Welcome! We anticipate that some of you are new to this site and have visited to access the 12 private equity limited partnership agreements that we published in searchable form. You can find them here and here.
But we also thought you might want to familiarize yourself with our recent coverage of the private equity industry.
By way of background, I’ve been in and around the financial services industry for my entire career. I joined the corporate finance department of Goldman in the early 1980s, when Wall Street was criminal only at the margin. I then went to McKinsey, and in the mid-1980s, started up and led the mergers and acquisition department for Sumitomo Bank, then the world’s second largest bank. Next, I founded a management consulting practice that did McKinsey-style consulting for wholesale banks and trading businesses, and also provided transaction advisory services to private equity firms, hedge funds, and substantial individuals (Forbes 400 level).
In 2006, I launched Naked Capitalism, which provides incisive analysis and commentary on finance and the financial services industry. We have an active following on the Hill and at all the major financial regulators.
Over this period, we’ve written over 200 posts on private equity. In the last year, we’ve increased our focus on the industry. In addition to the limited partnership agreements release, other stories we’ve broken include:
Claire’s Stores: Private Equity Broker-Dealer Violations in Action (2014). How Apollo couldn’t be bothered to comply with most of the usual niceties to make transaction fees look like fees for services that were actually provided.
IRS Wakes Up to Private Equity Scam (2013). On how an IRS crackdown on management fee waivers (the device used to obtain capital gains treatment) is underway.
Why You Should Not Trust the Financials of Private Equity Owned Companies (2013). On how a widely used software platform, iLevel Solutions, is built from the ground up to convince PE investors and the SEC that Blackstone and other PE firms have implemented robust financial controls over the companies they own. The reality, however, is the opposite: by design, iLevel gives PE firms unprecedented ability to cook the books of their portfolio companies while maintaining a facade of compliance.
In addition, we’ve provided commentary and analysis on the private equity industry, such as:
Private Equity’s Lake Woebegon Fallacy: All Investors Are Above Average (2014). On how the widely-accepted premise that investors can invest solely in top-quartile funds is absurd on its face
Memo to Eliot Spitzer: Private Equity Firms are Scamming New York City (2013). We highlighted early that the SEC was discussing fee abuses at private equity firms (admittedly then in general language). We discussed why the industry was so keen to keep limited partnership agreements secret:
The sad truth is nobody who invests in PE looks closely at whether PE firms are complying with the fee and expense provisions of their agreements. Part of the reason is that the PE firm lawyers draft the terms in these LPAs to be almost incomprehensible. Another reason is, astonishingly, that PE investors have accepted the argument of PE firms that these contract provisions are a form of “trade secret.” Public pension fund investors have almost universally acceded to the demands of PE firms to exempt the LPAs and cash flow reports from state FOIA laws, which keeps the eyes of the press and the public off the documents.
This information lockdown prevents a worst-case scenario for scamming PE firms, that a mid-level accounting employee at a portfolio company would use public documents to compare the payments made to fund investors with what was taken from the portfolio company where the accountant works. State qui tam laws, which are designed to prevent precisely this type of abuse by awarding a portion of the government’s recovery to people who uncover fraud, would provide a powerful incentive for employees at portfolio companies to rat out their PE overlords. But that’s not going to happen as long as public pension fund PE investors keep the contracts and cash flows behind the FOIA wall.
Why is a Price-Fixing/Collusion Lawsuit Against the Biggest Names in Private Equity Getting Only Cursory Notice? (2012). On a class action lawsuit, Dahl v. Bain Capital Partners, against the eleven biggest and most blue-chip names in the private-equity industry, including Blackstone, Carlyle, Goldman, and TPG, for price collusion on “club” deals.
We’ve also discussed the private equity rush into the single family rental market:
We’ve also had a series of posts from an industry insider:
Private Equity Fund Terms (2012)
Some of you may have read Chris Witowsky’s coverage in peHUB about our ongoing efforts to pry private equity return data out of CalPERS:
Over the coming months, I anticipate we’ll get to know each other even better.