Henry Kravis' Transparent Greed

You have to give it to Henry Kravis. Few people would have the nerve to stand up in front of a crowd of pension fund and other institutional investors and joke about jacking them for billions.

Kravis should be applauded for the transparency of his greed. It is refreshing in an age where the buyout industry has funded a new lobbying machine with the hope of keeping Congress from looking too closely at their sweetheart tax treatment.

Read a few lines from New York Times Dealbook coverage of last week's Institutional Investor dinner in New York City, and try not to gag:

"Perhaps the highlight of the evening was when Mr. Kravis jokingly apologized to his peers in the audience for charging his investors 20 percent of profits in 1976, which became a benchmark for private equity and hedge funds. He said that, at the time, there was no going rate, so he and his partners decided 20 percent was fair. In retrospect, he said with a laugh, "You could have gotten 25 percent." The room burst out laughing."

For those not familiar with Henry Kravis, he's the guy who figured that he could buy companies worth billions by raising money from pension funds to use as equity, and then borrowing the rest, charging millions in fees, and raking in the dough when he resold the company.

It's been a great run for Kravis. He's now worth more than $6 billion. Is 51st on Forbes richest Americans list, and Sotheby's lists him as one of the top 10 art buyers last year.

Perhaps lost amid the wine-soaked chuckles at the American Museum of Natural History last week was the impact of Kravis' actions on the hardworking people whose retirement money has made Kravis a legend. A quick primer: Kravis gets pension money for a KKR fund that buys companies. The companies he buys can deduct interest on the debt they take on as part of the leveraged buyouts, reducing state and federal tax revenues. Ironic, considering that the less money that comes into state, local and federal governments, the fewer public employees there can be, and the fewer people to pay into the public pension funds that have made Mr. Kravis rich. Not to mention the budget hit that vital public services take when state and federal revenues are down.

We want to know this: If the buyout industry has returned more than $400 billion to institutional investors over the last 15 years, what has been the tax and budget impact on the states whose pensioners have funded the buyout boom?

Whatever the number is, Kravis and his pals were joking, laughing, slapping each other on the back because they figured out a way to make themselves silly rich at the expense of working people. Hopefully the pension fund and endowment investment managers in the room were able to take the quip in the spirit of fun -- it might be hard, considering the joke's on the people whose hard-earned money they have the fiduciary duty to protect.

Comments

[beese]

Mr. Woodruff"s arguments ignore a number of significant facts about the overwhelmingly positive gains private equity has produced for millions of pension-holders in the United States. In my current position as a fund manager of the Public Safety, Corrections, and Elected Officials Retirement Plan of the State of Arizona, I have worked closely with many union members, finance officials and retirement fund managers. Arizona"s State Retirement System now has a target allocation of six percent in private equity and other alternative investments, as do a growing number of states with various allocations. The 20 largest pension funds (by membership) that have invested in private equity represent 10.5 million retirees, including plans from the biggest states. If you surveyed the first responders, police officers, teachers and public servants who depend on pension funds, I doubt you would find any who would protest the record-setting returns that private equity investment partnerships have delivered to their retirement accounts.

Looking beyond the demonizing of Mr. Kravis, let"s consider the real results produced by private equity partnerships -- the majority of which are small and mid-sized funds or firms that invest locally and regionally. Pension retirement funds, both public and private, have directed their members" money to these partnerships and funds, and have clearly been happy with the outcome: Last month, Bloomberg reported that state and local pension funds in the U.S. increased their assets 9.2 percent to $2.3 trillion last year, aided by private equity and real estate returns, according to the 2006 Public Fund Survey. U.S. pension funds" median allocation to alternative investments, such as private equity funds, rose to 4.5 percent last year from 3.8 percent the previous year. With a volatile domestic stock market and a rising number of retirees needing benefits, pension fund managers are looking for the best performance money can buy " and semantics don"t change the fact that it"s found in private equity.

-- Fritz Beesemyer, Fund Manager, The Public Safety Personnel Retirement System of the State of Arizona

[PepperzMom]

Well, after working for his wife (now ex I believe??), the fashion designer Carolyn Roehm, it appears that there was a considerable "rubbing off" effect he had on her.

Cheap, cheap, cheap...at the expense of those who got her the "rich clientele".

JMO...

[starboymikey]

The problem with all you hard-working poor and middle class folks is that you can't take a joke. Lighten up, guys.

Having less money to retire on can actually be good for you. Just look at it this way: work longer, die sooner and you spend less time having to live on cat food. Har, har, har ...

[kingcityguru]

Don't be a playah hater.

Hate the play, not the playah.

[ErnestineBass]

No way, dude.

I HATE HENRY KRAVIS and every other soulless money whore engaged in the takeover business.
They've ruined this country.