Monday, September 17, 2012

Pirate Equity: Watch out, you are next

pirates © fintag

News comments:
The unexpected consequences of Mitt Romney's standing for president is the opening of the of one of the most corrupt, immoral and unpleasant worlds known to financiers: Private Equity.

As you know I have long held the view that it was the Pirates who contributed most to the current credit crunch but the regulators and media commentators have gone after the easy targets like the banks, real estate pushers, tax havens and hedge funds. Now its the turn of the Pirates who have hidden for a long time behind a cloak of opaqueness because guess what its "Private" business model and the Pirates are smarter than your average Goldman Sachs executive.

Of course the Pirates like to believe they help turnaround companies with their expertise in management and strategy and hiring the right people. The reality is these spreadsheet jockeys are just good at working out how to leverage assets and dupe investors into thinking they are onto a winner like Facebook. Some people have become very wealthy (Mitt Romney and Bono for example) but many others have been party to some unscrupulous behavior such as "bid rigging" which are soon to be reaching the courts.

The "carry interest" tax free income capital flip joke that nobody really understands and the pass the parcel of PE valued crap so to ensure this carried interest can still be paid to those risk taking Pirates (using other people's money of course) was the domain of those living in an unreal and unregulated world lived in by the likes of Mitt Romney (USD250k is a bit more than the average middle income American earns (dailybeast 2008). He has been part of a system that has made some Pirates extremely wealthy, not because they were very good stock pickers but because they colluded with bankers to grab cheap debt and bolster company balance sheets for easy picking IPOs (from Facebook, Ocado, Groupon, Prada, HCA, GM, Visa, UPS, Kraft, CIT and of course Goldman Sachs) and the public to private fee generation trades that move off piste and off balance but with fees on fees and market distortions to make your eyes bleed.

Lawyers have had a tough time as corporate work (mostly generated by Private Equity) has dried up - now they can enjoy the fruits of litigation as the next huge fee opportunity will be all those lovely IPOs of the past 10 years.

Today's shorts:
KKR et al (cnbc)

Today's longs:
Hedge funds are the new Pirates (bloomberg)

Facebook to go private.