CalPERS’ Private Equity Scandals and the Steptoe & Johnson Report Whitewash

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CalPERS’ Private Equity Scandals and the Steptoe & Johnson Report Whitewash

Real Estate, Private Equity Industries Fighting Camp"s Tax Plan

“Disappointing.” That’s how both the National Association of Realtors and the Private Equity Growth Capital Council have described Rep. Dave Camp‘s (R-Mich.) proposal to overhaul the tax code.

In his quest to simplify the code for families, Camp, chairman of the powerful Ways and Means Committee, would trim some longstanding perks benefiting the real estate and private equity and investment industries: the mortgage interest and carried interest deductions. A tribe of lobbyists is pressing conservatives to snuff Camp’s proposal, threatening to withhold precious campaign dollars.

The mortgage interest deduction allows homeowners to reduce their tax obligation by subtracting the interest they’ve paid on their mortgage. Tampering with it could hurt home sales, and thus the bottom line of real estate agents and the many others who depend on the housing market for their livelihoods.

Cuts to the carried interest deduction, which allows private equity managers to pay a lower tax rate than other workers on about one-third of their income, would only affect a tiny — but generally very wealthy — proportion of the population.

In both instances, those who would feel the pain have long experience using cash and K Street to make themselves heard.

Private equity contributions skyrocketed to $ 70.8 million in 2012, up 143 percent from the previous presidential cycle.

The industry gave to both parties, but favored Republicans at a two-to-one rate. PEGCC, the trade group of private equity firms, contributed $ 300,000, more evenly split between the parties.

The industry was exceptionally generous to outside spending groups in 2012. A number of the top donors to Restore Our Future, for instance — the super PAC backing Republican presidential nominee Mitt Romney, who had been an executive at Bain Capital — came from private equity.

For their part, real estate interests contributed $ 155.2 million in the 2012 cycle, with 65 percent of it going to Republicans. The Realtors’ trade group covered all its bases, funneling money through a PAC, super PAC, and 501(c)(6) political nonprofit.

The Realtors also fielded an army of lobbyists, the second-most of any organization in 2013. That didn’t come cheap: $ 38.6 million, or about as much as two major corporations, Northrop Grumman and Comcast, spent combined. For its part, PEGCC spent close to $ 2.4 million on lobbying last year.

The disappointment voiced by the two industries’ trade groups may be particularly apt given how generous they’ve been to Camp over the years. He has taken in about $ 3.3 million in contributions from various interests that think his bill undercuts them — including securities and investment ($ 760,616), real estate ($ 396,775), commercial banks ($ 406,975),  insurance ($ 1.2 million) and lobbyists ($ 586,795).

Right after Camp revealed his proposal, Heritage Foundation economist Stephen Moore — who likes the plan — said it was about to be subjected to the “snake pit of special interest lobbyists.” Given how much is at stake for Republicans this year, they’re unlikely to want to get bitten.

Follow Emily on Twitter @emilyakopp

Image: Rep. Dave Camp (R-Mich.) speaks about tax reform at the Utah Valley University, August 31, 2011 (Flickr/Michael Jolly)

OpenSecrets Blog

Real Estate, Private Equity Industries Fighting Camp"s Tax Plan

Sysco to buy US Foods from private equity, shares leap

By Siddharth Cavale

Mon Dec 9, 2013 1:40pm EST

1 of 2. An US Foods Chef’s Store is seen in an undated publicity photo. Sysco Corp said it would buy rival US Foods Inc for about $ 3.5 billion and assume about $ 4.7 billion in debt to cement its position as the biggest U.S. food distributor, driving up Sysco’s shares 30 percent before the bell.

Credit: Reuters/Handout via US Foods

(Reuters) – Sysco Corp (SYY.N) will buy US Foods Inc for about $ 3.5 billion from its private equity owners in a deal that will combine the top two U.S. food distributors and create a company commanding about a quarter of the $ 235 billion North American market.

Sysco, whose shares jumped about 25 percent to a record high in early trading, will also assume US Foods’ debt of about $ 4.7 billion as it combines its supply chain expertise with the strong consumer-facing technologies of US Foods.

Shareholders of US Foods, owned by affiliates of private equity firms Clayton, Dubilier & Rice and KKR & Co (KKR.N), will own about 13 percent of Sysco after the closing of the deal, which creates a company with revenue of $ 65 billion.

“Combining and maximizing the significant strengths of two outstanding companies is certain to be of tremendous advantage in supporting our customers,” US Foods Chief Executive John Lederer said in a statement on Monday.

Sysco Chief Executive Bill DeLaney, speaking on a conference call with analysts, said Sysco now has an 18 percent share of the market, while US Foods has 9 percent.

DeLaney said the Federal Trade Commission, which rules on antitrust matters, would certainly scrutinize the deal but he noted that there were about 15,000 private companies involved in the U.S. food distribution industry.

Sysco and US Foods distribute foods to restaurants, hotels, hospitals, schools and other institutions.

DeLaney said Sysco was attracted by US Foods’ customer-facing technologies, such as standardized ordering software and mobile apps. “We are particularly strong in the supply chain side of things,” DeLaney said.

Clayton, Dubilier & Rice and KKR acquired the former U.S. Foodservice from Dutch grocer Ahold (AHLN.AS) for $ 7.1 billion in 2007.

Sysco said the deal would add to earnings immediately after closing, probably in the third quarter of 2014.

Goldman Sachs & Co is financial adviser to Sysco, while Wachtell, Lipton, Rosen & Katz and Arnall, Golden & Gregory LLP are legal advisers.

Simpson Thacher & Bartlett LLP and Debevoise & Plimpton LLP are legal advisers to US Foods, which did not identify a financial adviser.

Sysco shares were up 12 percent at $ 38.31 in late morning trading on the New York Stock Exchange.

(Additional reporting by Maria Ajit Thomas; Editing by Kirti Pandey and Ted Kerr)

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Sysco to buy US Foods from private equity, shares leap

Whistleblower Describes How Private Equity Firms Flagrantly Violate SEC Broker-Dealer Requirements

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Whistleblower Describes How Private Equity Firms Flagrantly Violate SEC Broker-Dealer Requirements

Geithner heads to private equity firm

Geithner played a central role in devising the response to the financial crisis of 2008-2009. | AP Photo

Former Treasury Secretary Timothy Geithner, a trusted lieutenant to President Barack Obama who played a leading role in the government’s response to the financial crisis, will join private-equity firm Warburg Pincus LLC in March.

On Saturday, the firm, which is headquartered in New York, announced Geithner will hold the titles of president and managing director.

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“Warburg Pincus has an excellent record of performance, a very compelling global strategy and an ethical reputation of the highest regard,” Geithner said in a statement. “I look forward to working with my new colleagues and to contributing to the firm’s continued growth and success.”

Private-equity firms’ role in the financial sector played a leading role in the 2012 presidential campaign, with Democrats criticizing Republican candidate Mitt Romney over deals involving his firm, Bain Capital, that led to layoffs at different companies.

For instance, in May 2012 the Obama campaign ran an ad concerning Bain’s role in the struggles of American Pad and Paper that featured former employees of the company criticizing Romney.

Defenders of the industry argue it can help turn around struggling companies, but its critics, as the 2012 campaign showed, point to instances where these leveraged buyouts and the efforts to nurse a company back to financial health can often lead to large layoffs.

Following his departure from the Obama administration in January, Geithner has been giving paid speeches and working on a book but whether he would join a Wall Street firm remained a topic of interest in political and financial circles.

As both president of the New York Federal Reserve Bank between 2003 and 2009 and as Treasury secretary, Geithner was an architect of the response to the 2008 financial crisis, which led to taxpayer bailouts for big banks and insurer American International Group.

Geithner’s supporters credited him for pushing a practical approach that prevented a complete meltdown of the financial system, but he faced criticism from some liberals and conservatives for being too quick to buy into the banking industry’s concerns both during the crisis and later as the 2010 Dodd-Frank law was being drafted.

Private equity firms also find themselves involved in the ongoing debate over whether to overhaul the tax code.

Private equity executives, hedge-fund managers and others working on Wall Street pay a special tax rate on profits-based compensation known as carried interest. Instead of paying ordinary income taxes — which top out at almost 40 percent — carried interest is taxed as a capital gain, generally at a rate of 20 percent. Top earners started paying an additional 3.8 percent tax on their investment income, such as capital gains, this year.

Democrats have long argued for increasing the tax on carried interest.

“If you look at any tax reform proposal out there that has any patina of bipartisan support, they believe we have to rethink how we treat investment income and carried interest,” Geithner said in July 2012 at a conference hosted by CNBC, according to Bloomberg.

“Obviously, carried interest doesn’t raise that much revenue,” Geithner said. “If you’re not going to do that, whose taxes are you going to raise?”

In an interview with the Wall Street Journal published Saturday, Geithner declined to discuss public policy issues.

“I made a judgment when I left Washington I was going to leave these questions to my successors, and I’m going to stay true to that,” he told the Journal.

POLITICO – TOP Stories

Geithner heads to private equity firm

Former U.S. Treasury Secretary Geithner to join private equity firm

Outgoing U.S. Treasury Secretary Timothy Geithner arrives for the presidential inauguration on the West Front of the U.S. Capitol in Washington January 21, 2013.

Credit: Reuters/Win McNamee/Pool

Reuters: Business News

Former U.S. Treasury Secretary Geithner to join private equity firm

Hillary Clinton Paid Speaker at Private Equity Event

Hillary Clinton made a paid appearance last month at the annual U.S. investor meeting of private equity firm KKR, Politico reports.

Clinton did not make a speech, but rather participated in a wide-ranging question-and-answer session with the firm’s co-founder, Henry Kravis.

Clinton spent over an hour answering questions on topics including the Middle East, Washington, and politics in general.

The meeting was held just outside of Los Angeles with approximately 400 people in attendance.

KKR, considered one of the giants in the private equity world, is generally viewed as a bipartisan entity.

IN 2012, KKR entered into an infrastructure improvement plan that was part of the Clinton Global Initiative.

The event was one of the paid appearances Clinton has made since leaving the State Department in February.

© 2013 Newsmax. All rights reserved.

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Hillary Clinton Paid Speaker at Private Equity Event

Providence Equity suffers another senior Asia departure

By Stephen Aldred and Denny Thomas

HONG KONG | Wed Jun 12, 2013 2:24pm EDT

HONG KONG (Reuters) – Providence Equity Partners has lost another top executive in Asia, its fourth senior departure in the region since 2008, as it struggles with a limited supply of suitable investment targets and a shrinking volume of Asian private equity deals.

For Providence, the supply of companies is particularly restricted because it focuses on technology, media and telecom investing, and education.

Patrick Corso, a managing director, has stepped down as head of Providence’s Hong Kong office, people familiar with the move told Reuters.

The reasons for the U.S. buyout firm’s turnover at the top in Asia are unclear. Rhode Island-based Providence has had a relatively low profile in Asia – especially outside of India – compared with its global peers, at a time when a dearth of asset sales has tended to give an edge to funds with a broader focus.

Providence’s Asia shake-up also revives a debate over whether private equity firms in Asia are better off pulling money from a regional fund or from a global one.

“Regional and country funds allow private equity firms to be more nimble and flexible on investments, and create local teams with specialist knowledge on markets,” said Jon Parker, principal, transaction services at KPMG.

Corso’s duties will be divided between Tao Sun, who will oversee Greater China, and New Delhi-based Biswajit Subramanian, who will be responsible for the rest of the region, one of the people said.

Subramanian is a 13-year veteran with Providence, who has been a driving force behind the firm’s Asia investment portfolio. Providence has invested approximately $ 2 billion in Asia-Pacific based companies, according to the person.

For a private equity firm, continuity in the top ranks is critical, as it helps to win the trust and support of potential investment partners and corporate executives.

Providence Equity was founded in 1989 by Brown University graduate Jonathan Nelson, who remains in charge. The firm is investing a $ 12 billion global fund, which it says is the largest sector-focused fund ever raised.

Providence and Corso declined to comment. Corso has gone on to launch his own private investment company, said people familiar with the matter, who declined to be identified as the information is not yet public.

Though it invests in Asian companies through a global fund, Providence has plans for one region-focused vehicle that are in the works.

Providence is planning to raise its first yuan-denominated fund, according to one of the people, with the timing and size to be determined. Private equity data provider Preqin reported last month that Providence has established a partnership with the Hangzhou Municipal Government Financial Affairs Office.

Several of Providence’s peers, with the backing of Chinese investors, have established yuan funds as a more efficient way to invest directly in China.

PRIVATE-EQUITY DEALS FALL

While Providence has built a successful franchise, with several big-name investments including Warner Music Group and Univision Communications, its Asia track record is, by comparison, more modest.

Its last Asian deal was an investment in an Indian electronics and appliances e-commerce company, StarCJ, in December 2012. In March 2012, it bought a stake in Hathway Cable and Datacom Ltd (HAWY.NS), a cable broadband provider in India.

Providence’s other Asian investments include India’s Idea Cellular Ltd (IDEA.NS), Australian education company Study Group, and Hong Kong’s largest broadcaster, Television Broadcasts Ltd.

Corso’s exit is the latest in a series of departures by senior Asia executives that have dogged the firm for years.

Providence announced the hiring of Andrew Rickards as a managing director in January 2007, selecting the former Asia chief executive officer of Rothschild to head its Hong Kong office. Subramanian was appointed to his New Delhi role around the same time that Rickards joined.

In April 2008, Reuters reported that Rickards had left the firm. Providence’s China dealmaker, Sean Tong, left in 2011 to join private equity firm Boyu Capital. Michelle Guthrie, another managing director in the Hong Kong office, who also held a senior role, left in 2010.

The departure of Corso, a 10-year veteran of Providence and former investment banker with Morgan Stanley and Credit Suisse in London, comes as private equity-backed mergers and acquisition volume in the region is falling for a second year in a row.

First-quarter private equity-backed Asia-Pacific ex-Japan M&A fell 9.8 percent from a year ago to $ 5.1 billion and is down 48 percent from the 2011 high of $ 9.8 billion, according to Thomson Reuters data.

Even in a tough environment, however, U.S. private equity firms Carlyle Group (CG.O), KKR & Co (KKR.N) and TPG Capital TPG.UL have managed to secure big investments in Asia through regional funds, earning huge profits from a handful of choice deals.

Sector-specific buyout firms such as Providence and tech-focused Silver Lake Partners LP, both investing in Asia from global funds, have not seen the same flow of deal activity that their competitors have.

KKR, which arrived in Asia around the same time as Providence, has 10 portfolio companies in China alone, according to its website. Silver Lake has scored one major Asian investment, scooping up a stake in China’s Alibaba.

“Global funds can be difficult if you have to continually go to an overseas investment committee for approval,” KPMG’s Parker said.

(Editing by Michael Flaherty, Edmund Klamann and Chris Reese)

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Providence Equity suffers another senior Asia departure

Equity markets: Please, sir, I want some more

JAPAN’S stock market fell around 7% today (averaging the Nikkei 225 and Topix performance) in what is probably a rational piece of profit-taking after the market’s phenomenal rally. The Nikkei started the year at 10,395 and had hit 15,627 before today’s plunge – a virtually uninterrupted 50% rise. Reading the news reports, you can see two main reasons cited for the fall; some weak Chinese PMI data and yesterday’s testimony from Ben Bernanke. Both have a sufficiently broad impact to explain why other stockmarkets are falling today.

Turning to the Chinese PMI first, investors have been worried for some time that the economy might be shifting from a 9-10% growth rate to a (still impressive) 5-6%. One could see this year’s fall in commodity prices as an indication of the same sentiment. It is worth noting that, given China’s rapid growth rate, a fall in the manufacturing PMI does not convey quite the same gloomy message as it does in the west. Capital Economics calculates that

At face value, a sub-50 reading signals that manufacturing is contracting. In practice though, the PMI has averaged 49.8 over the past 12 months, with industrial output expanding 9.5% y/y over the same period.

Nevertheless, the decline in the new orders component may be a bad sign for the rest of the global economy, given China’s role in world trade. Over in Europe, the PMI came in rather better than expected, at 47.7 for the composite measure, although it still points to contracting GDP.

The markets have been able to shrug off weak data in the past because central banks will ride to the rescue. So that is why they obsess over the minutiae of Ben Bernanke’s statements. The text was initially taken as dovish, warning of the risk of “premature tightening” but in the Q&A, he said that if there were improvement in the economic data and

we have confidence that that’s going to be sustained then we could in the next few meetings take a step down in our pace of purchases

This seems a classic “on the one hand, on the other” formulation. Note also that he was not talking about stopping QE or indeed about reversing all the asset purchases, just slowing the rate of accumulation. It shows how dependent the equity bulls are on QE that sentiment could be so badly hit by such an adjustment. Simon Smith at fxpro commented that

The message is markets have to remind themselves that in many ways they are living on borrowed time and the Fed is doing their level best to prepare them for the fact that they cannot continue to buy $ 85bln of assets a month forever. We could well be headed for a much more volatile summer.

He might be right about the volatility although I suspect that central banks, including the Fed, will not sit idly by in the face of either a big fall in the stockmarket or a sharp rise in bond yields. After all, the “wealth effect” is one of the reasons they cite for the US recovery, tentative as it is.

I’ve suggested in the past that once you go down the path of using monetary policy to support asset prices, it’s very hard to escape from it; indeed that is the lesson of the last 30 years. It is another form of moral hazard, like paying off a blackmailer; the markets always want more.

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Equity markets: Please, sir, I want some more