Oaktree Capital IPO: Carlyle Group's Canary

CNBC reported:

Private-equity firm Oaktree Capital Management kicks off an estimated $2.2 billion of U.S. initial public offerings next week, the busiest flurry of offerings this year.

The most significant debut is Oaktree Capital Management, which is considered a gauge for the highly anticipated IPO from Washington D.C.-based private-equity company Carlyle Group later this quarter.

"Oaktree is going to be a litmus test for other such offerings, most notably Carlyle," said David Menlow, president of research firm IPO Financial. "If market sentiment is not up to snuff and the deal falters, it will have been the sacrificial lamb and will cause other offerings in the space to reconfigure their deals."

Oaktree, which had roughly $75 billion in assets under management at the end of 2011, expects an offering of 11.3 million Class A shares to be priced between $43 and $46 a piece.

Tha pricing would raise between $450 million and $500 million for Oaktree, which sold nearly a third of the firm in two private placements, the first in 2004 and the second in 2007.

The Carlyle Group purports to raise a mere $100 million in its IPO.   In 2001 Carlyle sold a 5.5% equity stake to CalPERS, a huge pension fund, for $175 million.  It later did two deals with Mubadala Development Corporation, a United Arab Emirates sovereign wealth fund.  In 2007 Carlyle sold a 7.5% stake to an affiliate of Mubadala Development Co. for $1.35 billion in cash.

Carlyle's latest S-1/A implied Carlyle might sell 10% of the firm.  That's well above $100 million based on prior CalPERS and Mubadala deals.  Carlyle's co-founders want to liquefy, i.e. cash in.   

Oaktree's looming IPO puts Carlyle in a good position:

"If market sentiment is not up to snuff and the deal falters, it will have been the sacrificial lamb and will cause other offerings in the space to reconfigure their deals."  

Will Carlyle have to reconfigure?  Only twenty-one investment banks know for sure.

Fran Townsend's Latest Board Slot - SAP NS2

The Government Corporate Monstrosity (GCM), Eisenhower's Military Industrial Complex on trillions in federal steroids, is multi-layered.  Note:  Frances Fragos Townsend picked up another board slot in this MarketWatch press release..   

"SAP NS2 and its parent companies enjoy the trust of national security and intelligence agencies and the leading companies in critical economic sectors," says Frances Townsend, chairman of the SAP NS2 Board of Directors and former Assistant to the President for Homeland Security and Counterterrorism. "Some of the most demanding and security-sensitive applications and databases in the world run on SAP and Sybase technology, delivered by SAP NS2." 

Add another notch in her GCM rope.  Fran sits on the board of SIGA Technologies, a MacAndrews & Forbes holding.  Their latest DEF-14a stated:

Frances Fragos Townsend has served as a director of SIGA since March 2011. Ms. Townsend is Senior Vice President of Worldwide Government, Legal and Business Affairs at MacAndrews Holdings and has held this position since October 2010. Ms Townsend previously served as Homeland Security Advisor to President George W. Bush from May 2005 until January 2008.

In the above role, Fran conducted the post-mortem on the Bush White House's Hurricane Katrina response.  She omitted any mention of the hospital with the highest patient death toll, LifeCare Hospital of New Orleans, which lost 25 patients in Katrina's aftermath.   The politically connected Carlyle Group purchased LifeCare weeks before Katrina struck.  For what I view as gross incompetence, Fran landed a number of key assignments and board appointments.

Ms. Townsend also currently is an on-air contributor for CNN as a counterterrorism, national and homeland security expert. She serves as director of DRS Technologies and Thomson Reuters in addition to numerous government advisory and nonprofit boards. Ms. Townsend is the chairperson of the Intelligence and National Security Alliance and a member of the Council on Foreign Relations and the Trilateral Commission. Her extensive experience in government, combined with her legal acumen, is ideally suited for our business.

Her experience may benefit SIGA Technologies, Scientific Games, DRS Technologies, SAP NS2, MacAndrews & Forbes, and Monument Capital.  It's a shame CNN and Thomson Reuters can't figure it out.

Fran's riding the GCM for all its worth.  . There are no lone wolves in the GCM, where loyalty to the pack leader is critical.  She runs with the Red Pack, but started with the Blue Team under President Clinton.  Clinton's "good ole boy" intelligentsia hid his corporatist ties.

Fran proudly wears her corporatism.  How much revenue does Uncle Sam provide to Fran tied companies?  One might expect SAP NS2 to have that information in their database.  How long before that data dump?

Update 11-1-15:  Fran joined the Advisory Board of Protivit earlier this year.

Showing "the Carry"

The super wealthy pay lower taxes because much of their earnings are not income.  I added two lines to the above chart to display this fact.  First, private equity underwriters pay a preferred 15% tax rate called carried interest.  Second, the financial firm is a virtual nonprofit as investors and PEU owners are the only ones paying this discounted tax.  I hope this graphic makes those two points clear.

D.C. Bee Friends

WSJ highlighted UBS CEO Robert Wolf's friendship with President Obama.  The piece closed with a quote from Carlyle co-founder David Rubenstein::

To some financial clients, the (Obama) friendship is a plus. David Rubenstein, a UBS client who worked in the Carter administration before going into private equity and founding Carlyle Group, says, "It's always nice to talk to someone about what people in the White House are thinking. But Robert also has a good feel for what firms are doing and thinking. If a Republican were president, I don't think his business would suffer."

Rubenstein likely has carte blanche access to the White House.  Early in the Obama Presidency David Rubenstein was a frequent visitor. Rubenstein dined with Obama Chief of Staff Rahm Emanuel.  I imagine Rubenstein's loaning his copy of the Emancipation Proclamation to the Oval Office helped maintain his access.

Rubenstein kindly offered a UBS endorsement, given his multibillionaire status.  I bet that made UBS Wealth Management Americas happy

Senator Phil Gramm, the man who deregulated finance in the late 1990's alongside President Bill Clinton, served as Vice Chairman of UBS.  Here's how UBS spun Gramm-Leach-Bliley.

As Chairman of the Banking Committee, Senator Gramm steered through legislation modernizing the nation's banking, insurance and securities laws.

Gramm and Clinton's modernizing led to private equity's explosive growth.  It also resulted in a postmodern financial implosion.  Phil Gramm stepped down as Vice Chair of UBS in February 2012.  He'll now serve as a consultant to the firm.

Obama just signed the JOBS Act, which creates a new market for UBS and Wall Street, crowdfunding and easier equity raising.  In a Gramm-Clinton like manner, the bill's provisions could lay the foundation for the next financial crisis.  Will it happen in less than a decade?

Where will Phil Gramm be, should it hit?

Gramm added:  “I will be working in a few targeted areas for the bank next year and hope to find some noble work yet to be done before I settle into my rocking chair on the front porch of Goat Cave Ranch."

Rather than highlight Gramm's role in the near collapse of the global financial system, Robert Wolf offered:

Wolf said: “Over the years, Phil has become a great friend to me and other senior leaders at UBS. His humor, candor and keen insight will be sorely missed at our firm and in Washington. We all wish Phil our best and thank him for his years of dedicated, hardworking service to UBS.”

Gramm, Wolf, Obama, all good friends.  That's the way the Government Corporate Monstrosity works.  Sure it gets heated when the Reds and Blues compete for the right to send billions to their friends, but once the election is over, the GCM hums.  There's honey to raid.

Update 6-30-12:  The Motley Fool cited the JOBS Act's fraud potential, calling it a Pandora's Box.  .

Obama's American Investors May be Foreign

President Obama sold the JOBS act:

“Because of this bill, start-ups and small business will now have access to a big, new pool of potential investors — namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in,” the president said in a Rose Garden signing ceremony.

ZeroHedge and Bank of America aren't sure the American people have disposable income to invest:

The upshot is that the recent pick-up in consumption is not being fueled by income or wealth gains, but mainly by drawing down savings. Many households remain deeply distressed and react to higher costs of living by drawing down savings further.

The bill also indicates equity funding for start-ups is an option for "qualified investors."  It's likely rich foreigners will have a better shot of qualifying than the average citizen.  The former may lead to the latter.

According to the Department of Homeland Security, foreign investors have to invest only $500,000 to get residency, provided they meet other restrictions. They have to invest in a rural or underdeveloped community and they have to create at least 10 jobs, either directly or indirectly. They have to invest $1 million or more if they aren’t investing in rural or underdeveloped areas. (They are eligible for permanent residency after two years and full citizenship after another five years if they meet certain criteria.) 

Angel investing is going Alien.

Obama's PEU JOBS Act

Dealbook reported:

The JOBS Act appears to loosen financial communication more broadly. For instance, the bill will relax rules on how investment firms can market themselves to the public, reversing regulations that restrict what hedge funds and private equity firms can say publicly about their investment strategy.

President Obama offered upon signing the bill:

The bill “represents exactly the kind of bipartisan action we should be taking in Washington to help our economy.”

As I've said many times on this blog, Red and Blue love PEU (private equity underwriters).

The bill also exempts emerging growth companies from certain disclosure and governance requirements for up to five years. It will also provide a new form of financing to start up companies.

Will this pave the way for the next generation of PEU's?

“Because of this bill, start-ups and small business will now have access to a big, new pool of potential investors — namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in,” the president said in a Rose Garden signing ceremony.

Anybody can hawk anything, at least the bill brings that prospect closer to life.  How many will promise 30% annual returns?

The 2008 financial crisis killed investing, maybe for a generation.  This may entice those with short memories.  Investors are expected to trust Wall Street/PEU firms that pushed junk or practiced puffery (their words, not mine).  I guarantee they'll be making fees off the American people.

PEU's are so ubiquitous now, under the JOBS act, every American can be one.  A problem arises in such a scenario.  It's not financial literacy.  With every citizen a PEU, who will be the shill?

PPIP Done: Wilbur Ross Sheds Treasury

MarketWatch reported:

Invesco Ltd. announced it has returned substantially all of its proceeds, at a profit, from its Invesco Mortgage Recovery Fund (Public-Private Investment Partnership or "PPIP") jointly owned by the U.S. Department of the Treasury.

Uncle Sam floated 75% of the JV's capital, Wilbur Ross' Invesco 25%.  

The Fund held its initial closing in September 2009 and ultimately deployed $2.3 billion, including $581 million in equity capital from Treasury, $581 million in equity capital from private investors, and $1.2 billion of debt capital from Treasury. 

Oddly, Invesco's Mortgage Recovery Master Fund set a $2 billion equity target, with minimum investment of $25 million.  Invesco described this offering as a private equity fund.  They reached $1.46 billion.

Obviously the fund raised more private funding that went into PPIP.  Assuming the fund was fully invested, how did the mortgage portfolio compare between Invesco Mortgage Recovery's PPIP and non-PPIP holdings?

Who's money was used to pay an expected $20 million in sales commissions, Invesco investors or Uncle Sam?

Wilbur Ross lives to greed another day:

Invesco Mortgage Recovery Fund will continue to invest directly in residential and commercial mortgage loans as well as structured securities and other real estate related opportunities on an opportunistic basis without Treasury funding. 

 Sharing profits might be as bad as paying taxes.