Carlyle's IPO & Liquefaction

Carlyle Group co-founder David Rubenstein said he would "liquefy" his stake in the world's premiere private equity underwriter (PEU).  To liquefy Carlyle must attract investors to their looming independent public offering (IPO).  The PEU eliminated one obstacle, by dropping its mandatory arbitration requirement for shareholder disputes. Did they also allow a board committee to set executive compensation for the triumvirate?

Carlyle's PEU model levers investor capital, borrowings/debt, annual management fees, preferred carried interest taxation, special dividends/distributions and "liquidity recapitalizations," more straightforwardly known as debt for dividends.  How firm is this foundation?

The Carlyle Group's publicly traded mortgage backed security fund, Carlyle Capital Corporation, dipped into bankruptcy in March 2008, six months before the September implosion.  Carlyle walked away from CCC, leaving shareholders empty handed.

The Carlyle Group will turn its back on 14 Wall Street, a prized real estate investment.  Will Carlyle dump this historic asset before or after their IPO? 

I did find irony in Rubenstein's "liquefy" characterization.  Analogies for financial crises include "earth shattering" and "meltdown."    Liquefaction occurs when wet, sandy soils are shaken in an earthquake.  Soil foundations turn to porridge, causing buildings to list.

If "liquefy" means monetizing PEU equity states, does that imply private equity will undergo liquefaction, turn to jelly in the next financial earthquake?  Capital calls, Carlyle shareholder serfs.  Capital calls.

Bloomberg's "One on One" with Carlyle Group's Rubenstein

Every picture tells a story.  These images are from the Bloomberg Link China Conference.  First, we introduce the protagonist, a multi-billionaire private equity underwriter (PEU).

Next up is the damsel, Bloomberg's PEU reporter:

She starts on topic regarding China.

Oops, she noticed the $3.5 billion Chinese investment.  Aren't professional women attracted to strong, rich men?

Liquefy some of his stake?  The heat rose fast in that interview! That can mean only one thing.  A pair of Bloomberg lips planted fully on a PEU's backside.

It takes a sweet "one on one" to ensure a future session.

There was no investment activity scrutiny, just a two minute PEU-fomercial.

Carlyle Writes Off 14 Wall Street

Crain's NY reported:

An owner of 14 Wall St. is desperately seeking a cash infusion for the property so it can repay a $145 million first mortgage by its maturity date in May.

Real estate sources say that owner Capstone Equities has reached out to various brokers, owners and financiers about investing in the 37-story, 1 million-square-foot property that's across Wall Street from the New York Stock Exchange.

Capstone and partner The Carlyle Group paid $325 million for the property that was formerly known as the Bankers Trust Building in 2007 when the market was booming. However, sources say that Carlyle has written off the investment and is not helping in the quest to find another partner.

Doesn't high frequency trading need close proximity to exchanges, like the NYSE?

Carlyle let a number of investments go over the years.  Carlyle Capital Corporation (CCC) was a canary in the coalmine for the Fall 2008 financial crisis.

A tremendous amount of loans were written during the boom that come due this year. About $6 billion in commercial mortgages on New York City buildings that were bundled and sold as bonds mature in 2012.

Will 14 Wall Street serve the same function as CCC?  Might it predict another round of "unprecedented tumult"?

Update 4-5-12:  A fertilizer tycoon, who sits at #1015 on Forbes Billionaire List, picked up 14 Wall Street.  Ironically, Carlyle's co-founding DBD's stand at #418.  Who had more money to save the storied building?  The DBD's did.  They simply chose not to.

Monetize Turns to Liquefy with Carlyle IPO

Co-founder David Rubenstein stated he would "liquefy his stake" via The Carlyle Group's IPO.  Rubenstein offered the following at Bloomberg Link's China Conference in New York:

"When you create value, ultimately you want to liquefy and get the benefit of that."

Liquefy? Isn't that what happened to a German SS officer's face in an Indiana Jones movie?

Rubenstein went on to defend Mitt Romney's private equity underwriter (PEU) preferred taxation.

"When people comply with the law, they shouldn't be criticized by people who say, 'The law says you're supposed to pay X, you should have paid 2X,'" Rubenstein said. "Change the law if you don't think the law is appropriate."

David Rubenstein worked hard to keep PEU carried interest in place, with annual trips to Capital Hill and numerous visits to the White House. Politicians listen to their benefactors, the Rubensteins of the world, even cater to the privileged class.

Rubenstein can tell people to go about changing the law, knowing his one voice counts far more than millions.  Might it be because of Rubenstein's billions, which he is ready to liquefy?

Rubenstein is ready to cash in his ecosystem, plain and simple.  Which serfs will line up for Carlyle's IPO, where co-founders relinquish few of their kingly responsibilities?  It's a PEU co-founder's fantasy, maybe their biggest profit-gasm.

Rubenstein Praises China Yet Again

BusinessInsider reported:

Despite all the concerns about a slowdown in China, David Rubenstein, Co-Founder and Managing Director of The Carlyle Group continues to be a China bull.

Speaking at the Bloomberg Link China Conference, Rubenstein said that China's middle class is expanding, its consumer base is growing, and, its government  encourages private equity investments.

Which contributed to Rubenstein's hawking the Chinese capitalistic model at the World Economic Forum.  Rubenstein said he would "put more money into China" if he could.

It seems Rubenstein doesn't have economic freedom, much less the personal version, in China.

Update 2-1-12:  A China bear showed up at the Bloomberg Link China Conference.

Carlyle's PEU Stripping Fish

The Carlyle Group strips fish, in addition to corporate cash. 

PacAndes is the proverbial puzzle within an enigma. Its 50,000-gross-tonne flagship, the Lafayette, is registered to Investment Company Kredo in Moscow and flies a Russian flag. Kredo — via four other subsidiaries — belongs to China Fishery Group in Singapore, which, in turn, is registered in the Cayman Islands.

China Fishery and Pacific Andes Resources Development belong to Pacific Andes International Holdings, based in Hong Kong but under yet another holding company registered in Bermuda.

PacAndes, which is publicly traded on the Hong Kong stock exchange, reports more than 100 subsidiaries under its various branches, but a partly impenetrable global network includes many more affiliates.

One of its major investors is the US-based Carlyle Group, which bought $150 million in shares in 2010.

China Fishery Group reported a 2011 revenue gain of 27.2 per cent to $685.5 million from $538.9 million, 55 per cent of PacAndes' earnings. The company attributed it to stronger operations from the South Pacific fleet and the Peruvian fishmeal operations.

Recall how Carlyle co-founder David Rubenstein advocated the China model of capitalism at the recent World Economic Forum meeting in Davos, Switzerland.  The China model is state directed and subsidized, thus it helps to be in good with the state

(Fishing) overcapacity has been driven by government subsidies, particularly in Europe and Asia, experts say.

A landmark report by Rashid Sumaila, along with the oceanographer Pauly and others at the University of British Columbia, estimated total global subsidies in 2003 — the latest available data — at $25 billion to $29 billion.

Between 15 and 30 per cent of subsidies paid for fuel to allow ships to range widely, it said. Another 60 per cent went to increase size and upgrade equipment.

The study calculated China's subsidies at $4.14 billion and Russia's at $1.48 billion.

Carlyle affiliates frequently suckle on the government teat. It helps garner 30% annual returns.

The Carlyle Group cashed in for the fourth time on China Pacific Insurance.  Total proceeds to date are HK$28.7 billion.  If you haven't seen enough offshore tax shelters, Carlyle has another holding China Pacific:

Carlyle Holdings Mauritius, another subsidiary of Carlyle Group, still holds 113 million H shares in China Pacific Insurance.

Some experts call for a five year fishing moratorium for specific species.  A PEU moratorium on government subsidies, stripping cash from affiliates and hiring ex-politicians might allow business ethics and working capital to recover.  Let's hope its not too late for fish and ethical business practices.  Each deserves a chance for survival.

South Carolina State Treasurer Smells PEU

Curtis Loftis, South Carolina's Treasurer, wants the state's pension fund to lighten up on alternative investments.  WSJ reported:

Just five years ago, it was illegal for South Carolina's public pension plan to invest in hedge funds, private equity and other complicated bets.

Now, nearly half its assets are in such investments.

Loftis believes this allocation is far too high.

(Loftis is) fed up with years of high fees on the state's hedge-fund, private-equity and real-estate investments, and their complex terms, which he says are incomprehensible to the average taxpayer.

"I question whether Wall Street's interests are being protected or our interests are being protected," says Mr. Loftis.

The Carlyle Group's David Rubenstein called on Loftis in August 2011. The hour long session was an attempt by Rubenstein to touch his client. Loftis understands the private equity underwriter (PEU) mentality:

"He's a great man," Mr. Loftis says about Mr. Rubenstein. But, he added, "these people are not my friends. If I weren't the treasurer of South Carolina, they wouldn't take my calls."

No, they would not. PEU's focus on the 2 and 20, which Loftis stands to threaten.  They'd hate another PEU run.  How much did South Carolina's pension pony up in Carlyle capital calls in the 2008 financial meltdown?  CalPERS kicked in $681 million.

How much did South Carolina's alternative investment exposure rise keeping PEU's from swirling down the cash drain?  Rest assured, David Rubenstein won't say.  He probably views it as a discourteous question.