Thursday, May 17, 2007

Congress Looks into PEU’s

The House Committee on Financial Services took testimony yesterday from a union leader on private equity underwriters. The head of the Private Equity Council is also scheduled to testify. These private investment firms pool huge funds to buy attractively valued companies in key industries. Their aim is to quickly grow the business before “realizing” their investment via a sale or independent public offering. One concern is these firms have limited reporting requirements.

Private equity has grown like crazy in Bush’s time in office. One well known firm, The Carlyle Group managed $5.8 billion in assets in 2001. Six years later their website states Carlyle has more than $56 billion under management. Their 862% growth rate during the Bush administration is most impressive. They made huge money selling companies that serviced that same administration, including United Defense Industries, Horizon Lines, QinetiQ, and now USIS. Another concern is big investors have exclusively been getting the huge gains.

Carlyle announced last week their intent to let the public get in on the action by offering shares from a $1 billion IPO on Euronext, an Amsterdam exchange. Offering the smaller investor a chance to own a crumb of a tiny slice of their huge pie should forestall Congressional pressure.

Even Democrats are in the pockets of these hugely powerful firms. Carlyle is the number 3 lifetime contributor to Sen. Evan Bayh of Indiana, proffering $53,500. Evan’s number 1 is Goldman Sachs at $76,500. Half of Senator Max Baucus top lifetime donors are in the money management arena, investment firms, banks or insurance companies. One quarter of Senator Kent Conrad’s lifetime donations came from similar firms with CitiGroup number one at $61,000.

The situation has deformed such that there are Republican and Democratic private equity firms. My guess is this hearing is but a shot across the bow of some major PEU's to spread the money around a bit more equitably. That's the state of bipartisanship today...

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