Private Equity

Private Equity Funds Will Start Earning 30% IRRs For Teachers’ Pensions Again Just As Soon As You All Elect Mitt Romney

By Matt Levine

If you work in private equity the last few months have not been kind to you. Man, dog, and Newt have all been ganging up on the industry, and it has not been helped by faux pas from its most famous alumnus, publicity around job losses and dividend-recaps-into-bankruptcy, or a renewed carried-interest debate.

Not to fear, though: coming to the rescue today are a rag-tag bunch of saviors including a cheesy website, a serial private equity CEO who’s pretty sure he was never instructed to torch the place for insurance money, aaaaaaand Blackstone’s Tony James: Continue reading »

Steve Schwarzman Is Not Above Shuffling A Few Pieces Of Paper To Keep Nosy Regulators In The Dark About His Personal Fortune

By Matt Levine

Unlike some private equity famewhores, Steve Schwarzman is a modest, retiring type who shuns all ostentation and just wants to be left alone with his crabs. So it’s not surprising that he doesn’t want those gossip hounds at the Fed all up in his personal finances, and that he’s willing to go to extreme lengths to avoid just that. How extreme? Check this out:

Blackstone is converting part of its 14.1% stake in BankUnited Inc. to nonvoting preferred stock, these people said. The deal will shrink its voting stake to less than 10%, pushing the New York firm below the level at which the Fed requires personal financial data from the Florida bank’s owners.

It isn’t clear why Mr. Schwarzman is sensitive about providing such information. The longstanding Fed rule is in place to allow the regulator to gauge the safety of banks by evaluating the financial resources of their owners. The financial information gathered about a bank’s owners isn’t available to the public, even if requested under the Freedom of Information Act, according to people familiar with Fed policies. …

The matter of Mr. Schwarzman’s personal financial information is tied to BankUnited’s plans to convert from a savings-and-loan institution to a national bank. … As part of the conversion, the Fed requires detailed financial information from “principals” of entities that own more than 10% of the bank’s stock.

So … not that extreme? Two obvious things: Continue reading »

Carlyle Group’s IPO Lays The Groundwork For An Abusive, Coercive MBO In About Five Years

By Matt Levine

Okay so you’re a private equity fund and you’ve filed to go public. GOTCHA:

Q. You tout the managerial-discipline, incentive-alignment and cost-saving benefits of taking companies out of the public equity markets. Yet you’re going public with your own company. Aren’t you just obviously destroying value to top-tick the market???
A. No, no, it’s not like that, see …
Q. TOP. TICK. THE. MARKET.
A. You got me. Never mind.

If this line of thinking resonates with you – and, like, I guess, right? – then you should get a certain amount of joy out of this:

Carlyle Group LP, the Washington- based buyout company that’s preparing to go public, is seeking to bar its future shareholders from filing individual and class- action lawsuits.

The firm revised its governing documents last week to say that investors who purchase company shares must settle any subsequent claims against Carlyle through arbitration in Wilmington, Delaware. That could limit the ability of stockholders to win big awards for securities-law violations such as fraud, several attorneys said.

Bloomberg, and Steven Davidoff at DealBook, have some fun with the question: can they do that? (Answer: maybe not!) Also with the question: isn’t that kind of mean? Davidoff writes:
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If Only Twinkies Maker Had Had Someone Whose Job It Was To Remember Not To Go Bankrupt

By Matt Levine

Stephen Lubben at DealBook noticed something kind of amazing in the Hostess Brands bankruptcy case:

Turns out that Hostess has no treasury department. Indeed, it apparently doesn’t have anyone who can perform treasury functions at all.

The company has asked the bankruptcy court for permission to hire FTI Consulting to do the work. Apparently Hostess does not have much of a finance department either, since FTI is also providing employees for that department.

If approved, FTI will provide three people to staff Hostess’ treasury department. The interim treasurer gets monthly fees that work out to an annual salary of $780,000. His two deputies get $660,000 per year, each.

The finance department group gets paid hourly rates that top out at $895 per hour. You might think that would supplant the need for a financial adviser in the case, but Hostess is asking to retain one of those, too.

Now that maybe goes a little overboard on the grave-dancing (lots of, really all, companies with full honest-to-goodness treasury and finance staffs still hire advisers in bankruptcy) but, still: that is kind of weird! If you read Hostess’s motion and the attached engagement letter, it appears that they’re just seeking signoff on an arrangement they struck in June. So they’ve been operating for at least six months or so with an outside consultant as their contract treasurer – and with the rest of their treasury roles filled either by other consultants or by nobody. That’s somewhat unusual for a company with 19,000 employees, a pension plan, and something like $1bn in enterprise value.*

I don’t really know what’s going on here but just for fun let’s blame private equity! In this connection, it’s worth noting that Hostess has been down this road before and was acquired out of bankruptcy in 2009 by Ripplewood Holdings. Private equity firms are, of course, rapacious scum put on earth solely to destroy the jobs of innocent hard-working Americans, so sayeth Newt, and if you like you can put that interpretation on Ripplewood here, or not, whatever. That will be determined by a series of campaign ads and op-eds, though it’s worth noting that Ripplewood had the decency to pluck Hostess out of Chapter 11 and keep it alive for over two years before re-bankrupting it.

But I think this oddity illustrates another aspect of private equity firms, which is that their deals-’n'-finance operations tend to be comically lean and intensively supported by outside advisers. Continue reading »

Most, Least Passive Ways Of Investing In Equity Getting Increasingly Close To Each Other

By Matt Levine

Goldman Sachs has a piece of research out today on ETFs, billed as sort of “ETFs for dummy portfolio managers who need to start understanding them.” It’s worth a read if you can get it, with a decent overview of questions that it is probably possible to think too hard about, like whether 400% short interest in many big ETFs is worth freaking out about (short answer: nah).

Particularly useful is a cautious but intelligent stab at the question of whether increased correlations are being driven by increased ETF use:

A substantial debate exists among investors about the cause of increased correlation. Namely, are correlations high simply because the environment is dominated by the macro? Or, are they due to the increasing use of index-level products, such as ETFs and futures? And most importantly, how do these forces interact? Given the nature of the cause-and-effect relationship of the two sides of this debate, we find our highest value in becoming more granular in our approach to these questions by specifically focusing our work on sector-based observations rather than index-level ones.

For those who like charts, here are two charts: Continue reading »

Yahoo Gives Up, Why Don’t You Just Tell It How To Run Its Business

By Matt Levine

Compared to strategic mergers, LBOs – particularly those not led by managers – are relatively easy for target companies to understand and evaluate. Generally speaking, shareholders are paid out in cash, so you don’t need to figure out what the merger currency is worth. You don’t have to negotiate “cultural” issues like whose name and/or irritating punctuation goes first in the surviving company’s name. You don’t have to figure out whose employee benefit plans will continue in force because everyone will be fired anyway.

And, because there won’t be any synergies and you won’t be taking stock in the acquirer, you don’t have to care about how they’ll run the business going forward. If your only goal is maximizing shareholder value, you just compare the expected value of your plan for the company’s independent operations to the actual cash value that a sponsor is offering. You don’t care if they’re going to make their 30% IRR by bringing in an operational genius to improve your products, or by the usual method of 8x leverage and mass firings. Maybe that’s an exaggeration – you care about things like “will they be able to sell the acquisition debt?” and “will my employees cause me physical harm between the time we announce this deal and the time I escape to a tropical island?” – but their long-term value creation plans aren’t really your concern. And, on their side, the sponsor has no interest in telling you, since their plans to improve your business just give you leverage to jack up the price.

Aaaaaand then there’s Yahoo! They figure, what the heck, they have all these smart people around, maybe they can get some free tips on how to improve things:
Continue reading »

Stephen Schwarzman Tired Of Introducing America As His Son The Sausage Link

By Bess Levin

You’d think someone would’ve gotten the hint by now. Continue reading »

What Should Flava Flav Name His PE Fund?

By Bess Levin

Thinking a few steps ahead here but based on a recent interview in which Flava Flav discussed getting into the restructuring business (starting with his chicken chain), it seems obvious that’s where he’s headed. Schwarzman, Kravis, Peltz? Watch your backs. Continue reading »

Brain Cancer Will Not Keep Teddy Forstmann Away From The Office

By Bess Levin

According to Charlie Gasparino it’s business as usual for the private equity chief. Continue reading »

Lynn Tilton Bares All

By Bess Levin

What do we know about Lynn Tilton? She runs the $8 billion private equity firm Patriarch Partners, and prior to that worked on Wall Street with a slightly lower profile with gigs at Morgan Stanley, Merrill Lynch and Amroc. She sports 5-inch heels to “look sufficiently fierce to make sure I garner the respect I deserve.” Her office is decorated with whips, handcuffs, and a portrait of her “stretched across the hood of a black Mercedes.” She only “strips and flips men, not companies.” And she once sent a Christmas card to customers that featured a stuffed tiger, a naughty Santa suit and a whip. But that’s all surface. Until now, we haven’t really gotten to the mystery underneath the Roberto Cavalli miniskirt and a fur-trimmed cape, or determined her motivations and what makes Tilton tick. Luckily, Lynn recently granted audience with New York and let it all out. Every burning question you’ve wanted answered. Like:

Why did she decide to start Patriach, when she’d retired from Wall Street, had “a good-looking man, great sex, a small island, and was still looking good in a thong bikini”? A vision.

One night, on vacation in Costa Rica, she woke suddenly. “I was laying there in this hotel room, and I saw my father and my Mayan teacher very vividly,” she explains. “They said this was not what was planned for me. I said, ‘Why did I go through this path, to empty myself out of any needs or material longings, only to be sent back to New York to be a businessperson?’ And the answer was: You’re not capable of leading until nothing can hold you back. Get your ass back to New York. So I got up in the middle of the night and left.”

Does she see herself as the female George Soros? Yes.

Tilton’s goal is “to be part of the intelligentsia. An enlightened thinker. One of the people who are called together to think through economic issues for America. You know, like how George Soros is called on issues.”

Why is she pissed at Obama, for whom she voted? He hasn’t called her and she highly suspects he’s plagiarised her work.

“Look, I am the largest female business owner in this country,” she says, coming out from behind the rack in a Herve Leger gown. “I own 74 midsize businesses, and Obama has not once called me into the White House on these issues.” More offensive, Tilton claims, as a female stylist reaches into the bodice of the dress to plump up her cleavage, the president has borrowed language from her articles. “I mean actually lifting pieces,” she says. “Literally, I can give you paragraphs. I got like twenty e-mails after his speech, when he was like, ‘We need to be innovators and the makers of things.’ ”

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Lynn Tilton: “My Response To Forbes”

By Bess Levin

Yesterday Forbes published an article that discussed Patriarch Partners founder Lynn Tilton (allegedly) telling an employee “You expect me to believe that, like I’m going to believe you’re not going to cum in my mouth,” among other anecdotes. Today Tilton has responded on her company website. Continue reading »