David Sirota has carved out a much-needed niche lately by poking around in the unseemly deals between public pension funds and Wall Street predators, and he brings yet another scoop, this time in New Jersey:
Read more...A number of corporations have engaged in corporate tax “inversions” this year, which typically involves a large U.S. company merging with a smaller counterpart in a lower-tax country abroad, then moving the corporate billing address to the lower-tax country to reduce the overall tax burden. The actual headquarters and the executives go nowhere, but the nominal address changes so the company can avoid U.S. tax rates. A number of corporations in the pharmaceutical space have pulled this off in 2014, but it took the drugstore giant Walgreen to flirt with the idea (through a merger with the Swiss company Alliance Boots) for the non-financial press and the public to really catch on. Outcry actually stopped Walgreen from going through with the inversion; they merged with Alliance Boots, but kept their headquarters in the U.S. Clearly, it was easier to rally public scrutiny to a consumer-facing brand attempting to skip out on America while still using the public resources afforded any company selling their wares here.
Now, the same coalition that stopped the Walgreen inversion will get another chance with Burger King:
Read more...Yves here. We’ve featured Eric Garland’s past posts on Guitar Center, a case study of how a private equity firms (originally Bain Capital, now Ares Capital as a result of a restructuring when the company was on the verge of failure) run businesses into the ground for fun and profit. Garland stresses that the assumptions that Guitar Center and its owners are touting for growth, given the state of big box retails, amount to an advanced case of magical thinking. Garland also focuses on the broader impact of the Bain/Ares misrule, namely the damage done to employees and vendors.
Read more...You cannot make stuff like this up. The giant public pension fund CalPERS didn’t just make a “what were they smoking” private equity investment. The turkey deal was also stunningly large.
Read more...We’ve written from time to time about the fact that alternative investments like hedge funds and private equity funds don’t live up to their marketing hype. For instance, hedge funds claim they deserve their outsized investment fees because they deliver “alpha,” meaning manager outperformance. In reality, it has long been known that at most what they really provide is “synthetic beta,” which is a return profile that investors find attractive because it is not strongly correlated with that of other investments, and therefore lowers portfolio risk. In reality, that “synthetic beta” is typical of the defective airbags all too regularly sold in finance: they fail when you most need them to work, which is in badly spooked markets.
Yet the marketing spin of wonky hedge funds touting intimidatingly complex strategies and slick private equity fund professionals with their cherry-picked success stories remain all too appealing to investors hungry for returns. And the most credulous and desperate are public pension funds, although many endowments and foundations and high net worth individuals are not far behind.
FT Alphaville has a devastating update on this front from Nomura along with other research findings.
Read more...Nothing like a transparent effort to talk your own book. Private equity fund manager Chris Flowers, who focuses on financial services industry plays, complained to the Financial Times that regulators are messing up his business:
Read more...Another California newspaper criticizes the giant public pension fund CalPERS for its lack of transparency around private equity.
Read more...The Financial Times weighed in today with a long, well-researched piece, Private equity: A fee too far, on an issue we’ve discussed for some time, that of private equity firm oh-too-cleverness and too often, outright pilfering, in its dealings with investors, who include public pension funds, foundations, endowments, and insurers. This article is far more […]
Read more...Several readers sent accounts from the California press on the latest sordid chapter in a long-standing, large scale pay-to-play scandal at the giant California public pension fund, CalPERS. Earlier this month, state papers reported disclosed that the former CEO, Frank Buenrostro, had cut a plea bargain with Federal prosecutors and was turning evidence on his (alleged) former partner in crime, placement agent and former CalPERS board member Alfred Villalobos. We’d heard privately before that story broke that the charges against Buenrostro were about to be greatly expanded, which is likely what lead the former CEO to fold. But as a CalPERS insider told us, “It was a race to see who was going to cut a deal first.”
Read more...On Monday, the Sacramento Bee published an editorial that took up many of the issues that we’ve raised in recent months about private equity firms’ fee abuses and the extraordinary shroud of secrecy that the industry has thrown over most of its activities.
Read more...You have to hand it to the private equity firm kingpins: they are skilled at financial sleight-of-hand which makes their already-lucrative investments even more attractive to them. But as the SEC has been exposing, too many of these tricks come at the expense of their investors.
The Wall Street Journal exposes the latest ruse tonight. While the dollar amounts aren’t earthshaking, the behavior is particularly shameless, and involves some of the biggest firms in the industry: KKR, Blackstone, and TPG. It shows that these firms are unafraid of engaging in out-and-out skimming as long as they dress it up in a way that is hard to ferret out.
Read more...Private equity firms are the ultimate smart money on Wall Street; they know how to wring out the last dime from their own clients, such as pension funds and rich individuals, through hidden fees, obscure expenses, elaborate expense shifting, lackadaisical disclosure, and “zombie advisers,” to the point where SEC Inspection Chief Andrew Bowden singled them out in a speech in May. Now the lawyers are circling.
And these private equity firms invented a whole new business: buying vacant homes out of foreclosure and from banks and renting them out. But how do they exit at a profit?
Read more...How did supposedly sophisticated investors sign up for investments that have tax liability bombs in them? The seemingly arcane but actually important tax problem of UBTI, or “unrelated business taxable income,” illustrates how utterly outmatched private equity limited partners are by the general partners and their top-tier hired guns.
Read more...The role of lax antitrust enforcement and the resulting rise in oligopolies is sorely neglected in most analyses of the rise of inequality and America’s flagging competitiveness.
Read more...Rob Johnson, political insider and executive director of INET, discusses the role of Big Finance in state and local budget woes.
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