Tuesday, March 4, 2014

It’s a Cynical Strategy, But It Works: Private Equity

It’s a Cynical Strategy, But It Works: Private Equity

In recent days, we’ve learned that the three founders of Carlyle Group made $750 million[1] and Mr. Schwarzman, CEO of Blackstone, earned $375 million in 2013.[2]  Rising stock prices, a wide open market for initial public offerings, and an improved environment for fundraising combined to richly reward the titans of private equity.  Despite their success, they continue to carp about the forces arrayed against them.   Why would people at the height of power, influence, and money continue to insist that they are targeted, misunderstood, and threatened?   The strategy works.
 
Call Backs (2003)
Last week, private equity executives gathered in Berlin for an annual industry conference called Super Return International.  David Rubenstein, co-founder of Carlyle Group, fended off the attempt by Congressman Dave Camp (R-Texas), Chairman of the House Ways and Means Committee, to eliminate the tax preference for private equity. Even though Mr. Camp’s bill would lower the top marginal income tax rate, Mr. Rubenstein knows the value of the tax preference.  He also gave assurances that the provision would not be enacted because Congress is up for re-election.[3]  He’s right.  Tax reform is no match for campaign funds required to run for office.

At another conference in New York Leon Black, Chairman of Apollo Global Management, criticized regulators for attempting to limit banks from lending to buy out deals.[4]  As best I can tell, Apollo hasn’t had much trouble raising debt for its deals with incredibly attractive conditions.  Why is he complaining?

Returning to Berlin, Henry Kravis, Chairman of KKR, said the at the private equity industry has done a lousy job of telling its story.[5]  As a result, the industry has a bad image and is confused with hedge funds.  Thus according to Mr. Kravis, private equity are the poor misunderstood good guys, and the hedge funds by inference are the bad guys.

Henry Kravis made $161 million[6] and Leon Black added $546 million[7] in 2014.  Keep carping.  The strategy works,



[1] http://dealbook.nytimes.com/2014/02/27/for-carlyles-founders-a-750-million-payday/?_php=true&_type=blogs&_r=0
[2] http://dealbook.nytimes.com/2014/02/28/schwarzman-of-blackstone-made-375-million-in-2013/
[3] http://dealbook.nytimes.com/2014/02/26/carlyles-co-founder-says-more-private-equity-firms-likely-to-go-public/
[4] http://dealbook.nytimes.com/2014/02/28/apollo-chief-questions-effort-to-limit-banks-exposure-to-buyout-deals/
[5] http://dealbook.nytimes.com/2014/02/25/kravis-says-private-equity-does-poor-job-of-discussing-its-benefits/
[6] http://www.bloomberg.com/news/2014-02-25/apollo-ceo-black-doubles-2013-payout-as-top-ten-get-1-7-billion.html
[7] http://online.wsj.com/news/articles/SB10001424052702303630904579417032078911364?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702303630904579417032078911364.html

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