Better Luck Next Year, Private Equity

It is that time of the year; awards for dubious achievement are being handed out all over Wall Street, and of course this year is special. While Hedge Fund of Funds might score top honors in this year's Hall of Shame, Private Equity was not far behind.

Reneging on deals and begging for bailouts was preordained by Jeremy Grantham last summer:

August 2007
Much hand wringing is now taking place over the consequences for private equity if a severe credit crisis were to occur. But the scary point I’m trying to make is that profit margins for companies owned by private equity will come back down under pressure from normal capitalistic competition. With or without a credit crisis, their geese are cooked.

Yes, the state of private equity is not much of a surprise. But it is rather amusing to see Andrew Ross Sorkin underemployed, and his heroes of yesteryear eating shit sandwiches near daily. Cerberus is pathetic, kinda like three "Old Yellers" joined at the hip...and The Deal is taking dead aim at tres doggies:

The Tin Cup Award goes to Cerberus Capital Management LP for attempting to tap the federal government for a double dose of bailout money. While the CEO of one of the buyout firm’s portfolio companies, Chrysler LLC, was on Capitol Hill begging for $7 billion in federal loans, another Cerberus-backed enterprise, auto finance company GMAC, was trying to convert itself into a bank to qualify for Hank Paulson’s $700 billion Troubled Asset Relief Program. At press time, neither company had gotten the money. The Deal

My favorite deal might not have been a traditional PE deal, but Fortress Investment’s losses in Gatehouse Media (GHS-NYSE) were not terribly surprising, and neither was Wes Edens performance on conference calls earlier this year:

May 2008
So when an analyst pointed out on last week’s first-quarter earnings call that FIG’s public portfolio holdings fell from $7.8 billion just over a year ago to $765 million now - a $7 billion decline - Edens struggled to avoid using the dreaded “L” word, for loss. Most of the decline, he said, was “a reduction of market value,” or maybe an “unrealized” loss, since it continues to hold most of the assets, having sold only around $1.5 billion of them.

“I think that the use of the word loss in this case is pejorative and actually not at all accurate,” sniffed Edens to Rashad Fonti, analyst from Citigroup, whose bank - like most others - has used the word “loss” all too often in recent months in describing its performance.

Perhaps the Power Trio at Clayton Dubilier can rise to the occasion at earn a measure of respect for the industry in 2009.

Celebrities always die in three’s, and after Cerberus’ performance I gotta believe the same might hold true for for Private Equity. Good luck in 2009, Power Trio.

RIP Old Yeller
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Folly-la-la-la
The Deal

Previously

Marking Wes Edens and Fortress Investment Group to Market
1440 Wall Street

Where Are the Howls From Grantham’s Growls?
1440 Wall Street
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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