If different sectors of the financial industry were to hold primaries, Mitt Romney would be the clear favorite to win the private equity primary. The founder of Bain Capital who is running for the Republican nomination for president has been received far more than any other White House contender from the private equity industry, taking in $258,000 in the first quarter of 2007, according to Dan Primack at PEHub.com.
The list of Romney’s donors include Steve Schwarzman of the Blackstone Group and Henry Kravis of Kohlberg Kravis Roberts. And despite the amounts collected from private equity employees, Romney has hardly topped out. Only one of his donors—Charles Haneman of H.I.G. Capital—has hit the statuory maximum donation. So Romney can probably expect to collect even more from his former fellow private equity colleagues.
Unlike hedge funds managers—many of whom have only recently become politically active and tend to lean toward Democrats—the top names in private equity have a history of political involvement with Republicans. Schwarzman is also a donor to John McCain’s campaign and there was talk that he might have been in the running for the top job at the Treasury department. That job eventually went to Hank Paulson, who had been running Goldman Sachs.
Romney Rakes in LBO Dough [PE Hub]
politics
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Bain Capital
Private Equity & Politics: Mitt Romney Winning The PE Primary
By John Carney-
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Hedge Funds
Hedge Funds & Politics: Paul Tudor Jones Hedges the Presidential Election
By John Carney
Paul Tudor Jones II’s is hedging his political bets. He donated to Republican Rudy Giuliani’s presidential “exploratory committee” (apparently that’s political speak for the campaign before the campaign). And next month he’s holding a big fund raiser for Democratic nomination hopeful Barack Obama, the New York Observer’s Politicker blog notes.
On May 19th, commodity trading billionaire Paul Tudor Jones II will host a fund-raiser for Barack Obama, according to a knowledgeable source. The event will be held at Jones’ oceanfront Greenwich mansion, which reportedly sits on top of a 25-car garage.
More than 500 guests are expected to attend.
The Politicker implies that Jones may have dumped Giuliani in keeping with his reputation for getting out of losing investment positions. We’re not so sure. While we’re not exactly experts in presidential politics here at DealBreaker, it seems to us that this is not so much a strike against Rudy as much as Hillary. She’s supposed to be the candidate with all the pull on Wall Street (wife of Bill Clinton, connected to Citigroup’s Robert Rubin) and her position as a senator from New York, should give her connections to nearby Greenwich, Connecticut’s hedge fund money. But Obama has been cleaning her clock when it comes to donations from the world of finance. And now he can add PTJII to the list.
Big Rudy Guy and Allan Houston to Raise Money for Obama [Politicker]
Hedge fund political giving continues to climb, the Washington Post reports this morning. The post runs down the connections of a number of presidential candidates to hedge funds, mostly by adding up how much money candidates have received from hedge fund employees.
The candidate receiving the most money from the employees of a single hedge fund is a man you might not have known was even running for president. Senator Christopher Dodd has collected $175,000 from SAC Capital employees for his run for the White House. While Dodd is hardly a favorite to win his party’s nomination—much less actually get elected President—he has two advantages on his side: he is the Senator from Connecticut, where a lot of hedge funds have their offices, and he is the chairman of the Banking Committee, a position he has used to block legislation that would impose additional regulations on hedge funds.
The other favorite candidates of hedge funds are better known: former New York mayor Rudolph Giuliani, New York Senator Hillary Clinton, and former democratic vice-presidential nominee and Senator from North Carolina, John Edwards. Fortress Investment group makes up the largest single corporate donor to the campaign of John Edwards—probably because he went to work there as a consultant after the failure of the 2004 Kerry-Edwards presidential campaign.
Why have hedge funds started getting more involved in politics? For some this is a sign that the industry is “maturing” or becoming more responsible and involved in democratic politics. For more cynical observers, it seems like hedge funds are trying to buy influence to ward off regulations.
But those folks aren’t cynical enough for some students of the relationship between politicians and hedge funds. The uber-cynics argue that the would-be cynics have it backwards: the threats of regulation were intended to force hedge funds to donate more to politicians and buy the services of lobbyists.
“Actually, they’re being threatened with regulation so they would form PACs and otherwise get organized,” Larry Ribstein of Ideoblog says. He points to a letter to the editors of the Wall Street Journal from Andy Morriss:
Politicians target an unorganized but wealthy industry by holding hearings, calling for regulatory action, proposing legislation, and so forth. Alarmed, the industry organizes interest groups and begins making contributions to the politicians. Miraculously, most of the threatened regulations then vanish from the agenda, leaving the politicians richer and the industry poorer but wiser. Whenever a new round of contributions is needed, another round of hearings on the latest issue can be scheduled.
Hedge-Fund Ties Help Edwards Campaign [Washington Post]
Rent Extraction [Cafe Hayek]
Robert Novak reports in The Evans-Novak political report this week that new Banking Committee chairman Chris Dodd is seeking to shakedown raise money from the Wall Street elite.
The long-shot Democratic presidential campaign by Sen. Chris Dodd (Conn.), the new Banking Committee chairman, solicited banking industry executives and lobbyists for a fund-raising reception last week at Washington’s luxurious Madison Hotel. Invitations went to Democrats and Republicans alike, including several who had never met and who had never contributed to Dodd, but the invitations still went out addressing the lobbyists by their first names. It was an effort by Melanie Wong, an experienced Democratic fund-raiser, to find individual fund-raisers in the community Dodd will be overseeing as chairman. A “Team of 46″ will consist of supporters who pledge to raise $46,000 for Dodd.
A politician looking for a handout from interesting parties isn’t really something we’d call “news.” It’s what we’d call “democracy.” But what always does surprise us—and we guess that kind of makes it news—is how cheap it is to buy the ear of the Senator—just $46,000. Act now!
Dodd [Evans-Novak Political Report via Human Events]
If you’re anything like us, you may have forgotten that Scooter Libby has a connection to world of high finance. Too many bottles of Chateau Mouton-Rothschild will do that kind of thing to you. Someone called Libby was convicted yesterday for something involving the CIA, the Bush administration, Iraq and Robert Novak. Or something. We get that kind of news from the Daily Show. Everyone was talking about it at dinner last night, which we just took as an opportunity to drink more of the wine.
But this morning, as our hangovers cleared and we said farewell to our dinner companion, we started to remember the name Scooter.
Scooter!
He was the lawyer for Marc Rich. Along with his partner Pincus Green, Rich was convicted of tax-evasion and illegal trading with Iran after a successful career as commodities trader and real estate developer. And the prosecutor on the case was none other than a Wall Street mob-busting, Miken and Boesky convicting, US Attorney named Rudy Giuliani. (Who later turned around and wound up owning his own investment bank, recently sold for gazillions as he prepares to run for president.)
Green and Rich (the very names evoking envy and wealth) both fled to Switzerland prior to their conviction, of course. Rich and Green were later pardoned by President Clinton (while several lesser-known accomplices served out there sentences). From 1985 until the pardon, Scooter represented Rich.
The Cost of Libby [New York Sun]
The story of Clinton’s Marc Rich pardon [Human Events via World Net Daily]
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KKR
Was There Anyone In Texas Or The Environmental Movement Who Didn’t Know About TXU?
By John CarneyThe pre-takeover announcement trading in TXU call options has lots of the usual suspects complaining that the other kind of usual suspects must have had inside information about the deal. “The only possible explanation is that there are leaks in these deal processes,” Whitney Tilson at T2 Partners and Tilson Mutual Funds in New York told Bloomberg.
But this story from the Dallas-Fort Worth Star Telegram makes clear that big shots at the Texas Pacific Group were going around to Texas officials and the relevant environmental groups making sure they wouldn’t get in the way of the deal. Actually, the suggests TPG’s chief is actually a tree-hugger himself.
When Texas Pacific Group chief David Bonderman sought help a couple months ago to get environmental groups behind Texas Pacific’s plan to buy TXU Corp., he called an old friend — former Environmental Protection Agency Administrator William Reilly.
They met in 1980, when Reilly headed the Conservation Foundation, a land-use organization that later merged with the World Wildlife Fund. Reilly needed legal help, and Washington, D.C., powerhouse legal group Arnold & Porter lent him Bonderman, Reilly said Monday.
Now Bonderman was asking Reilly to lead negotiations to win the support of two big environmental groups, Environmental Defense and the National Resources Defense Council, for the record $45 billion buyout of TXU by Texas Pacific and Kohlberg Kravis Roberts, another big private equity fund. Although the deal aims to make money, Reilly said Bonderman’s long-standing interest in the environment is also a driver.
“He’s for real on this stuff,” Reilly said. “He was in the Amazon two weeks ago. He was in Mozambique last year for a new marine reserve. These are not places to go if he’s looking to line his pockets,” he said.
We have no idea whether this is just TPG spin. But whether or not TPG really is run by environmentalists or just finds it profitable to pretend it is, it certainly tells you something about which way the political winds are blowing.
Two old friends, one goal: support of green groups
[Star-Telegram]
Politics creates opportunities for private profit. That’s not exactly news. We’ve known it at least since Senator Plunkitt of Tammany Hall explained the difference between honest graft and dishonest graft.
More recently we’ve seen how the regulatory and legislative response to the corporate scandals of the turn of the century—in particular, Sarbanes-Oxley and its accompanying regulations—have contributed to buying opportunities for private equity. Firms and managers find the public capital markets unwelcoming and unrewarding), regulatory overhead and legal distractions push down company valuations, and the threat of gigantic civil fines and criminal penalties make increase the risks of operating a public company. Private equity offers an escape from this hazards with promises of greater riches. And if the laws and regulations get repealed or reformed someday, well that will just create new IPO and other exit opportunities for private equities. Call it timing the political market.
This morning’s Wall Street Journal carries an editorial explaining how a different kind of politics—environmentalism—contributed to the fall of TXU’s share price and made it a more attractive takeover target for private equity.
TXU had painted a green bull’s-eye on itself when it announced plans last year to build the 11 new plants. Never mind that the plants were to be built on the sites of existing plants, that a number of them would replace older, less-efficient plants, or that Texas is already bumping up against the limits of its ability to produce the electricity it needs for its growing population and economy. The announcement sent the environmental movement to the barricades against TXU, and may be one reason that the company’s stock, after going up regularly for several years, sputtered and stalled in 2006.
That stock slide wasn’t all bad for Kohlberg, Kravis Roberts, which is leading the group buying TXU for not much more than its all-time stock-price high, which it hit in the middle of last year. But then again, giving in to the pressure not to build all 11 plants may not turn out to be all bad for KKR and TXU, either.
Ercot, Texas’s independent electric-grid operator, figures that peak electricity demand in the state will catch up with available capacity by 2009, if not sooner. Tight demand means higher electricity prices, which is good for TXU’s profits. That squeeze will, in turn, rejuvenate calls for more capacity, which may allow TXU to dust off the plans for the new plants at a moment when the current environmental concerns weigh more lightly in the political scales than skyrocketing electricity bills. The private-equity crowd didn’t get to be billionaires for nothing.
To sum up: Tree-huggers push down the price of TXU. KKR and TPG swoop in and pick up the pieces, making peace with the greens by agreeing to shut down the plans for the new plants. The resulting higher electricity prices enrich TXU and perhaps even creates a demand for those now-pariah plants in the future.
Here’s how the WSJ concludes the editorial:
As for TXU’s current shareholders, the agitation of the greens may have helped bring down TXU’s share price last year, so the environmentalists probably did KKR and partners a favor. There may even be a trend in the making here — environmental protesters bring down a stock, making a private-equity transaction look more attractive, and in return, the equity firm and its management partners buy off the greens with this or that environmental promise. We’re not suggesting any such quid pro quo here, but if we were TXU’s mom-and-pop investors or Texas energy consumers we’d certainly be asking some pointed questions.
The New Greenmail {$$} {Wall Street Journal]
The classic advice for how to succeed in business is: “Build a better mousetrap.” But that’s so old fashioned. These days there are plenty of other alternatives, including “Make your competitor’s mousetrap illegal.”
That’s the method favored recently by Altria’s Phillip Morris group, which has been a big supporter of a bill promoted by Senator Ted Kennedy and Congressman Henry Waxman to increase regulations on tobacco. If its surprising that Phillip Morris would be a big supporter of a bill promoted by lawmakers who claim they are cracking down on Big Tobacco, well that’s probably because you don’t pay much attention to how lawmaking works down in Washington, DC.
Of course, it would be a public scandal if lawmakers actually made all cigarettes not manufactured by Phillip Morris illegal. That would be way too obvious. So instead of making all outlawing all the other proverbial mousetraps, this bill just makes advertising mousetraps illegal.
How does that help Phillip Morris? Washington Examiner columnist Tim Carney explains:
This bill would also further restrict tobacco advertisements, possibly even banning all cigarette ads — another way the government could help Philip Morris. Studies find that cigarette ads do much more to sway brand choice of smokers than to make new smokers or cause smokers to buy more cigarettes.
If there were never another cigarette ad in America, the primary effect would be locking current market share in place. Two of every five cigarettes sold in a store in America is a Marlboro. Philip Morris’ other brands account for about 10 percent of that market, giving Philip Morris more than half of the U.S. retail market, not counting Internet sales, according to the company.
[Disclosure note: Tim Carney is the brother of DealBreaker's editor, John Carney.]
Philip Morris wins with Kennedy, Waxman bill against ‘Big Tobacco [Examiner.com]
In addition to the relative poverty of journalists, we’ve long been obsessed with the cheapness of politics. Everyone rants about there being too much money in politics but we’re always surprised by how little there is. Take incoming Senate Banking Committee Chairman Christopher Dodd. Since 1989 Dodd has personally taken about $2.18 million in campaign donations from the investment industry, according to this item in DealBook. For the point of emphasis, the most powerful Democrat on the banking committee has been collecting less than $150 grand a year from the industry.
And yet the media and political watchdog groups are still concerned that this might create the appearance that Dodd is owned by the banks. We’re not saying this impossible. Just embarrassing. We knew that many of our politicians were whores. We just don’t like to be reminded that they sell their stuff so cheaply.
For Dodd, Wall Street Looms Large [DealBook]
Dodd Well-Positioned for White House Bid [Associated Press in Washington Post]
Wall Street’s reaction to the Democratic victory in the House and the Senate has been relatively sanguine. Partly because no-one feels the Democrats really campaign on much—besides exploiting the obvious advantage of not being in the same party as George Bush—no-one really fears the Democrats are going to engage in any sort of grand Great Leap Forward scheme to reshape America, massively redistribute wealth or bring Wall Street and Greenwich even further under the thumb of Washington, DC.
But it’s worth remembering every now and then that at least some of the support for the Democrats comes from folks who want to do exactly that. Peter Laarman, the executive director of some outfit called Progressive Christians Uniting, gives us an especially vivid illustration of Wall Street-loathing leftism in an item on the Huffington Post. He writes that the Democrats current proposals are a good “starter kit” but don’t go far enough.
But this is not a kit that will really blunt the Walmartization of the U.S. labor market or begin to take down the back-dating bond-trading hedge-funding IPO-floating vultures who can’t quite seem to grasp the meaning of the common Anglo-Saxon word “enough.”
Very much like Iraq, the soaring of the vultures is an issue that is sure to try the souls of newly-empowered Democrats. This is so because theirs is a party burdened not only with its own LieberClinton dead enders on Iraq and the Middle East but also a party whose economic thinking is now dominated is by overpaid winner-take-all types. Proto-populist election-time rhetoric aside, it’s Wall Street and not Main Street that steers the DNC.
Here’s a little test of how serious the Democrats will be about siding with working people and small proprietors: will they shut down the “Paulson Committee,” as it’s called? Will they stop the Sarbanes-Oxley wrecking crew whose proper title is the Committee on Capital Markets Regulation? This unofficial panel of “concerned private citizens,” spurred on by Treasury’s Henry Paulson, wants to block shareholder suits against corporations that defraud shareholders and also block state attorneys general like Eliot Spitzer from suing corporate defendants in securities cases. They want to let accounting firms off the liability hook when they do what Arthur Andersen did for Enron, namely collude in cooking the books. They want to gut Sarbanes-Oxley on the grounds that its rules are unduly burdensome despite all the evidence to the contrary of record corporate profits, an efflorescence of new IPOs, burgeoning executive pay, and the continuing open scandal of backdated stock options.
Oh. And if that’s all too subtle for you, here the title of the piece: “Now Let’s Vote Out Winner-Take-All Economic Terrorism.” So, you know, if you support reforming Sarbanes-Oxley, you’re pretty much in league with Al Qaeda.
Now Let’s Vote Out Winner-Take-All Economic Terrorism [Huffington Post]
Everyone now thinks of Donald Rumsfeld as the snippy man who speaks in metaphysical riddles and never seemed to get the idea that things aren’t going terribly well for us in Iraq. But long before he was the Secretary of Defense, Rummy spent a couple of years as investment banker and lots of years as a corporate executive. He served on the boards of several companies and actually ran a few as CEO, including drug-maker G.D. Searle & Company.
So now that he’s officially been officially thrown off Bush’s cabinet, it’s time to start wondering what’s next for Rummy. Is he headed to Wall Street? We hear that there are some at Morgan Stanley who would like to see him come over to the bank. (Although our source has no real reason to know this kind of information, so take that with a grain of salt.) Or will he head back into the corporate board room? Today’s DealBreaker Reader Poll asks you to predict the next port of call for the USS Rumsfeld.
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Bush Says Rumsfeld Resigning, Gates to Replace Him [Bloomberg]
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