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 »

  • 24 Jan 2012 at 6:39 PM

Apparently Newt Gingrich Tried A Bush-League Version Of Mitt Romney’s Carried Interest Trick

By Matt Levine

If you’re into this sort of thing you can go read Mitt Romney’s tax returns and learn (on page 5 of the 2011 return) that he is in the “independent artists, writers, performers” business, which seems about right. (But which one?) You can also learn that he’s doing okay, financially-wise, and some more specific stuff; tantalizingly, you can’t get a good picture of his returns on assets because his financial disclosure forms are so meaninglessly bucketed. Most crucially, you can learn that he paid about a 15% tax rate on his take last year. There is a lot you can think about this. Some of it revolves around the badness of taxing capital gains at a lower rate than labor income, which, whatever, not my beat. Some of it revolves around the badness of taxing private equity labor income as capital gains, which, I mean, I’m sympathetic to, but also not my beat, but in any case this income is actually capital gains. Like, Mitt wasn’t working at Bain Capital last year. He was just sitting around, doing his “independent artist/writer/performer” thing, collecting money from the other money that he got 20 years ago. That’s what capital gains is. Anyway.

If you’re really into this sort of thing you can also go read Newt Gingrich’s tax return, but you won’t, because the numbers on it are smaller and where’s the fun in that? But USA Today of all people actually went and read it and they found … maybe tax fraud? That was unexpected:
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 »

Area Man Still Upset That Mitt Romney Snubbed Him Decades Ago

By Matt Levine

At many, many points in your Wall Street career, you will encounter a basic quandary, which is, “should I behave like a douchebag here, or should I not behave like a douchebag at this one particular moment in time?” This question is hard because, on the one hand, behaving like a douchebag often brings immediate cash rewards, and can be fun; but on the other hand, there are longer-term reputational consequences to frequent douchebag behavior. Goldman Sachs has a name for its position on this trade-off, which is “long-term greedy,” and you can go think your thoughts about whether and in what circumstances “long-term douchebag” is a relevant substitution.

Speaking of long-term douchebags, William Cohan can NURSE A GRUDGE, man:

Yet, there is another version of the Bain way that I experienced personally during my 17 years as a deal-adviser on Wall Street: Seemingly alone among private-equity firms, Romney’s Bain Capital was a master at bait-and-switching Wall Street bankers to get its hands on the companies that provided the raw material for its financial alchemy. … I never negotiated directly with Romney; he was too high-level for any interaction with me. Rather, I dealt often with other Bain senior partners, who were very much in his mold. In my experience, Bain Capital did all that it could to game the system by consistently offering the highest prices during the early rounds of bidding — only to try to low-ball the price after it had weeded out competitors.

The complaint here is that Bain would put in high bids in early rounds of an auction for a company, and then when other bidders have been eliminated and Bain’s negotiating position was stronger, it would find ways to re-trade on price. And if you’ve ever worked in M&A, or, um, anywhere else, you are laughing hysterically right now at the notion that Bain partners are the only people who re-trade on price.*
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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 »

  • 31 Oct 2011 at 11:20 AM

Lynn Tilton: Ask And Ye Shall Receive

By Bess Levin

“For many years I had men asking me on the phone each day what I was wearing and what color my underwear was,” Tilton said. “And so I sent out a Christmas card with me in a red lace sort of teddy, and red cowboy boots and a Santa hat, wishing them a Merry Christmas.” [ABC, earlier]