything.  I am encouraged the word is getting around.  

Politicians Red and Blue love PEU and increasingly, more are one.  That isn't right.

Turnover at Carlyle Secured Lending

The Carlyle Group named Justin Plouffe as CEO of Carlyle Secured Lending.  It came after the resignation of Aren LeeKong, who'd Carlyle promoted to that position in September 2022.

The SEC filing stated:

On March 1, 2024, Aren C. LeeKong informed Carlyle Secured Lending, Inc. (the “Company”) that he is resigning from the Board of Directors of the Company (the “Board”) and his positions as the President and Chief Executive Officer of the Company, in each case effective March 1, 2024, to pursue other opportunities.  Carlyle and the Board thank him for his efforts and wish him the best for the future. 

On March 1, 2024, the Board appointed Justin Plouffe as a Class II Director of the Company and its President and Chief Executive Officer, effective immediately. Justin Plouffe, 47, is a Managing Director and the Deputy Chief Investment Officer of Carlyle Global Credit. 

Plouffe is Chief Executive Officer of TCG Securities, L.L.C., the SEC-registered broker/dealer affiliate of The Carlyle Group.

The news came shortly after Carlyle Secured Lending released Q4 2023 earnings.  The SEC filing indicated:

Weighted average yields exclude investments placed on non-accrual status.

One of CSL's nonperforming loans is American Physician Partners (APP).  APP was owned by Brown Brothers Harriman Capital Partners, a private equity underwriter (PEU).  APP sent surprise medical bills to ER patients, like KKR's Envision.  Physicians raised concerns about APP's operations.

The hospital emergency room operator declared bankruptcy last summer.  Carlyle Secured Lending addressed the loans in its Q4 earnings report:

The net change in unrealized depreciation for the year ended December 31, 2023 compared to the comparable period in 2022 was primarily driven by depreciation in the value of our investments in American Physician Partners, LLC.

Carlyle holds $38.5 million million in APP loans (face value).  It shows Carlyle's amortized cost for those loans to be $33.2 million.  Carlyle shows an unfunded $1.5 million revolver commitment.  

APP blamed its downfall, in part, to laws restraining surprise medical billing.  Others blame it on PEU ownership.

As debt repayment can evaporate, so too can a CEO disappear. LeeKong gone Plouffe instated...

LGP May Bankrupt JOANN

Joann may declare bankruptcy.  The publicly traded company is majority owned by Leonard Green Partners, a private equity underwriter (PEU).

Green bought Joann in 2011 for $1. 6 billion.  In October 2012 it loaded the company with more debt for a dividend (source Moody's).  An SEC filing said the following about that event.

 JOANN Inc. (formerly known as Jo-Ann Stores Holdings Inc.) is the issuer in this offering. Our principal operating subsidiary is Jo-Ann Stores, LLC (formerly Jo-Ann Stores, Inc.), which was previously an independent publicly traded corporation until its acquisition on March 18, 2011 by a subsidiary of Needle Holdings LLC (formerly known as Needle Holdings, Inc.), a company incorporated on December 16, 2010 by LGP for the purpose of the acquisition. On September 19, 2012, Jo-Ann Stores Holdings Inc. was formed solely for the purpose of reorganizing the corporate structure of Needle Holdings LLC and its wholly owned subsidiary Jo-Ann Stores, LLC, and on October 16, 2012, Needle Holdings LLC became our wholly owned subsidiary. Upon consummation of this offering, assuming the sale of 5,468,750 shares in this offering by the Selling Shareholders and 5,468,750 shares by us, LGP will own approximately 69% of our shares of common stock.

That move brought a ratings downgrade.  Moody's described it as:

The downgrade reflects Moody's expectation that Jo-Ann's lease adjusted leverage will remain in excess of 6.5 times, as a continuation of soft operating performance trends experienced since the company's October 2012 leveraged dividend are expected to continue to weigh on credit metrics. 

It's not clear how much cash Leonard Green siphoned from Joann in that dividend recap.

Leonard Green took Joann public in 2021.  It hoped for a $17 share price but got $12.  The S-1 showed the PEU owner received nearly $30 million in management fees since 2016.

Moody's rated Joann B2 in March 2021.  By July 2022 it dropped to B3.  January 2023 saw the rating fall to Caa2.  January 2024  Joann's debt dropped to Caa3.  Moody's stated in that report:

a high likelihood of a distressed exchange given its unsustainably high leverage and its private equity ownership.

High leverage is a hallmark of PEU ownership.  It's doomed many affiliates.  Is that a PEU wildfire on the horizon?  If so, one must act quickly and smartly.  That includes buying discounted debt in order to have an equity stake on the other side of the prepack.

How much discounted Joann debt has LGP purchased in the run up to bankruptcy?  Like most things PEU, it's a secret.

Update 3-18-24:  JOANN filed for bankruptcy today.

"Following this process, the Company expects that JOANN will become a private company owned by certain of its lenders and industry parties.."

Back to my question:   How much discounted Joann debt has LGP purchased in the run up to bankruptcy?  Is failed equity holder LPG now a lender?  It's the PEU way.