Thought this was an interesting piece this am
https://www.abladvisor.com/articles/322 ... ime-is-now
Reevaluating Dividend Recaps – The Time Is Now
By: Chuck Doyle, CTP
Date: Oct 08, 2021 @ 05:00 AM
Filed Under: Accounting & Finance
Related: Business Capital, Chuck Doyle, Economy, tax policy
Over the last year or so, Washington has had a few pressing issues including the pandemic, election verifications and changing administrations. New priorities will be popping up and right or wrong, tax policy will take center stage. In that light, we thought we would highlight some items for lenders to think about as they recommend financing options for their clients as well as advise business owners on their option to take distributions out of their businesses. Being knowledgeable on this current topic can give lenders a leg up in helping their clients navigate upcoming tax changes by providing higher quality service and further cementing the relationship between business owner and lender.
A big movement is on the horizon in the Biden Administration’s proposed American Families Plan (AFP) regarding long-term capital gains (LTCG) and qualified dividend tax rates. Currently, the LTCG and qualified dividend rate is 20% and far lower than the current highest personal marginal tax rate (PMTR) at 37% - potentially 39.6% under the AFP. There is a reasonable chance the Biden Administration will be successful in adjusting the LTCG advantage and move to equal the highest PMTR for taxpayers with taxable income above $1 million. Just to bring that concept home, that is an 85% tax hike, potentially affecting a majority of business borrowers and lending relationships.
ABL Advisor Chart Showing Capital Gains Tax by BizCap
Capital gains tax rates, at just 20%, are far below the personal marginal tax rate of 37% and are likely to increase. Source: Tax Foundation. 2019-2021 estimated.
Further, there is talk of moving the PMTR up from 37% to 39.6%. In other words, it is quite conceivable that the LTCG will basically double in the foreseeable future and, when you add the additional 3.8% net investment income tax that would apply in this case, you’re looking at 43.4%!
On the lender side of the equation, the tax increase will dent bank earnings as much as $11 billion. Part of the Biden Administration’s proposals include a 15% minimum tax on book income, the pre-tax profits corporations report to investors. It’s targeted at very large corporations that pay little-to-no tax in some years.
Lenders have warned that this provision may have unintended consequences due to the vagaries of the mortgage market, where small lenders originate loans and then sell them to larger institutions that service them. They are proposing a bank-industry exemption for mortgage services stating they are not the intended target of the proposal.
Just to make things a little more interesting, conversations have included notions of tax rate increases being retroactive to earlier in the 2021 tax year. In fairness, we believe retroactivity is a remote possibility. That type of move generates profound economic uncertainty and sets a very disruptive precedent.
In dollar terms, this move results in a $2,000,000 added tax burden for each $10,000,000 of transaction value. Given transactions of size, that could add up to real money.
So how could this affect the conversation between lenders and their business owner clients? While selling an entire business is an option to avoid higher taxes on long-term gains, that might not be the best solution to advise and could prove detrimental if they are planning on selling under the installment sale method, an approach which a majority of businesses transactions take. The installment sale method allows owners to spread the gain to subsequent tax years as they receive the principal payments from the buyer—sounds good until they realize they are now paying twice the amount of tax by picking up LTCG in subsequent years. If they are at all close to closing a transaction (or any stage for that matter) and have not discussed the option to opt-out of the installment sale, lenders should proactively have that conversation with the owner. Opting out places the full amount of the LTCG in the tax year of the sale. It would make more sense for the lender to suggest loan options that cover the initial tax hit and then have the borrower paydown the loan as they receive installment payments. This alone would be a far bigger savings than paying higher LTCG in subsequent years and would be a good insurance policy against the legislation passing.
“The installment sale method allows business owners to spread the gain from their sale to subsequent tax years as they receive principal payments from the buyer,” notes Chad McArthur, CPA with Hood & Strong LLP. “This sounds good until you realize you are now paying twice the amount of tax by picking up the LTCG in subsequent years.”
Lenders should consider discussing one of the many recapitalization scenarios that allow owners of medium- to large-sized companies to withdraw funds at the current LTCG rates while maintaining control of the business, since the owner(s) give up no equity. Dividend recaps are one such solution; in this scenario, the company takes on additional debt to fund a one-time cash dividend to shareholders.
Another scenario to reward shareholders is through a share repurchase program. A share repurchase program has the obvious benefit of potentially increasing EPS, cash flow per share and return on equity. Another benefit is profits on shares are taxed only when they are sold. However, if the company’s revenues falter after the buyback, the stock price will likely decline, providing a less attractive reward for shareholders.
Dividend recaps are being prompted by tax changes, but they are supported by four beneficial aspects of the current economy and factors intrinsic to a recap transaction. These include:
Historically low interest rates
A strong economy
Substantial bank liquidity
Dividend recaps are typically done without an equity component
The federal funds rate is at near record lows and helps make strategies such as dividend recaps more attractive for lenders. Source: https://numbernonics.com/fed-funds-rate-2
The Congressional Budget Office forecasts the U.S. economy to resume steady growth continuing to 2030, a healthy economy assists businesses in paying down debt taken on in a dividend recap.
While bank liquidity is decreasing as stimulus injections end, cheap cash remains plentiful.
Lenders should recommend owners consider dividend recaps as a viable option for companies that have a strong record of revenue growth and profitability, a strong market position and consistent cash flow, while arranging other forms of leverage for less stable companies if there are unencumbered assets.
Why Dividend Recaps Are a Solution Lenders Should Discuss with Clients
A healthy economy for most of the last decade has enabled many business owners to build successful, profitable businesses with little or no leverage. Interest rates remain at or near historic lows. Lenders are eager to find new areas for investment. These and other factors create an ideal situation for dividend recaps. Many capital providers consider dividend recaps as an option only for investment firms and larger corporations but, in fact, they are a viable option for the owners of mid-sized private companies as a strategy to increase liquidity and diversify their assets.
Here is an example of a recent transaction. A B2B business owned by two principals had achieved an attractive inflection point. EBITDA was beginning to spike as the company had achieved economies of scale. In the prior fiscal year, EBITDA approximated $4 million but was on track to achieve roughly $8 million in the current fiscal year. At their lender’s urging, the company arranged for a $15 million cash flow term loan leaving a $6 million line of credit completely available for continued working capital requirements. Proceeds were used to fund a like size dividend. The owners achieved significant diversification of net worth and a competitively priced term loan. A growth focused lending community competed to provide attractive term sheets and the prognosis for the business remains strong supported by a resurging economy.
A win-win for both the capital provider and client.
The owners achieved their objective to withdraw cash from the business while maintaining ownership. They were able to secure cash without selling the business and postponed the need to sell the business. While the company’s debt level grew, the increase was well within acceptable debt capacity and provides clear runway for a solid long-term relationship with the lender.
But They Aren’t for Everyone
However, while dividend recaps offer owners several benefits in terms of diversifying the net worth and creating liquidity, there are potential risks for lenders to discuss with their clients. The most obvious is that a recap increases leverage without a commensurate increase in revenues or cash flow. If an economic downturn occurs while the company is paying down the debt, the company may become significantly weakened. Added debt may also preclude the company from pursuing new opportunities and/or constrain day-to-day working capital.
Lenders can provide value to their clients who own private businesses by pointing out the options that exist for taking cash out and, before embarking on a dividend recap or any type of leveraged recapitalization, help them evaluate carefully their financial goals, the health of their company and the broader economic climate to choose the financial solution that is the best fit.
Lenders hold the power to unlock opportunity within every business. Sometimes, traditional bank loans aren’t an option and selling the business outright is not in the best interest of ownership. The key to long-term success is exploring alternative funding approaches, such as dividend recaps.
The Nation's Financial Condition
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Re: The Nation's Financial Condition
Emlightening in-depth piece of global supply chain through the port of Savannah GA - the 3rd largest port of entry in the USA behind Long Beach CA and combined Port of NY/NJ
https://www.nytimes.com/2021/10/11/busi ... -port.html
‘It’s Not Sustainable’: What America’s Port Crisis Looks Like Up Close
"An enduring traffic jam at the Port of Savannah reveals why the chaos in global shipping is likely to persist."
https://www.nytimes.com/2021/10/11/busi ... -port.html
‘It’s Not Sustainable’: What America’s Port Crisis Looks Like Up Close
"An enduring traffic jam at the Port of Savannah reveals why the chaos in global shipping is likely to persist."
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
It's not physically huge but been a heck of a economic driver.
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
Wall Street Firm Makes Wager on Carbon-Offset Forests
Oak Hill Ad is teaming up with Bluesource to buy $500 million worth of woodlands to generate carbon offsets
Oak Hill Advisors and Bluesource expect to purchase roughly one million acres of North American woodlands.
PHOTO: BRIAN DAY FOR THE WALL STREET JOURNAL
By Ryan Dezember
Oct. 12, 2021 6:00 am ET
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A big player in high finance is hunting for $500 million worth of forestland with the aim of harvesting carbon offsets instead of timber.
Oak Hill Advisors LP, which manages $52 billion and is best known as a big debt investor, is teaming up on the venture with Bluesource, a firm that creates and sells carbon credits. The companies said they expect to buy roughly one million acres of North American woodlands and manage the properties to generate so-called forest offsets.
Big companies including Microsoft Corp. and BP PLC are clamoring for offsets, which are tradable assets that represent a metric ton of carbon that has been sequestered in standing trees. Companies that buy offsets use them to negate emissions on the internal carbon ledgers that they keep to show investors their progress toward climate goals.
Researchers count more than 1,000 companies that have set emission-reduction targets. Many companies have pledged to go even further and offset emissions that they can’t cut by removing carbon from the atmosphere.
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There are industrial processes capable of removing carbon from the atmosphere and injecting it deep underground, where much of the excess in the atmosphere originated as fossil fuels. But it is much cheaper to pay timberland owners not to log and take credit for the carbon that the growing trees absorb.
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The Growing Market of Not Cutting Down Trees
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Until recently the forest-carbon business was the domain mostly of upstart companies and specialist timber investors. Many offsets have been used to comply with air-quality regulators in California and Quebec, which operate a cap-and-trade system that makes it more expensive to pollute over time. Increasingly, though, offsets are sold on unregulated markets in privately negotiated deals to companies that are buying voluntarily to meet their own climate goals. The booming voluntary markets have attracted big firms in energy and on Wall Street that are raising the stakes.
BP bought a controlling stake in Bluesource rival Finite Carbon late last year and J.P. Morgan Asset Management in June bought a timberland investment firm with eyes toward becoming a significant competitor in forest carbon markets. Weyerhaeuser Co. , the largest private U.S. forest owner and a top lumber producer, told investors last month that it will wade into offset sales as prices for the carbon credits rise above what the company could earn logging certain properties.
“We view this to be an incredibly large opportunity,” said Adam Kertzner, a senior partner and portfolio manager at Oak Hill. “This transition is happening in real time and forestry assets continue to be a measurable way of removing carbon from the atmosphere. We’re excited about the ability to invest in attractive assets while also providing significant environmental benefit.”
Coca-Cola's and Microsoft's Latest Gamble: A Giant CO2 Vacuum Cleaner
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Coca-Cola's and Microsoft's Latest Gamble: A Giant CO2 Vacuum Cleaner
Coca-Cola's and Microsoft's Latest Gamble: A Giant CO2 Vacuum Cleaner
A Swiss startup has created a giant vacuum cleaner to capture carbon dioxide from the air, helping companies offset their emissions. WSJ visits the facility to see how it traps the gas for sale to clients such as Coca-Cola, which uses it in fizzy drinks. Composite: Clément Bürge
Critics of offsets argue that although forests can be managed to sock away more carbon, companies shouldn’t be able to use them to avoid reducing emissions. Offset projects face the sharpest criticism when landowners are paid to preserve trees at little risk of being cut down because they grow in forbidding terrain, are far from mills or already subject to conservation agreements.
Oak Hill and Bluesource said their venture will look for large properties, measured in the hundreds of thousands of acres, where they can implement substantial changes in management from the previous owners, such as ending clear-cuts.
“The properties we’re looking for are properties that won’t be managed sustainably, that are not going to do sequestration without a sale,” said Kevin Townsend, Bluesource’s chief commercial officer.
Oak Hill Ad is teaming up with Bluesource to buy $500 million worth of woodlands to generate carbon offsets
Oak Hill Advisors and Bluesource expect to purchase roughly one million acres of North American woodlands.
PHOTO: BRIAN DAY FOR THE WALL STREET JOURNAL
By Ryan Dezember
Oct. 12, 2021 6:00 am ET
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A big player in high finance is hunting for $500 million worth of forestland with the aim of harvesting carbon offsets instead of timber.
Oak Hill Advisors LP, which manages $52 billion and is best known as a big debt investor, is teaming up on the venture with Bluesource, a firm that creates and sells carbon credits. The companies said they expect to buy roughly one million acres of North American woodlands and manage the properties to generate so-called forest offsets.
Big companies including Microsoft Corp. and BP PLC are clamoring for offsets, which are tradable assets that represent a metric ton of carbon that has been sequestered in standing trees. Companies that buy offsets use them to negate emissions on the internal carbon ledgers that they keep to show investors their progress toward climate goals.
Researchers count more than 1,000 companies that have set emission-reduction targets. Many companies have pledged to go even further and offset emissions that they can’t cut by removing carbon from the atmosphere.
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There are industrial processes capable of removing carbon from the atmosphere and injecting it deep underground, where much of the excess in the atmosphere originated as fossil fuels. But it is much cheaper to pay timberland owners not to log and take credit for the carbon that the growing trees absorb.
THE JOURNAL.
The Journal
The Growing Market of Not Cutting Down Trees
00:00 / 14:06
1x
SUBSCRIBE
Until recently the forest-carbon business was the domain mostly of upstart companies and specialist timber investors. Many offsets have been used to comply with air-quality regulators in California and Quebec, which operate a cap-and-trade system that makes it more expensive to pollute over time. Increasingly, though, offsets are sold on unregulated markets in privately negotiated deals to companies that are buying voluntarily to meet their own climate goals. The booming voluntary markets have attracted big firms in energy and on Wall Street that are raising the stakes.
BP bought a controlling stake in Bluesource rival Finite Carbon late last year and J.P. Morgan Asset Management in June bought a timberland investment firm with eyes toward becoming a significant competitor in forest carbon markets. Weyerhaeuser Co. , the largest private U.S. forest owner and a top lumber producer, told investors last month that it will wade into offset sales as prices for the carbon credits rise above what the company could earn logging certain properties.
“We view this to be an incredibly large opportunity,” said Adam Kertzner, a senior partner and portfolio manager at Oak Hill. “This transition is happening in real time and forestry assets continue to be a measurable way of removing carbon from the atmosphere. We’re excited about the ability to invest in attractive assets while also providing significant environmental benefit.”
Coca-Cola's and Microsoft's Latest Gamble: A Giant CO2 Vacuum Cleaner
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UP NEXT
0:00 / 5:53
Coca-Cola's and Microsoft's Latest Gamble: A Giant CO2 Vacuum Cleaner
Coca-Cola's and Microsoft's Latest Gamble: A Giant CO2 Vacuum Cleaner
A Swiss startup has created a giant vacuum cleaner to capture carbon dioxide from the air, helping companies offset their emissions. WSJ visits the facility to see how it traps the gas for sale to clients such as Coca-Cola, which uses it in fizzy drinks. Composite: Clément Bürge
Critics of offsets argue that although forests can be managed to sock away more carbon, companies shouldn’t be able to use them to avoid reducing emissions. Offset projects face the sharpest criticism when landowners are paid to preserve trees at little risk of being cut down because they grow in forbidding terrain, are far from mills or already subject to conservation agreements.
Oak Hill and Bluesource said their venture will look for large properties, measured in the hundreds of thousands of acres, where they can implement substantial changes in management from the previous owners, such as ending clear-cuts.
“The properties we’re looking for are properties that won’t be managed sustainably, that are not going to do sequestration without a sale,” said Kevin Townsend, Bluesource’s chief commercial officer.
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
The South will rise again!
Alex Murdaugh Investigations: Lawyer Is Accused of Stealing Millions From Former Partners and Clients
The most immediate legal threat facing the Southern scion concerns insurance fraud as former law firm and clients file suit
Alex Murdaugh at his bond hearing last month.
PHOTO: MIC SMITH/ASSOCIATED PRESS
By Valerie Bauerlein
Oct. 12, 2021 9:00 am ET
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HAMPTON, S.C.—Disgraced South Carolina lawyer Alex Murdaugh faces multiple challenges ahead, but the most immediate legal threat concerns insurance fraud.
Alex Murdaugh is alleged to have stolen millions of dollars from former partners and clients, including the sons of the family housekeeper who died at his home, according to new legal filings.
The law firm of Peters, Murdaugh, Parker, Eltzroth & Detrick, which was founded in 1910 by Mr. Murdaugh’s great-grandfather, said Mr. Murdaugh for several years “submitted false documentation to the firm and to clients that allowed him to funnel stolen funds into fraudulent bank accounts.” The firm filed suit against Mr. Murdaugh last week and asked a judge to force him to repay multiple insurance settlements meant for his clients.
The firm has been looking into at least 15 accounts that may have been affected, according to a person familiar with the firm’s internal investigation. The South Carolina Law Enforcement Division has said it is conducting a criminal inquiry into the missing money, and Chief Mark Keel recently said that SLED is calling on federal investigators for their assistance with other potential crimes.
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Mr. Murdaugh and his lawyers previously acknowledged in court that he misappropriated some client money to support a long-running addiction to opioids. In a statement, Mr. Murdaugh’s lawyer Jim Griffin described the lawsuit as “a very sad development.”
“Alex holds every member of the [firm] in very high esteem. He has pledged his full cooperation to the firm,” he said.
The Murdaugh firm is one of the most storied in the Southeast, renowned for its work on big personal injury and wrongful death cases, particularly those involving railroads and tire manufacturers.
Companies hesitate to try cases on the Murdaughs’ home turf of Hampton County, S.C., because of the law firm’s history of netting outsize jury awards in this community of 20,000 people. The firm’s imposing red-brick headquarters in tiny downtown Hampton is called “the house that CSX built” in reference to its cases against the railroad.
The Murdaugh family is also influential in the criminal justice system because in addition to running the law firm, the Murdaughs ran the solicitor, or district attorney’s office, for a five-county region from 1920 to 2006. Mr. Murdaugh served until recently as a volunteer prosecutor, a perch which gave him unusual access to judges and law enforcement.
The Murdaugh family dynasty unraveled over the course of the summer. On June 7, Mr. Murdaugh’s wife Maggie Murdaugh and their younger son were found fatally shot at Moselle, the family’s hunting estate. Investigators haven’t arrested anyone but have said there is no danger to the public.
Two weeks later, based on information gathered in the double-homicide investigation, SLED reopened an investigation into the 2015 death of Stephen Smith, a former classmate of Alex Murdaugh’s older son, Buster. SLED also opened an investigation into the 2018 death of Gloria Satterfield, the Murdaughs’ housekeeper. In civil court, Mr. Murdaugh is being sued by the family of Mallory Beach, a 19-year-old woman who was killed in a 2019 crash involving a boat driven by Mr. Murdaugh’s younger son, Paul Murdaugh.
Mr. Murdaugh said the double homicide of his wife and son “caused an incredibly difficult time in my life. I have made a lot of decisions that I truly regret.” His lawyer said he had no involvement in their deaths. Mr. Murdaugh has declined to comment on the Satterfield and Smith investigations. Regarding Ms. Beach, he has said in court filings that the crash involved a boat he owned but he shouldn’t be held responsible for her death. Buster Murdaugh declined to comment, via a family spokeswoman.
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The Unraveling of the Murdaugh Dynasty
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On Sept. 4, Mr. Murdaugh attempted to arrange his own murder by hiring an accomplice to shoot him, in what his lawyers later said in court was an episode prompted by the stress of losing his job, grief over the loss of his wife and son and a haze as he attempted to wean himself off opioids. They also said the attempted assisted suicide was meant to secure a $10 million life insurance payment for his surviving son, Buster.
Mr. Murdaugh is out on bond on charges of fraud related to the attempted assisted suicide and is in a Georgia drug-rehabilitation facility, his lawyers have said.
The firm said in its lawsuit that it uncovered evidence of insurance fraud just before that assisted suicide attempt. On Sept. 2, Mr. Murdaugh’s colleagues found a check on his desk from another law firm for fees from a joint case. Some of the fees were owed to the law firm, not to Mr. Murdaugh, but the check was made payable to Mr. Murdaugh and “had been deposited into a personal account,” according to the lawsuit.
Members of the firm confronted Mr. Murdaugh and forced his resignation the next day, Sept. 3, according to the lawsuit.
His former partners say in a lawsuit that Mr. Murdaugh deceived them and his clients by misusing structured settlements, commonly used when the beneficiary in a lawsuit is a minor or is incapacitated in some way. Structured settlements are arrangements in which the sum is placed into an account and accrues interest. Rather than a typical settlement, in which a lump sum is paid out up front, structured settlements pay out set amounts on a regular basis and offer tax benefits for the beneficiary.
Mr. Murdaugh’s former partners also allege he misappropriated firm money by using a similarly structured payout method for attorneys’ fees, often used by trial lawyers to smooth their income over time rather than take a big fee in one swoop.
Mr. Murdaugh created a personal account called “Alexander Murdaugh d/b/a Forge,” to mimic a well-known broker of structured settlements called Forge Consulting LLC, his former partners say in the suit. Forge is based in Atlanta and has an office in Columbia, S.C., and works frequently with plaintiffs’ attorneys like the Murdaugh firm. Forge also works with firm lawyers on structured attorneys’ fees, according to the lawsuit.
SHARE YOUR THOUGHTS
How do you see the Murdaugh case developing? Join the conversation below.
Forge founder and Chief Executive Spooner Phillips and Columbia principal Michael Gunn said they were blindsided by the “inappropriate bank account that included ‘Forge’ in its name.”
“When we learned of the possible existence of such an account, law enforcement officials were immediately contacted—along with others who are investigating—to offer our assistance,” they said in a statement. Mr. Gunn, a lobbyist for the South Carolina trial lawyers’ association, worked closely for many years with Mr. Murdaugh, a former association president.
The internal and criminal investigations involving Mr. Murdaugh’s actions have caused turmoil within the law firm, whose lawyers include Mr. Murdaugh’s older brother Randolph Murdaugh IV. The firm has said it is working closely to identify affected clients and said no client “will suffer a financial loss as a result of Alex’s misconduct.”
The most significant chunk of missing money is a $4.3 million wrongful-death settlement meant for the sons of Ms. Satterfield, according to the person familiar with the internal investigation. Her adult sons said in a lawsuit that after their mother died in February 2018 from a trip-and-fall accident at the Murdaugh home, Mr. Murdaugh encouraged them to sue him so they could get a settlement from his insurers. They say in the lawsuit they never received any money, “not one dime.”
Cory Fleming, a Beaufort, S.C., lawyer who represented the Satterfield sons in the negotiations with insurers, issued a public apology last week and said he was duped by Mr. Murdaugh, a close friend and onetime college roommate. “Mr. Fleming maintains he was not a willing participant in Mr. Murdaugh’s scheme but was used,” according to the statement.
The South Carolina Supreme Court suspended Mr. Fleming’s law license on Friday. The court suspended Mr. Murdaugh’s license last month.
Eric Bland, the lawyer now representing the Satterfield sons, said he was glad the court “acted with swiftness and certainty” in suspending Mr. Fleming. He said Mr. Fleming has repaid the legal fees and expenses he was paid in the settlement and his malpractice insurer has paid out the limits of their policy. That totaled well over $1 million, according to people familiar with the settlement terms.
“You got five dead bodies in six years with this family, and that’s a lifetime for a village, let alone a family,” Mr. Bland said. “But remember, Al Capone didn’t go away for murder, he went away for tax evasion.”
MYSTERIES IN SOUTH CAROLINA
More WSJ coverage of Alex Murdaugh and his family, selected by the editors
Unsolved Murders, Insurance Fraud and Missing Millions (Sept. 23)
Alex Murdaugh Surrenders, Charged With Insurance Fraud (Sept. 16)
Podcast: The Unraveling of the Murdaugh Dynasty (Oct. 8)
Write to Valerie Bauerlein at [email protected]
Alex Murdaugh Investigations: Lawyer Is Accused of Stealing Millions From Former Partners and Clients
The most immediate legal threat facing the Southern scion concerns insurance fraud as former law firm and clients file suit
Alex Murdaugh at his bond hearing last month.
PHOTO: MIC SMITH/ASSOCIATED PRESS
By Valerie Bauerlein
Oct. 12, 2021 9:00 am ET
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TEXT
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HAMPTON, S.C.—Disgraced South Carolina lawyer Alex Murdaugh faces multiple challenges ahead, but the most immediate legal threat concerns insurance fraud.
Alex Murdaugh is alleged to have stolen millions of dollars from former partners and clients, including the sons of the family housekeeper who died at his home, according to new legal filings.
The law firm of Peters, Murdaugh, Parker, Eltzroth & Detrick, which was founded in 1910 by Mr. Murdaugh’s great-grandfather, said Mr. Murdaugh for several years “submitted false documentation to the firm and to clients that allowed him to funnel stolen funds into fraudulent bank accounts.” The firm filed suit against Mr. Murdaugh last week and asked a judge to force him to repay multiple insurance settlements meant for his clients.
The firm has been looking into at least 15 accounts that may have been affected, according to a person familiar with the firm’s internal investigation. The South Carolina Law Enforcement Division has said it is conducting a criminal inquiry into the missing money, and Chief Mark Keel recently said that SLED is calling on federal investigators for their assistance with other potential crimes.
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Mr. Murdaugh and his lawyers previously acknowledged in court that he misappropriated some client money to support a long-running addiction to opioids. In a statement, Mr. Murdaugh’s lawyer Jim Griffin described the lawsuit as “a very sad development.”
“Alex holds every member of the [firm] in very high esteem. He has pledged his full cooperation to the firm,” he said.
The Murdaugh firm is one of the most storied in the Southeast, renowned for its work on big personal injury and wrongful death cases, particularly those involving railroads and tire manufacturers.
Companies hesitate to try cases on the Murdaughs’ home turf of Hampton County, S.C., because of the law firm’s history of netting outsize jury awards in this community of 20,000 people. The firm’s imposing red-brick headquarters in tiny downtown Hampton is called “the house that CSX built” in reference to its cases against the railroad.
The Murdaugh family is also influential in the criminal justice system because in addition to running the law firm, the Murdaughs ran the solicitor, or district attorney’s office, for a five-county region from 1920 to 2006. Mr. Murdaugh served until recently as a volunteer prosecutor, a perch which gave him unusual access to judges and law enforcement.
The Murdaugh family dynasty unraveled over the course of the summer. On June 7, Mr. Murdaugh’s wife Maggie Murdaugh and their younger son were found fatally shot at Moselle, the family’s hunting estate. Investigators haven’t arrested anyone but have said there is no danger to the public.
Two weeks later, based on information gathered in the double-homicide investigation, SLED reopened an investigation into the 2015 death of Stephen Smith, a former classmate of Alex Murdaugh’s older son, Buster. SLED also opened an investigation into the 2018 death of Gloria Satterfield, the Murdaughs’ housekeeper. In civil court, Mr. Murdaugh is being sued by the family of Mallory Beach, a 19-year-old woman who was killed in a 2019 crash involving a boat driven by Mr. Murdaugh’s younger son, Paul Murdaugh.
Mr. Murdaugh said the double homicide of his wife and son “caused an incredibly difficult time in my life. I have made a lot of decisions that I truly regret.” His lawyer said he had no involvement in their deaths. Mr. Murdaugh has declined to comment on the Satterfield and Smith investigations. Regarding Ms. Beach, he has said in court filings that the crash involved a boat he owned but he shouldn’t be held responsible for her death. Buster Murdaugh declined to comment, via a family spokeswoman.
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On Sept. 4, Mr. Murdaugh attempted to arrange his own murder by hiring an accomplice to shoot him, in what his lawyers later said in court was an episode prompted by the stress of losing his job, grief over the loss of his wife and son and a haze as he attempted to wean himself off opioids. They also said the attempted assisted suicide was meant to secure a $10 million life insurance payment for his surviving son, Buster.
Mr. Murdaugh is out on bond on charges of fraud related to the attempted assisted suicide and is in a Georgia drug-rehabilitation facility, his lawyers have said.
The firm said in its lawsuit that it uncovered evidence of insurance fraud just before that assisted suicide attempt. On Sept. 2, Mr. Murdaugh’s colleagues found a check on his desk from another law firm for fees from a joint case. Some of the fees were owed to the law firm, not to Mr. Murdaugh, but the check was made payable to Mr. Murdaugh and “had been deposited into a personal account,” according to the lawsuit.
Members of the firm confronted Mr. Murdaugh and forced his resignation the next day, Sept. 3, according to the lawsuit.
His former partners say in a lawsuit that Mr. Murdaugh deceived them and his clients by misusing structured settlements, commonly used when the beneficiary in a lawsuit is a minor or is incapacitated in some way. Structured settlements are arrangements in which the sum is placed into an account and accrues interest. Rather than a typical settlement, in which a lump sum is paid out up front, structured settlements pay out set amounts on a regular basis and offer tax benefits for the beneficiary.
Mr. Murdaugh’s former partners also allege he misappropriated firm money by using a similarly structured payout method for attorneys’ fees, often used by trial lawyers to smooth their income over time rather than take a big fee in one swoop.
Mr. Murdaugh created a personal account called “Alexander Murdaugh d/b/a Forge,” to mimic a well-known broker of structured settlements called Forge Consulting LLC, his former partners say in the suit. Forge is based in Atlanta and has an office in Columbia, S.C., and works frequently with plaintiffs’ attorneys like the Murdaugh firm. Forge also works with firm lawyers on structured attorneys’ fees, according to the lawsuit.
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Forge founder and Chief Executive Spooner Phillips and Columbia principal Michael Gunn said they were blindsided by the “inappropriate bank account that included ‘Forge’ in its name.”
“When we learned of the possible existence of such an account, law enforcement officials were immediately contacted—along with others who are investigating—to offer our assistance,” they said in a statement. Mr. Gunn, a lobbyist for the South Carolina trial lawyers’ association, worked closely for many years with Mr. Murdaugh, a former association president.
The internal and criminal investigations involving Mr. Murdaugh’s actions have caused turmoil within the law firm, whose lawyers include Mr. Murdaugh’s older brother Randolph Murdaugh IV. The firm has said it is working closely to identify affected clients and said no client “will suffer a financial loss as a result of Alex’s misconduct.”
The most significant chunk of missing money is a $4.3 million wrongful-death settlement meant for the sons of Ms. Satterfield, according to the person familiar with the internal investigation. Her adult sons said in a lawsuit that after their mother died in February 2018 from a trip-and-fall accident at the Murdaugh home, Mr. Murdaugh encouraged them to sue him so they could get a settlement from his insurers. They say in the lawsuit they never received any money, “not one dime.”
Cory Fleming, a Beaufort, S.C., lawyer who represented the Satterfield sons in the negotiations with insurers, issued a public apology last week and said he was duped by Mr. Murdaugh, a close friend and onetime college roommate. “Mr. Fleming maintains he was not a willing participant in Mr. Murdaugh’s scheme but was used,” according to the statement.
The South Carolina Supreme Court suspended Mr. Fleming’s law license on Friday. The court suspended Mr. Murdaugh’s license last month.
Eric Bland, the lawyer now representing the Satterfield sons, said he was glad the court “acted with swiftness and certainty” in suspending Mr. Fleming. He said Mr. Fleming has repaid the legal fees and expenses he was paid in the settlement and his malpractice insurer has paid out the limits of their policy. That totaled well over $1 million, according to people familiar with the settlement terms.
“You got five dead bodies in six years with this family, and that’s a lifetime for a village, let alone a family,” Mr. Bland said. “But remember, Al Capone didn’t go away for murder, he went away for tax evasion.”
MYSTERIES IN SOUTH CAROLINA
More WSJ coverage of Alex Murdaugh and his family, selected by the editors
Unsolved Murders, Insurance Fraud and Missing Millions (Sept. 23)
Alex Murdaugh Surrenders, Charged With Insurance Fraud (Sept. 16)
Podcast: The Unraveling of the Murdaugh Dynasty (Oct. 8)
Write to Valerie Bauerlein at [email protected]
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
CPI this am
Consumer Price Index Summary
https://www.bls.gov/news.release/cpi.nr0.htm
Transmission of material in this release is embargoed until
8:30 a.m. (ET) October 13, 2021 USDL-21-1831
Technical information: (202) 691-7000 • [email protected] • www.bls.gov/cpi
Media Contact: (202) 691-5902 • [email protected]
CONSUMER PRICE INDEX – SEPTEMBER 2021
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in
September on a seasonally adjusted basis after rising 0.3 percent in August, the
U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all
items index increased 5.4 percent before seasonal adjustment.
The indexes for food and shelter rose in September and together contributed more
than half of the monthly all items seasonally adjusted increase. The index for
food rose 0.9 percent, with the index for food at home increasing 1.2 percent.
The energy index increased 1.3 percent, with the gasoline index rising
1.2 percent.
The index for all items less food and energy rose 0.2 percent in September,
after increasing 0.1 percent in August. Along with the index for shelter, the
indexes for new vehicles, household furnishings and operations, and motor
vehicle insurance also rose in September. The indexes for airline fares, apparel,
and used cars and trucks all declined over the month.
The all items index rose 5.4 percent for the 12 months ending September, compared
to a 5.3-percent rise for the period ending August. The index for all items less
food and energy rose 4.0 percent over the last 12 months, the same increase as
the period ending August. The energy index rose 24.8 percent over the last 12
months, and the food index increased 4.6 percent over that period.
Consumer Price Index Summary
https://www.bls.gov/news.release/cpi.nr0.htm
Transmission of material in this release is embargoed until
8:30 a.m. (ET) October 13, 2021 USDL-21-1831
Technical information: (202) 691-7000 • [email protected] • www.bls.gov/cpi
Media Contact: (202) 691-5902 • [email protected]
CONSUMER PRICE INDEX – SEPTEMBER 2021
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in
September on a seasonally adjusted basis after rising 0.3 percent in August, the
U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all
items index increased 5.4 percent before seasonal adjustment.
The indexes for food and shelter rose in September and together contributed more
than half of the monthly all items seasonally adjusted increase. The index for
food rose 0.9 percent, with the index for food at home increasing 1.2 percent.
The energy index increased 1.3 percent, with the gasoline index rising
1.2 percent.
The index for all items less food and energy rose 0.2 percent in September,
after increasing 0.1 percent in August. Along with the index for shelter, the
indexes for new vehicles, household furnishings and operations, and motor
vehicle insurance also rose in September. The indexes for airline fares, apparel,
and used cars and trucks all declined over the month.
The all items index rose 5.4 percent for the 12 months ending September, compared
to a 5.3-percent rise for the period ending August. The index for all items less
food and energy rose 4.0 percent over the last 12 months, the same increase as
the period ending August. The energy index rose 24.8 percent over the last 12
months, and the food index increased 4.6 percent over that period.
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
youthathletics
- Posts: 15817
- Joined: Mon Jul 30, 2018 7:36 pm
Re: The Nation's Financial Condition
IYPO, what does this tell you?Farfromgeneva wrote: ↑Wed Oct 13, 2021 9:53 am CPI this am
Consumer Price Index Summary
https://www.bls.gov/news.release/cpi.nr0.htm
Transmission of material in this release is embargoed until
8:30 a.m. (ET) October 13, 2021 USDL-21-1831
Technical information: (202) 691-7000 • [email protected] • www.bls.gov/cpi
Media Contact: (202) 691-5902 • [email protected]
CONSUMER PRICE INDEX – SEPTEMBER 2021
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in
September on a seasonally adjusted basis after rising 0.3 percent in August, the
U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all
items index increased 5.4 percent before seasonal adjustment.
The indexes for food and shelter rose in September and together contributed more
than half of the monthly all items seasonally adjusted increase. The index for
food rose 0.9 percent, with the index for food at home increasing 1.2 percent.
The energy index increased 1.3 percent, with the gasoline index rising
1.2 percent.
The index for all items less food and energy rose 0.2 percent in September,
after increasing 0.1 percent in August. Along with the index for shelter, the
indexes for new vehicles, household furnishings and operations, and motor
vehicle insurance also rose in September. The indexes for airline fares, apparel,
and used cars and trucks all declined over the month.
The all items index rose 5.4 percent for the 12 months ending September, compared
to a 5.3-percent rise for the period ending August. The index for all items less
food and energy rose 4.0 percent over the last 12 months, the same increase as
the period ending August. The energy index rose 24.8 percent over the last 12
months, and the food index increased 4.6 percent over that period.
A fraudulent intent, however carefully concealed at the outset, will generally, in the end, betray itself.
~Livy
“There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.” -Soren Kierkegaard
~Livy
“There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.” -Soren Kierkegaard
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
SSI going up which is both good and a problem for fiscal Mgt.youthathletics wrote: ↑Wed Oct 13, 2021 3:25 pmIYPO, what does this tell you?Farfromgeneva wrote: ↑Wed Oct 13, 2021 9:53 am CPI this am
Consumer Price Index Summary
https://www.bls.gov/news.release/cpi.nr0.htm
Transmission of material in this release is embargoed until
8:30 a.m. (ET) October 13, 2021 USDL-21-1831
Technical information: (202) 691-7000 • [email protected] • www.bls.gov/cpi
Media Contact: (202) 691-5902 • [email protected]
CONSUMER PRICE INDEX – SEPTEMBER 2021
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in
September on a seasonally adjusted basis after rising 0.3 percent in August, the
U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all
items index increased 5.4 percent before seasonal adjustment.
The indexes for food and shelter rose in September and together contributed more
than half of the monthly all items seasonally adjusted increase. The index for
food rose 0.9 percent, with the index for food at home increasing 1.2 percent.
The energy index increased 1.3 percent, with the gasoline index rising
1.2 percent.
The index for all items less food and energy rose 0.2 percent in September,
after increasing 0.1 percent in August. Along with the index for shelter, the
indexes for new vehicles, household furnishings and operations, and motor
vehicle insurance also rose in September. The indexes for airline fares, apparel,
and used cars and trucks all declined over the month.
The all items index rose 5.4 percent for the 12 months ending September, compared
to a 5.3-percent rise for the period ending August. The index for all items less
food and energy rose 4.0 percent over the last 12 months, the same increase as
the period ending August. The energy index rose 24.8 percent over the last 12
months, and the food index increased 4.6 percent over that period.
Good and energy are temporal. I wish it were more gradual because the lag effect could become permanent and cultural change in labor at meaningful
But, I feel like there’s exhaustion of a softening on discretionary goods and services that price driven more than supply. That would be a good thing. Global softening will slow this down as well.
So parts good parts bad overall it’s got to be handled properly because the wrong response will be tragic for us for like 12-24mo
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
Close to 40% of U.S. Households Say They Face Financial Difficulties as Covid-19 Pandemic Continues
More than 30% of people say their situation is worse, survey finds; 19% of households have depleted their savings
Financial hardship related to the Covid-19 pandemic continues for nearly 60% of households earning less than $50,000 a year, a recent survey found; a food pantry in Chelsea, Mass., in July.
PHOTO: BRIAN SNYDER/REUTERS
By Jennifer Calfas
Oct. 14, 2021 3:59 pm ET
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Nearly 40% of U.S. households said they faced serious financial difficulties in recent months of the Covid-19 pandemic, citing problems such as paying utility bills or credit card debt, according to a recent poll. About one-fifth have depleted all of their savings.
U.S. households are struggling in many ways over a year into the coronavirus pandemic, according to the poll conducted by the Harvard T.H. Chan School of Public Health, the Robert Wood Johnson Foundation and National Public Radio.
Nearly 60% of households earning less than $50,000 a year reported facing serious financial challenges in recent months. Of those, 30% lost all of their savings, according to the poll.
The survey questioned about 3,600 adults in August and early September about a variety of potential problems during the pandemic and how the effects have continued in more recent months. In addition to financial concerns, respondents were asked about healthcare, education, child care and personal safety.
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The results show how the pandemic deepened an already divided economy in the U.S., with well-off people and businesses coming out the same or stronger while many lower-wage workers were thrust into financial crisis. The highly transmissible Delta variant slowed the U.S. economic recovery as businesses and consumers adjusted their plans. In late August, as the poll was being conducted, the Supreme Court lifted the federal government’s ban on evictions during the pandemic. Federal boosts to unemployment benefits expired in September, after the survey was completed.
Close to 20% of those polled said their financial situation is better now than before the Covid-19 outbreak, compared with 32% who said their situation is worse. About half, 49%, said it stayed the same.
The organizations conducting the survey expected fewer Americans to be experiencing these kinds of financial hardships, said Robert Blendon, co-director of the survey and emeritus professor of health policy and political analysis at the Harvard T.H. Chan School of Public Health.
“They are still caught in the middle of the impact of the Delta variant and Covid epidemic. It’s not over for them financially,” Dr. Blendon said.
“We’re in the middle of a period of real peoples’ lives where they’re still in a lifeboat worried about just getting to shore,” he added.
Those earning less than $50,000 are still in need of short-term assistance programs, he said.
Throughout the pandemic, the federal government sent Americans three rounds of stimulus checks based on income levels, with the last arriving in March. About 67% of those surveyed said they received financial assistance from federal and state governments through unemployment benefits, loans and stimulus payments. Of those who received assistance, 23% said it “helped a lot,” while 44% said it “helped a little,” according to the poll.
“While federal economic assistance has helped millions of families, short-term help is not enough to solve deeply entrenched inequities,” said Richard Besser, president and chief executive officer of the Robert Wood Johnson Foundation, in a statement.
Education was also a concern among respondents. Of those with children in grades K to 12, 69% said their children fell behind in school last year. Students fell behind in reading and math in the early months of remote learning, according to test scores recorded last year. Educators are now working to get students caught up, as many return to the classroom for in-person learning for the first time since the pandemic disrupted the nation’s more than 13,000 school districts.
More than 30% of people say their situation is worse, survey finds; 19% of households have depleted their savings
Financial hardship related to the Covid-19 pandemic continues for nearly 60% of households earning less than $50,000 a year, a recent survey found; a food pantry in Chelsea, Mass., in July.
PHOTO: BRIAN SNYDER/REUTERS
By Jennifer Calfas
Oct. 14, 2021 3:59 pm ET
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TEXT
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Length 4 minutes
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Nearly 40% of U.S. households said they faced serious financial difficulties in recent months of the Covid-19 pandemic, citing problems such as paying utility bills or credit card debt, according to a recent poll. About one-fifth have depleted all of their savings.
U.S. households are struggling in many ways over a year into the coronavirus pandemic, according to the poll conducted by the Harvard T.H. Chan School of Public Health, the Robert Wood Johnson Foundation and National Public Radio.
Nearly 60% of households earning less than $50,000 a year reported facing serious financial challenges in recent months. Of those, 30% lost all of their savings, according to the poll.
The survey questioned about 3,600 adults in August and early September about a variety of potential problems during the pandemic and how the effects have continued in more recent months. In addition to financial concerns, respondents were asked about healthcare, education, child care and personal safety.
NEWSLETTER SIGN-UP
The 10-Point.
A personal, guided tour to the best scoops and stories every day in The Wall Street Journal.
PREVIEW
SUBSCRIBE
The results show how the pandemic deepened an already divided economy in the U.S., with well-off people and businesses coming out the same or stronger while many lower-wage workers were thrust into financial crisis. The highly transmissible Delta variant slowed the U.S. economic recovery as businesses and consumers adjusted their plans. In late August, as the poll was being conducted, the Supreme Court lifted the federal government’s ban on evictions during the pandemic. Federal boosts to unemployment benefits expired in September, after the survey was completed.
Close to 20% of those polled said their financial situation is better now than before the Covid-19 outbreak, compared with 32% who said their situation is worse. About half, 49%, said it stayed the same.
The organizations conducting the survey expected fewer Americans to be experiencing these kinds of financial hardships, said Robert Blendon, co-director of the survey and emeritus professor of health policy and political analysis at the Harvard T.H. Chan School of Public Health.
“They are still caught in the middle of the impact of the Delta variant and Covid epidemic. It’s not over for them financially,” Dr. Blendon said.
“We’re in the middle of a period of real peoples’ lives where they’re still in a lifeboat worried about just getting to shore,” he added.
Those earning less than $50,000 are still in need of short-term assistance programs, he said.
Throughout the pandemic, the federal government sent Americans three rounds of stimulus checks based on income levels, with the last arriving in March. About 67% of those surveyed said they received financial assistance from federal and state governments through unemployment benefits, loans and stimulus payments. Of those who received assistance, 23% said it “helped a lot,” while 44% said it “helped a little,” according to the poll.
“While federal economic assistance has helped millions of families, short-term help is not enough to solve deeply entrenched inequities,” said Richard Besser, president and chief executive officer of the Robert Wood Johnson Foundation, in a statement.
Education was also a concern among respondents. Of those with children in grades K to 12, 69% said their children fell behind in school last year. Students fell behind in reading and math in the early months of remote learning, according to test scores recorded last year. Educators are now working to get students caught up, as many return to the classroom for in-person learning for the first time since the pandemic disrupted the nation’s more than 13,000 school districts.
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
About a year ago I was working with a tier 2 CLO mgr and there was only throwaway bids of L + 1200bps (12%) for double B bonds in new issue CLOs. This is basically stretch equity for these underlying leveraged/“junk” businesses. What happens when the fed tightens will be more severe in this area and painful to watch. The Wing Chaos are fubarred.
Junk Loans Shine as Investors Pile Into Riskiest Parts of CLOs
The riskiest securities tied to collateralized loan obligations returned over 29% to investors through August, beating major stock indexes
By Sebastian Pellejero
Updated Oct. 14, 2021 8:33 am ET
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Investors are scoring big gains in the riskiest parts of the $3 trillion market for junk-rated corporate loans.
The lowest-rated securities tied to what Wall Street calls collateralized loan obligations returned more than 29% this year through August, including interest payments and price changes, according to a recent report by Citigroup. That beats a 21.5% return on the S&P 500 over the same period.
CLOs are bundles of junk-rated loans, packaged into slices of securities, that pass on interest payments to investors in order of risk. Investors in the riskiest portions, known as CLO equity, get paid last but profit when loan prices rise. They may also receive monthly cash payments based on the difference between the interest earned from loans, management fees and payments to holders of higher-rated securities.
The high returns offered by CLO equity securities are helping attract more investors to the $805 billion market for U.S. CLOs—the largest buyer of junk-rated loans. These so-called leveraged loans are often issued to help finance private-equity buyouts of companies with significant debt relative to their earnings, or leverage.
Total return to investors in 2021
Source: Citi, FactSet
Note: Data is as of Aug. 31.
CLO equity
S&P 500
Russell 2000
Junk-ratedcorporate bonds
0
5
10
15
20
25
30
35
%
Asset managers including Blackstone Inc. and PGIM Inc. had sold more than $131 billion worth of new CLOs this year, as of Oct. 4, according to S&P Global Market Intelligence’s LCD. That surpasses the previous full-year sales record of $128 billion set in 2018.
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Analysts expect that strong pace to continue, supported by the economy’s recovery and investors’ demand for CLOs’ relatively high yields. Asset managers including Kayne Anderson and Neuberger Berman have raised hundreds of millions of dollars this year from high-net-worth individuals and institutional investors for private credit funds that will invest in CLO equity.
At least 16 new funds that invest in lower-rated CLO securities had debuted as of Sept. 16, according to Citi.
“We have seen a lot more interest in CLO equity than in recent years,” said Young Choi, partner at King Street Capital Management, which manages and invests in CLOs.
Even safer CLOs are offering higher yields than other debt. Triple-A-rated CLO securities had returned 1.2% to investors this year through the third quarter, counting interest payments and price changes, according to Bank of America. That beats a minus 1.1% return on investment-grade corporate bonds and a minus 2.7% return on Treasurys over the same period.
Double-B-rated CLO securities returned 8.1% to investors through September, beating a 4.7% total return on speculative-grade corporate bonds and 4.4% on leveraged loans.
‘Now people are realizing that this is a different asset class entirely.’
— Michael Kurinets, chief investment officer at Capra Ibex Advisors
BofA analysts recently increased their forecast for new CLO sales this year from $140 billion to $165 billion. Meanwhile, the number of outstanding bank credit lines for managers putting together new CLOs has topped 100, analysts say, a sign this year’s record sales pace can continue.
U.S. banks and insurance companies are among the institutional investors that have stepped up CLO buying in recent years. Around $130 billion in CLO assets were held by banks at the end of the second quarter this year, according to data compiled by BofA, up 35% from the start of the year. Banks typically invest in highly rated CLO bonds due to capital requirements.
Last year, insurance companies increased their holdings of CLO securities to $193 billion, up 23% from the end of 2019. These firms held around 26% of outstanding CLO securities at the time, and around 12% to 14% of equity and double-B rated securities.
The demand has allowed managers to lock in lower financing costs than in years past, analysts say. That can help widen the difference between the costs of managing the portfolio and total cash returned to investors, making CLO equity securities relatively attractive, said Mr. Choi.
“The equity arbitrage has looked better than it has in a long time,” he said.
The growing investor base has helped improve market liquidity, or the ability to trade without moving prices significantly, for the lowest-rated securities, said Michael Kurinets, chief investment officer at Capra Ibex Advisors, which manages $4.7 billion in assets and invests primarily in CLO equity.
“A dozen different [traders] will now put up bids for CLO equity from seasoned deals, which take some work to go through and analyze, and they’ll be within a narrow range,” he said.
MORE WSJ CREDIT-MARKET COVERAGE, SELECTED BY THE EDITORS
Investors Searching for Yield Pump Up Sales of Risky Company Debt (Aug. 31)
Issuance of Bundles of Risky Loans Jumps to 16-Year High (May 24)
Heard: What We Talk About When We Talk About CLOs (June 10, 2020)
One key investor in CLO equity: CLOs themselves. Many CLO managers will buy equity securities from their own deals, sometimes paying more than others would to help complete a deal, which earns them fees. That provides some assurance to investors that managers will swiftly deal with any problem loans in the portfolio, analysts say.
Multiasset investors have often drifted into CLOs looking for yield, before selling at first indication of trouble, said Mr. Kurinets. Now investors including hedge funds and closed-end funds have become more familiar with the risks involved, helping reduce swings.
“We used to spend a lot of time explaining the difference between CLOs and collateralized debt obligations,” he said, referring to the investment vehicle famous for helping spark the 2008 financial crisis. “Now people are realizing that this is a different asset class entirely.”
Junk Loans Shine as Investors Pile Into Riskiest Parts of CLOs
The riskiest securities tied to collateralized loan obligations returned over 29% to investors through August, beating major stock indexes
By Sebastian Pellejero
Updated Oct. 14, 2021 8:33 am ET
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TEXT
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Length 6 minutes
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Investors are scoring big gains in the riskiest parts of the $3 trillion market for junk-rated corporate loans.
The lowest-rated securities tied to what Wall Street calls collateralized loan obligations returned more than 29% this year through August, including interest payments and price changes, according to a recent report by Citigroup. That beats a 21.5% return on the S&P 500 over the same period.
CLOs are bundles of junk-rated loans, packaged into slices of securities, that pass on interest payments to investors in order of risk. Investors in the riskiest portions, known as CLO equity, get paid last but profit when loan prices rise. They may also receive monthly cash payments based on the difference between the interest earned from loans, management fees and payments to holders of higher-rated securities.
The high returns offered by CLO equity securities are helping attract more investors to the $805 billion market for U.S. CLOs—the largest buyer of junk-rated loans. These so-called leveraged loans are often issued to help finance private-equity buyouts of companies with significant debt relative to their earnings, or leverage.
Total return to investors in 2021
Source: Citi, FactSet
Note: Data is as of Aug. 31.
CLO equity
S&P 500
Russell 2000
Junk-ratedcorporate bonds
0
5
10
15
20
25
30
35
%
Asset managers including Blackstone Inc. and PGIM Inc. had sold more than $131 billion worth of new CLOs this year, as of Oct. 4, according to S&P Global Market Intelligence’s LCD. That surpasses the previous full-year sales record of $128 billion set in 2018.
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Analysts expect that strong pace to continue, supported by the economy’s recovery and investors’ demand for CLOs’ relatively high yields. Asset managers including Kayne Anderson and Neuberger Berman have raised hundreds of millions of dollars this year from high-net-worth individuals and institutional investors for private credit funds that will invest in CLO equity.
At least 16 new funds that invest in lower-rated CLO securities had debuted as of Sept. 16, according to Citi.
“We have seen a lot more interest in CLO equity than in recent years,” said Young Choi, partner at King Street Capital Management, which manages and invests in CLOs.
Even safer CLOs are offering higher yields than other debt. Triple-A-rated CLO securities had returned 1.2% to investors this year through the third quarter, counting interest payments and price changes, according to Bank of America. That beats a minus 1.1% return on investment-grade corporate bonds and a minus 2.7% return on Treasurys over the same period.
Double-B-rated CLO securities returned 8.1% to investors through September, beating a 4.7% total return on speculative-grade corporate bonds and 4.4% on leveraged loans.
‘Now people are realizing that this is a different asset class entirely.’
— Michael Kurinets, chief investment officer at Capra Ibex Advisors
BofA analysts recently increased their forecast for new CLO sales this year from $140 billion to $165 billion. Meanwhile, the number of outstanding bank credit lines for managers putting together new CLOs has topped 100, analysts say, a sign this year’s record sales pace can continue.
U.S. banks and insurance companies are among the institutional investors that have stepped up CLO buying in recent years. Around $130 billion in CLO assets were held by banks at the end of the second quarter this year, according to data compiled by BofA, up 35% from the start of the year. Banks typically invest in highly rated CLO bonds due to capital requirements.
Last year, insurance companies increased their holdings of CLO securities to $193 billion, up 23% from the end of 2019. These firms held around 26% of outstanding CLO securities at the time, and around 12% to 14% of equity and double-B rated securities.
The demand has allowed managers to lock in lower financing costs than in years past, analysts say. That can help widen the difference between the costs of managing the portfolio and total cash returned to investors, making CLO equity securities relatively attractive, said Mr. Choi.
“The equity arbitrage has looked better than it has in a long time,” he said.
The growing investor base has helped improve market liquidity, or the ability to trade without moving prices significantly, for the lowest-rated securities, said Michael Kurinets, chief investment officer at Capra Ibex Advisors, which manages $4.7 billion in assets and invests primarily in CLO equity.
“A dozen different [traders] will now put up bids for CLO equity from seasoned deals, which take some work to go through and analyze, and they’ll be within a narrow range,” he said.
MORE WSJ CREDIT-MARKET COVERAGE, SELECTED BY THE EDITORS
Investors Searching for Yield Pump Up Sales of Risky Company Debt (Aug. 31)
Issuance of Bundles of Risky Loans Jumps to 16-Year High (May 24)
Heard: What We Talk About When We Talk About CLOs (June 10, 2020)
One key investor in CLO equity: CLOs themselves. Many CLO managers will buy equity securities from their own deals, sometimes paying more than others would to help complete a deal, which earns them fees. That provides some assurance to investors that managers will swiftly deal with any problem loans in the portfolio, analysts say.
Multiasset investors have often drifted into CLOs looking for yield, before selling at first indication of trouble, said Mr. Kurinets. Now investors including hedge funds and closed-end funds have become more familiar with the risks involved, helping reduce swings.
“We used to spend a lot of time explaining the difference between CLOs and collateralized debt obligations,” he said, referring to the investment vehicle famous for helping spark the 2008 financial crisis. “Now people are realizing that this is a different asset class entirely.”
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
https://www.nber.org/papers/w29340?camp ... 58ebbc3361
Why do people stay poor?
Clare A. Balboni, Oriana Bandiera, Robin Burgess, Maitreesh Ghatak & Anton Heil
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Email
WORKING PAPER 29340
DOI 10.3386/w29340
ISSUE DATE October 2021
There are two broad views as to why people stay poor. One emphasizes differences in fundamentals, such as ability, talent or motivation. The other, the poverty traps view, differences in opportunities which stem from access to wealth. To test between these two views, we exploit a large-scale, randomized asset transfer and an 11-year panel on 6000 households who begin in extreme poverty. The setting is rural Bangladesh and the asset is cows. The data supports the poverty traps view - we identify a threshold level of initial assets above which households accumulate assets, take on better occupations (from casual labor in agriculture or domestic services to running small livestock businesses) and grow out of poverty. The reverse happens for those below the threshold. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated in the work they do at baseline and that the gains arising from eliminating misallocation would far exceed the program costs. Our findings imply that large transfers which create better jobs for the poor are an effective means of getting people out of poverty traps and reducing global poverty.
Why do people stay poor?
Clare A. Balboni, Oriana Bandiera, Robin Burgess, Maitreesh Ghatak & Anton Heil
SHARE
WORKING PAPER 29340
DOI 10.3386/w29340
ISSUE DATE October 2021
There are two broad views as to why people stay poor. One emphasizes differences in fundamentals, such as ability, talent or motivation. The other, the poverty traps view, differences in opportunities which stem from access to wealth. To test between these two views, we exploit a large-scale, randomized asset transfer and an 11-year panel on 6000 households who begin in extreme poverty. The setting is rural Bangladesh and the asset is cows. The data supports the poverty traps view - we identify a threshold level of initial assets above which households accumulate assets, take on better occupations (from casual labor in agriculture or domestic services to running small livestock businesses) and grow out of poverty. The reverse happens for those below the threshold. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated in the work they do at baseline and that the gains arising from eliminating misallocation would far exceed the program costs. Our findings imply that large transfers which create better jobs for the poor are an effective means of getting people out of poverty traps and reducing global poverty.
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
Phoenix Lending Q3 Survey Results Reveal a Weakened U.S. Economy
October 15, 2021, 07:52 AM
Filed Under: Economic Commentary
Related: Phoenix Management, Phoenix Management Lending Climate in America Survey
From the third quarter Phoenix Management “Lending Climate in America” survey results reveal a weakened U.S. economy in the near and long term.
After a brief resurgence, lenders displayed a more adverse outlook and assessment of the U.S. economy for the near and long term. The GPA for the U.S. economy in the near term significantly decreased 56 percentage points to 2.23 from the Q2 2021 results of 2.79. Additionally, lenders optimism of the U.S. economy in the long term weakened, decreasing 13 percentage points to a 2.23 from the previous quarter’s results of 2.36.
August had the fewest number of new workers in the last seven months. When asked as we move forward into Q4’21 and 2022, do you expect the job market to slowly bounce back, 77 percent of lenders surveyed believe that even with the delta variant, the job market will likely bounce back as the holiday season approaches. Twenty-three percent of lenders believe the surge of the delta variant will lead to hiring freezes as a precaution for a potential shutdown.
Phoenix’s Q3 2021 “Lending Climate in America” survey asked lenders what factor they expect to be the most challenging for borrowers. Of the lenders surveyed, 62 percent of lenders expect supply chain management to be the most challenging factor, while 38 percent expect labor costs to be the most challenging factor for borrowers through the first quarter of 2022.
Lenders were also surveyed this quarter to determine how borrowers are currently combatting inflationary pressure. The vast majority of lenders, 77 percent, believe borrowers are currently combatting inflationary pressures by raising their prices and limiting discounts offered to customers. Fifteen percent of lenders believe borrowers are absorbing the margin compression on a temporary basis, while 8 percent believe borrowers are reducing operating expenses and/or eliminating waste to combat inflationary pressure.
“Confidence in the near-term U.S. economy weakened after a brief resurgence earlier this year,” said Michael Jacoby, Senior Managing Director and Shareholder of Phoenix. “While lenders seem to be uncertain about the U.S. economy in the near and long term, the majority of lenders surveyed believe that even with the delta variant, the job market will likely bounce back which is positive as we enter Q4/21 and the holiday season.”
October 15, 2021, 07:52 AM
Filed Under: Economic Commentary
Related: Phoenix Management, Phoenix Management Lending Climate in America Survey
From the third quarter Phoenix Management “Lending Climate in America” survey results reveal a weakened U.S. economy in the near and long term.
After a brief resurgence, lenders displayed a more adverse outlook and assessment of the U.S. economy for the near and long term. The GPA for the U.S. economy in the near term significantly decreased 56 percentage points to 2.23 from the Q2 2021 results of 2.79. Additionally, lenders optimism of the U.S. economy in the long term weakened, decreasing 13 percentage points to a 2.23 from the previous quarter’s results of 2.36.
August had the fewest number of new workers in the last seven months. When asked as we move forward into Q4’21 and 2022, do you expect the job market to slowly bounce back, 77 percent of lenders surveyed believe that even with the delta variant, the job market will likely bounce back as the holiday season approaches. Twenty-three percent of lenders believe the surge of the delta variant will lead to hiring freezes as a precaution for a potential shutdown.
Phoenix’s Q3 2021 “Lending Climate in America” survey asked lenders what factor they expect to be the most challenging for borrowers. Of the lenders surveyed, 62 percent of lenders expect supply chain management to be the most challenging factor, while 38 percent expect labor costs to be the most challenging factor for borrowers through the first quarter of 2022.
Lenders were also surveyed this quarter to determine how borrowers are currently combatting inflationary pressure. The vast majority of lenders, 77 percent, believe borrowers are currently combatting inflationary pressures by raising their prices and limiting discounts offered to customers. Fifteen percent of lenders believe borrowers are absorbing the margin compression on a temporary basis, while 8 percent believe borrowers are reducing operating expenses and/or eliminating waste to combat inflationary pressure.
“Confidence in the near-term U.S. economy weakened after a brief resurgence earlier this year,” said Michael Jacoby, Senior Managing Director and Shareholder of Phoenix. “While lenders seem to be uncertain about the U.S. economy in the near and long term, the majority of lenders surveyed believe that even with the delta variant, the job market will likely bounce back which is positive as we enter Q4/21 and the holiday season.”
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
Another problem with global currency sterilization and free and easy money - values asset appreciation over income (no discount rate, don't need it in the early years) then the stock markets turn around and reward said future potential immediately in business valuation.
Today’s Tech Founders Don’t Just Own the Company. They’re Also Getting Huge Pay Packages.
Startup creators once tended to take little or no remuneration as CEOs. Now, some are getting giant stock awards, making them among America’s best-compensated corporate chiefs.
Robinhood co-founders Baiju Bhatt, left, and Vladimir Tenev on IPO day. AMIR HAMJA FOR THE WALL STREET JOURNAL
By Eliot Brown
Oct. 16, 2021 12:00 am ET
Archer Aviation Inc. is years from producing its only planned product, a four-passenger electric air taxi that the main U.S. regulator hasn’t yet certified. It hasn’t generated any revenue.
Still, the co-founders of this three-year-old company got a huge payday last month, a $99 million special stock award that stands to quadruple if Archer hits other milestones—thanks to a compensation package they negotiated before it listed publicly on Sept. 17.
For years, Silicon Valley was known as a place where leaders often bucked American corporate customs when it came to pay. Rather than receiving large stock grants and salaries, company founders like Facebook Inc.’s Mark Zuckerberg and Amazon. com Inc.’s Jeff Bezos took little or nothing. Instead, they benefited from the rising value of stock they got by starting their companies.
That philosophy has given way to a new trend: pay packages consisting of giant special stock awards. These make startup founders better compensated than CEOs who have taken the reins at some of the most valuable, established and profitable American corporations.
Alex Karp, co-founder and chief executive of Palantir Technologies Inc., which creates software that analyzes data for businesses and governments, last year received a compensation package valued at $1.1 billion—nearly three times Apple Inc. CEO Tim Cook’s $378 million pay package when he took over as CEO from co-founder Steve Jobs in 2011. Both were largely special stock awards designed to provide benefits to the CEOs over a 10-year period.
The two co-founders of digital healthcare company GoodRx Holdings Inc. each received a multiyear special stock award the company valued at $267 million before the company’s September 2020 listing—nearly equal to Alphabet Inc. CEO Sundar Pichai’s $281 million multiyear pay package in 2019 when he took over as CEO from Google co-founder Larry Page.
Seven of the 10 most valuable compensation packages for U.S. public companies in 2020 were to CEOs of startups that listed publicly that year, according to public-company data-and-analysis firm MyLogIQ LLC. Five of those startups paid their CEOs more than any company in the S&P 500, an index that includes the largest corporations in the country.
Before stock-trading app Robinhood Markets Inc. listed this summer, the eight-year-old firm’s co-founders received special stock awards the company valued at $806 million, atop a 2019 award recently valued at more than $600 million, according to company filings. Scooter-rental startup Bird Global Inc. awarded founder and CEO Travis VanderZanden a new compensation package giving him as much as an extra 7.5% of the company, which plans to list in coming weeks.
These awards are in addition to the shares the CEOs already have from founding their companies—a contrast with the approach of Facebook and Amazon. Mr. Bezos, for instance, owned about 41% of Amazon at IPO, and didn’t receive any additional stock grants at the time—or since.
A Bird spokeswoman said three-fourths of Mr. VanderZanden’s award was tied to performance targets. A GoodRx spokeswoman said its co-founders’ package was “designed to provide value to co-CEOs in connection with the success of GoodRx’s business and growth of its stock price.”
Other CEOs or spokespeople for recently listed companies included in this article either didn’t comment on the record or didn’t respond to inquiries.
The mega-grants’ backers say they help motivate executives to sustain rapid growth. A key feature of many of the pay packages is that, unlike more traditional CEO stock compensation, some or all of the awards are tied to growth targets. That means those founders ultimately get that portion of additional stock only if the company grows in value—in some cases substantially—and thus benefits all shareholders, proponents say.
Palantir said in a securities filing that it created its pre-listing awards for executives “to incentivize and retain them through the public listing process, the critical early days as a public company, and into the years ahead.” Robinhood in a securities filing said its awards were subject to the company’s hitting “challenging share price goals,” including that Robinhood’s share price more than tripled from its IPO within eight years.
The CEO-compensation awards are almost entirely in company stock, stock options or similar instruments, as is typical for U.S. public companies. They generally are meant to be the bulk of a CEO’s pay for multiple years following the award, given that many of the awards vest—or become fully the executives’—allowing them to sell gradually over time or once the company hits performance hurdles. To pay many expenses, CEOs typically sell stock or take out loans tied to it.
CEO Pay Surged in a Year of Upheaval and Leadership Challenges
The values that companies report for the awards—such as Palantir’s $1.1 billion award—are based on share prices at the time of the grants as well as factors such as the likelihood hurdles will be met, a dynamic that means CEOs often end up receiving pay well above what is initially reported, if they hit the hurdles. If they miss hurdles, or the stock falls, they generally end up receiving less.
Founder mystique
The compensation packages largely reflect Silicon Valley founders’ growing influence and mystique. Despite disasters like WeWork Cos. and Theranos Inc., venture-capital investors have increasingly ceded power to founders, typically through a dual-class share structure that gives them more voting power than other shareholders. Many venture capitalists have described their corporate-board roles as akin to advisers, not enforcers, giving founders greater influence on issues such as pay.
Most of the largest tech companies rose to prominence under the leadership of founders, so investors and founders say it is worth having a founder with a firm vision at the helm—even if the price is higher than earlier. Many of these executives own smaller stakes in their companies than some of the founders of giant companies of the dot-com era because they took on so much outside funding early on, they say.
The rich packages frustrate some large public-market investors and compensation professionals who see them as part of a Silicon Valley trend in which companies there are reversing years of improving U.S. corporate governance. While shareholders elsewhere have been getting more say on issues such as directors and pay, the largest startups going public are often heavily influenced or controlled by founders who are also very well compensated.
Companies generally intend executive compensation to motivate CEOs to align their interests with other shareholders. Because founders typically have such large stakes, huge grants of additional stock aren’t necessary, said Simiso Nzima, head of corporate governance at the California Public Employees’ Retirement System, the nation’s largest public pension fund. “It doesn’t make sense,” he said, “because they already own so much.”
The payouts’ costs are often borne by future public investors with no say in their creation. The companies continue to pay out the stock compensation after an IPO, so a founder gets a growing slice of the company while other shareholders see theirs shrink. “That is dilution of shareholders,” Mr. Nzima said. “These shares are not just coming out of nowhere.”
Pay has jumped sharply for the heads of newly public tech companies with dual-class shares, typically run by founders. Such companies that listed publicly in 2020 paid CEOs a median of $21.9 million in total compensation for the year, up from $3.3 million for those of companies going public in 2019 and compared with a median of $1.9 million for those making a debut from 2010 through 2019, according to a Wall Street Journal analysis of data from securities filings and University of Florida professor Jay Ritter, who studies IPOs.
Many of the CEO pay packages are far in excess of what a company would pay a typical nonfounder CEO, and they show the sway of startup CEOs over their boards, said Robin Ferracone, chief executive of Farient Advisors LLC, a longtime compensation consultant for corporations and boards. “They are just bad practice,” she said of the mega-awards. “It’s a CEO who is taking advantage of his or her power.”
Air-taxi award
Brett Adcock, 35, and Adam Goldstein, 42, founded Archer in 2018 to make a battery-powered, six-propeller aircraft that can fly at up to 150 miles an hour. The energetic entrepreneurs previously founded a hiring-focused software company they sold for over $100 million, and hoped with Archer to help reshape urban transportation with a network of air taxis.
The two early this year entered into detailed discussions to merge with a special-purpose acquisition company, or SPAC, a publicly traded shell company that can merge with a startup and bring it public.
Days into Archer’s negotiations with the SPAC, Atlas Crest Investment Corp., the two sides began to talk about a deal that involved stock grants and high-vote shares for the founders, securities filings show. Amid a buoyant market for SPACs, Atlas agreed to a compensation package giving them “Founder Grants” of 20 million shares each, with 10 votes a share—designed to leave each holding potentially 18% of the newly public company’s market value, up from about 11%, securities filings show. The shares would vest if Archer hit various milestones.
Just as Archer and Atlas completed the merger in September, Archer said it received an early-stage regulatory approval of its aircraft. That unlocked a quarter of the award, a combined $99 million at the SPAC’s closing share price on Sept. 16, the filings show.
A generation ago, tech startups often brought in experienced managers as CEOs as companies matured. In recent decades, companies generally compensated those CEOs in line with their peers in corporate America, typically giving modest cash salaries with most compensation in annual or multiyear stock grants that eventually added up to a few percentage points of the company.
Amazon’s Mr. Bezos took no stock options, an annual cash salary of no more than $82,000 through his tenure as CEO—he stepped down in July—and other compensation totaling less than $2 million. For years, a line in Amazon’s securities filings read: “Due to Mr. Bezos’ substantial ownership in the company Mr. Bezos requested not to receive additional compensation.”
Facebook’s Mr. Zuckerberg takes a $1 salary and no stock grants. His $25 million in reported compensation last year included only company-paid security and company-paid personal travel. Jack Dorsey, co-founder of Twitter Inc. and Square Inc., takes less than $5 a year in salary and no stock grants between both companies.
While other founder-CEOs received stock compensation, the awards tended to be far smaller than the recent crop of founder awards.
Occasional large multiyear awards have gone to nonfounder CEOs like Apple’s Mr. Cook, but they have tended to represent tiny percentages of a company. Mr. Cook’s 2011 award was approximately 0.1% of Apple’s market capitalization at the time.
‘Founder-friendly’
The big-package trend traces to the middle of last decade, when money rushed into Silicon Valley startups. The most in-demand founder-CEOs could essentially choose their investors, helping lead venture-capital firms to compete on being what many in tech called “founder-friendly.” The notion of a nonfounder professional CEO fell out of favor, while venture-capital firms agreed to let founders of hot companies secure full control over their company despite owning a minority financial stake.
Snap Inc. in 2017—unprofitable at the time—awarded co-founder Evan Spiegel compensation valued at $637.8 million, partly as an incentive to list publicly. Tesla Inc. in 2018 gave Elon Musk a compensation package valued at $2.3 billion that gave him more stock if the then-unprofitable company hit targets to increase its market capitalization, revenue and profits. Both companies said in filings that they intended the awards to motivate the CEOs to continue expanding the businesses. Mr. Musk’s award has so far proved significantly more valuable than first reported, helping make him the richest person in the world.
The number of CEOs getting similar large awards has grown since, and the practice snowballed in 2020, as tech stocks soared in the pandemic.
Palantir’s 2020 award for Mr. Karp was one of the most valuable compensation packages of any U.S. public company on record since 2007, according to compensation research firm Equilar.
Mr. Karp, an eccentric cross-country skier with a Ph.D. in German philosophy, controls Palantir with two other co-founders, Peter Thiel and Stephen Cohen, under a structure that allows each of them to sell significant chunks of their stakes while retaining control.
Unlike the Tesla pay package, which is tied to operational and market-value goals, Mr. Karp’s 2020 compensation package isn’t based on the company hitting future performance hurdles. It is largely in stock options that gradually accrue over a decade if he remains CEO of the company, which has never posted a profit. Since Palantir listed its stock last fall, Mr. Karp has sold more than $830 million in its shares, securities filings show. Palantir has said some of the sales are tied to Mr. Karp’s desire to cover the taxes related to some stock options.
Startup boards of directors must approve compensation awards. As money has rushed into the startup sector, founder-CEOs have gained sway over their boards through high-vote shares and a broader deference to CEOs, say some venture capitalists and founders.
The environment has made some directors reluctant to fight about pay just before an IPO, these investors say. After a company lists publicly, new CEO pay packages can invite more scrutiny given public shareholder votes. Many venture capitalists, who often sell their shares months after listing, say they don’t want to get a reputation for clashing with founders.
The competitive market has made for an environment where “everybody’s worried about deal flow,” said Glenn Kelman, CEO of the venture-capital-backed real-estate brokerage Redfin Corp., which went public in 2017. “That means that right from the start there’s a very permissive board.”
One reason mega-awards have become so popular is founders look to each other for comparable deals, venture capitalists and pay consultants say. Typically, boards or founder-CEOs hire a compensation consultant such as Compensia Inc., a commonly used advisory company in Silicon Valley, which gives a board a list of comparable CEO pay packages.
“It starts to catch on like wildfire,” said Ms. Ferracone, the Farient compensation consultant. Once peers win large awards, she said, a founder “hears about it and wants it too.”
Some companies, including GoodRx, have tied CEO stock packages to performance goals that companies quickly met. The Santa Monica, Calif., company, which lets consumers compare prescription-drug prices, before its September 2020 listing gave co-CEOs Doug Hirsch and Trevor Bezdek each 8.2 million shares in restricted stock that would fully accrue only once the company’s stock passed $51 a share.
That payday came quickly for Mr. Hirsch, an early employee at Yahoo and a former Facebook executive., and Mr. Bezdek, who previously founded an IT consulting firm: GoodRx reached the target by October and the stock vested, becoming fully owned by the founders.
The recent frenzy for SPACs has enabled a new spurt of such compensation deals, including at Bird, an unprofitable scooter-rental company that announced a merger with a SPAC this spring. As part of the merger, Bird said it gave Mr. VanderZanden, the founder, the compensation package that gives him as much as an extra 7.5% of the company, should he remain as CEO for four years and hit various growth targets.
Mr. VanderZanden currently stands to own more than 11% of the company once it completes its SPAC merger. He sold tens of millions of dollars of stock in earlier funding rounds. His shares carry 20 times the voting power of a standard share, effectively giving him control over the company, which is valued at $2.3 billion.
The Bird spokeswoman said Mr. VanderZanden is keeping his annual cash salary to about $1,000. “Boards and CEOs should increasingly align their incentives with shareholders,” she said. “This includes lower CEO salaries.”
—Theo Francis contributed to this article.
Write to Eliot Brown at [email protected]
Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the October 16, 2021, print edition as 'It’s Payday for Startup CEOs.'
Today’s Tech Founders Don’t Just Own the Company. They’re Also Getting Huge Pay Packages.
Startup creators once tended to take little or no remuneration as CEOs. Now, some are getting giant stock awards, making them among America’s best-compensated corporate chiefs.
Robinhood co-founders Baiju Bhatt, left, and Vladimir Tenev on IPO day. AMIR HAMJA FOR THE WALL STREET JOURNAL
By Eliot Brown
Oct. 16, 2021 12:00 am ET
Archer Aviation Inc. is years from producing its only planned product, a four-passenger electric air taxi that the main U.S. regulator hasn’t yet certified. It hasn’t generated any revenue.
Still, the co-founders of this three-year-old company got a huge payday last month, a $99 million special stock award that stands to quadruple if Archer hits other milestones—thanks to a compensation package they negotiated before it listed publicly on Sept. 17.
For years, Silicon Valley was known as a place where leaders often bucked American corporate customs when it came to pay. Rather than receiving large stock grants and salaries, company founders like Facebook Inc.’s Mark Zuckerberg and Amazon. com Inc.’s Jeff Bezos took little or nothing. Instead, they benefited from the rising value of stock they got by starting their companies.
That philosophy has given way to a new trend: pay packages consisting of giant special stock awards. These make startup founders better compensated than CEOs who have taken the reins at some of the most valuable, established and profitable American corporations.
Alex Karp, co-founder and chief executive of Palantir Technologies Inc., which creates software that analyzes data for businesses and governments, last year received a compensation package valued at $1.1 billion—nearly three times Apple Inc. CEO Tim Cook’s $378 million pay package when he took over as CEO from co-founder Steve Jobs in 2011. Both were largely special stock awards designed to provide benefits to the CEOs over a 10-year period.
The two co-founders of digital healthcare company GoodRx Holdings Inc. each received a multiyear special stock award the company valued at $267 million before the company’s September 2020 listing—nearly equal to Alphabet Inc. CEO Sundar Pichai’s $281 million multiyear pay package in 2019 when he took over as CEO from Google co-founder Larry Page.
Seven of the 10 most valuable compensation packages for U.S. public companies in 2020 were to CEOs of startups that listed publicly that year, according to public-company data-and-analysis firm MyLogIQ LLC. Five of those startups paid their CEOs more than any company in the S&P 500, an index that includes the largest corporations in the country.
Before stock-trading app Robinhood Markets Inc. listed this summer, the eight-year-old firm’s co-founders received special stock awards the company valued at $806 million, atop a 2019 award recently valued at more than $600 million, according to company filings. Scooter-rental startup Bird Global Inc. awarded founder and CEO Travis VanderZanden a new compensation package giving him as much as an extra 7.5% of the company, which plans to list in coming weeks.
These awards are in addition to the shares the CEOs already have from founding their companies—a contrast with the approach of Facebook and Amazon. Mr. Bezos, for instance, owned about 41% of Amazon at IPO, and didn’t receive any additional stock grants at the time—or since.
A Bird spokeswoman said three-fourths of Mr. VanderZanden’s award was tied to performance targets. A GoodRx spokeswoman said its co-founders’ package was “designed to provide value to co-CEOs in connection with the success of GoodRx’s business and growth of its stock price.”
Other CEOs or spokespeople for recently listed companies included in this article either didn’t comment on the record or didn’t respond to inquiries.
The mega-grants’ backers say they help motivate executives to sustain rapid growth. A key feature of many of the pay packages is that, unlike more traditional CEO stock compensation, some or all of the awards are tied to growth targets. That means those founders ultimately get that portion of additional stock only if the company grows in value—in some cases substantially—and thus benefits all shareholders, proponents say.
Palantir said in a securities filing that it created its pre-listing awards for executives “to incentivize and retain them through the public listing process, the critical early days as a public company, and into the years ahead.” Robinhood in a securities filing said its awards were subject to the company’s hitting “challenging share price goals,” including that Robinhood’s share price more than tripled from its IPO within eight years.
The CEO-compensation awards are almost entirely in company stock, stock options or similar instruments, as is typical for U.S. public companies. They generally are meant to be the bulk of a CEO’s pay for multiple years following the award, given that many of the awards vest—or become fully the executives’—allowing them to sell gradually over time or once the company hits performance hurdles. To pay many expenses, CEOs typically sell stock or take out loans tied to it.
CEO Pay Surged in a Year of Upheaval and Leadership Challenges
The values that companies report for the awards—such as Palantir’s $1.1 billion award—are based on share prices at the time of the grants as well as factors such as the likelihood hurdles will be met, a dynamic that means CEOs often end up receiving pay well above what is initially reported, if they hit the hurdles. If they miss hurdles, or the stock falls, they generally end up receiving less.
Founder mystique
The compensation packages largely reflect Silicon Valley founders’ growing influence and mystique. Despite disasters like WeWork Cos. and Theranos Inc., venture-capital investors have increasingly ceded power to founders, typically through a dual-class share structure that gives them more voting power than other shareholders. Many venture capitalists have described their corporate-board roles as akin to advisers, not enforcers, giving founders greater influence on issues such as pay.
Most of the largest tech companies rose to prominence under the leadership of founders, so investors and founders say it is worth having a founder with a firm vision at the helm—even if the price is higher than earlier. Many of these executives own smaller stakes in their companies than some of the founders of giant companies of the dot-com era because they took on so much outside funding early on, they say.
The rich packages frustrate some large public-market investors and compensation professionals who see them as part of a Silicon Valley trend in which companies there are reversing years of improving U.S. corporate governance. While shareholders elsewhere have been getting more say on issues such as directors and pay, the largest startups going public are often heavily influenced or controlled by founders who are also very well compensated.
Companies generally intend executive compensation to motivate CEOs to align their interests with other shareholders. Because founders typically have such large stakes, huge grants of additional stock aren’t necessary, said Simiso Nzima, head of corporate governance at the California Public Employees’ Retirement System, the nation’s largest public pension fund. “It doesn’t make sense,” he said, “because they already own so much.”
The payouts’ costs are often borne by future public investors with no say in their creation. The companies continue to pay out the stock compensation after an IPO, so a founder gets a growing slice of the company while other shareholders see theirs shrink. “That is dilution of shareholders,” Mr. Nzima said. “These shares are not just coming out of nowhere.”
Pay has jumped sharply for the heads of newly public tech companies with dual-class shares, typically run by founders. Such companies that listed publicly in 2020 paid CEOs a median of $21.9 million in total compensation for the year, up from $3.3 million for those of companies going public in 2019 and compared with a median of $1.9 million for those making a debut from 2010 through 2019, according to a Wall Street Journal analysis of data from securities filings and University of Florida professor Jay Ritter, who studies IPOs.
Many of the CEO pay packages are far in excess of what a company would pay a typical nonfounder CEO, and they show the sway of startup CEOs over their boards, said Robin Ferracone, chief executive of Farient Advisors LLC, a longtime compensation consultant for corporations and boards. “They are just bad practice,” she said of the mega-awards. “It’s a CEO who is taking advantage of his or her power.”
Air-taxi award
Brett Adcock, 35, and Adam Goldstein, 42, founded Archer in 2018 to make a battery-powered, six-propeller aircraft that can fly at up to 150 miles an hour. The energetic entrepreneurs previously founded a hiring-focused software company they sold for over $100 million, and hoped with Archer to help reshape urban transportation with a network of air taxis.
The two early this year entered into detailed discussions to merge with a special-purpose acquisition company, or SPAC, a publicly traded shell company that can merge with a startup and bring it public.
Days into Archer’s negotiations with the SPAC, Atlas Crest Investment Corp., the two sides began to talk about a deal that involved stock grants and high-vote shares for the founders, securities filings show. Amid a buoyant market for SPACs, Atlas agreed to a compensation package giving them “Founder Grants” of 20 million shares each, with 10 votes a share—designed to leave each holding potentially 18% of the newly public company’s market value, up from about 11%, securities filings show. The shares would vest if Archer hit various milestones.
Just as Archer and Atlas completed the merger in September, Archer said it received an early-stage regulatory approval of its aircraft. That unlocked a quarter of the award, a combined $99 million at the SPAC’s closing share price on Sept. 16, the filings show.
A generation ago, tech startups often brought in experienced managers as CEOs as companies matured. In recent decades, companies generally compensated those CEOs in line with their peers in corporate America, typically giving modest cash salaries with most compensation in annual or multiyear stock grants that eventually added up to a few percentage points of the company.
Amazon’s Mr. Bezos took no stock options, an annual cash salary of no more than $82,000 through his tenure as CEO—he stepped down in July—and other compensation totaling less than $2 million. For years, a line in Amazon’s securities filings read: “Due to Mr. Bezos’ substantial ownership in the company Mr. Bezos requested not to receive additional compensation.”
Facebook’s Mr. Zuckerberg takes a $1 salary and no stock grants. His $25 million in reported compensation last year included only company-paid security and company-paid personal travel. Jack Dorsey, co-founder of Twitter Inc. and Square Inc., takes less than $5 a year in salary and no stock grants between both companies.
While other founder-CEOs received stock compensation, the awards tended to be far smaller than the recent crop of founder awards.
Occasional large multiyear awards have gone to nonfounder CEOs like Apple’s Mr. Cook, but they have tended to represent tiny percentages of a company. Mr. Cook’s 2011 award was approximately 0.1% of Apple’s market capitalization at the time.
‘Founder-friendly’
The big-package trend traces to the middle of last decade, when money rushed into Silicon Valley startups. The most in-demand founder-CEOs could essentially choose their investors, helping lead venture-capital firms to compete on being what many in tech called “founder-friendly.” The notion of a nonfounder professional CEO fell out of favor, while venture-capital firms agreed to let founders of hot companies secure full control over their company despite owning a minority financial stake.
Snap Inc. in 2017—unprofitable at the time—awarded co-founder Evan Spiegel compensation valued at $637.8 million, partly as an incentive to list publicly. Tesla Inc. in 2018 gave Elon Musk a compensation package valued at $2.3 billion that gave him more stock if the then-unprofitable company hit targets to increase its market capitalization, revenue and profits. Both companies said in filings that they intended the awards to motivate the CEOs to continue expanding the businesses. Mr. Musk’s award has so far proved significantly more valuable than first reported, helping make him the richest person in the world.
The number of CEOs getting similar large awards has grown since, and the practice snowballed in 2020, as tech stocks soared in the pandemic.
Palantir’s 2020 award for Mr. Karp was one of the most valuable compensation packages of any U.S. public company on record since 2007, according to compensation research firm Equilar.
Mr. Karp, an eccentric cross-country skier with a Ph.D. in German philosophy, controls Palantir with two other co-founders, Peter Thiel and Stephen Cohen, under a structure that allows each of them to sell significant chunks of their stakes while retaining control.
Unlike the Tesla pay package, which is tied to operational and market-value goals, Mr. Karp’s 2020 compensation package isn’t based on the company hitting future performance hurdles. It is largely in stock options that gradually accrue over a decade if he remains CEO of the company, which has never posted a profit. Since Palantir listed its stock last fall, Mr. Karp has sold more than $830 million in its shares, securities filings show. Palantir has said some of the sales are tied to Mr. Karp’s desire to cover the taxes related to some stock options.
Startup boards of directors must approve compensation awards. As money has rushed into the startup sector, founder-CEOs have gained sway over their boards through high-vote shares and a broader deference to CEOs, say some venture capitalists and founders.
The environment has made some directors reluctant to fight about pay just before an IPO, these investors say. After a company lists publicly, new CEO pay packages can invite more scrutiny given public shareholder votes. Many venture capitalists, who often sell their shares months after listing, say they don’t want to get a reputation for clashing with founders.
The competitive market has made for an environment where “everybody’s worried about deal flow,” said Glenn Kelman, CEO of the venture-capital-backed real-estate brokerage Redfin Corp., which went public in 2017. “That means that right from the start there’s a very permissive board.”
One reason mega-awards have become so popular is founders look to each other for comparable deals, venture capitalists and pay consultants say. Typically, boards or founder-CEOs hire a compensation consultant such as Compensia Inc., a commonly used advisory company in Silicon Valley, which gives a board a list of comparable CEO pay packages.
“It starts to catch on like wildfire,” said Ms. Ferracone, the Farient compensation consultant. Once peers win large awards, she said, a founder “hears about it and wants it too.”
Some companies, including GoodRx, have tied CEO stock packages to performance goals that companies quickly met. The Santa Monica, Calif., company, which lets consumers compare prescription-drug prices, before its September 2020 listing gave co-CEOs Doug Hirsch and Trevor Bezdek each 8.2 million shares in restricted stock that would fully accrue only once the company’s stock passed $51 a share.
That payday came quickly for Mr. Hirsch, an early employee at Yahoo and a former Facebook executive., and Mr. Bezdek, who previously founded an IT consulting firm: GoodRx reached the target by October and the stock vested, becoming fully owned by the founders.
The recent frenzy for SPACs has enabled a new spurt of such compensation deals, including at Bird, an unprofitable scooter-rental company that announced a merger with a SPAC this spring. As part of the merger, Bird said it gave Mr. VanderZanden, the founder, the compensation package that gives him as much as an extra 7.5% of the company, should he remain as CEO for four years and hit various growth targets.
Mr. VanderZanden currently stands to own more than 11% of the company once it completes its SPAC merger. He sold tens of millions of dollars of stock in earlier funding rounds. His shares carry 20 times the voting power of a standard share, effectively giving him control over the company, which is valued at $2.3 billion.
The Bird spokeswoman said Mr. VanderZanden is keeping his annual cash salary to about $1,000. “Boards and CEOs should increasingly align their incentives with shareholders,” she said. “This includes lower CEO salaries.”
—Theo Francis contributed to this article.
Write to Eliot Brown at [email protected]
Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the October 16, 2021, print edition as 'It’s Payday for Startup CEOs.'
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Typical Lax Dad
- Posts: 34080
- Joined: Mon Jul 30, 2018 12:10 pm
Re: The Nation's Financial Condition
We are going to break. The peasants will eventually rise up.Farfromgeneva wrote: ↑Sat Oct 16, 2021 3:50 am Another problem with global currency sterilization and free and easy money - values asset appreciation over income (no discount rate, don't need it in the early years) then the stock markets turn around and reward said future potential immediately in business valuation.
Today’s Tech Founders Don’t Just Own the Company. They’re Also Getting Huge Pay Packages.
Startup creators once tended to take little or no remuneration as CEOs. Now, some are getting giant stock awards, making them among America’s best-compensated corporate chiefs.
Robinhood co-founders Baiju Bhatt, left, and Vladimir Tenev on IPO day. AMIR HAMJA FOR THE WALL STREET JOURNAL
By Eliot Brown
Oct. 16, 2021 12:00 am ET
Archer Aviation Inc. is years from producing its only planned product, a four-passenger electric air taxi that the main U.S. regulator hasn’t yet certified. It hasn’t generated any revenue.
Still, the co-founders of this three-year-old company got a huge payday last month, a $99 million special stock award that stands to quadruple if Archer hits other milestones—thanks to a compensation package they negotiated before it listed publicly on Sept. 17.
For years, Silicon Valley was known as a place where leaders often bucked American corporate customs when it came to pay. Rather than receiving large stock grants and salaries, company founders like Facebook Inc.’s Mark Zuckerberg and Amazon. com Inc.’s Jeff Bezos took little or nothing. Instead, they benefited from the rising value of stock they got by starting their companies.
That philosophy has given way to a new trend: pay packages consisting of giant special stock awards. These make startup founders better compensated than CEOs who have taken the reins at some of the most valuable, established and profitable American corporations.
Alex Karp, co-founder and chief executive of Palantir Technologies Inc., which creates software that analyzes data for businesses and governments, last year received a compensation package valued at $1.1 billion—nearly three times Apple Inc. CEO Tim Cook’s $378 million pay package when he took over as CEO from co-founder Steve Jobs in 2011. Both were largely special stock awards designed to provide benefits to the CEOs over a 10-year period.
The two co-founders of digital healthcare company GoodRx Holdings Inc. each received a multiyear special stock award the company valued at $267 million before the company’s September 2020 listing—nearly equal to Alphabet Inc. CEO Sundar Pichai’s $281 million multiyear pay package in 2019 when he took over as CEO from Google co-founder Larry Page.
Seven of the 10 most valuable compensation packages for U.S. public companies in 2020 were to CEOs of startups that listed publicly that year, according to public-company data-and-analysis firm MyLogIQ LLC. Five of those startups paid their CEOs more than any company in the S&P 500, an index that includes the largest corporations in the country.
Before stock-trading app Robinhood Markets Inc. listed this summer, the eight-year-old firm’s co-founders received special stock awards the company valued at $806 million, atop a 2019 award recently valued at more than $600 million, according to company filings. Scooter-rental startup Bird Global Inc. awarded founder and CEO Travis VanderZanden a new compensation package giving him as much as an extra 7.5% of the company, which plans to list in coming weeks.
These awards are in addition to the shares the CEOs already have from founding their companies—a contrast with the approach of Facebook and Amazon. Mr. Bezos, for instance, owned about 41% of Amazon at IPO, and didn’t receive any additional stock grants at the time—or since.
A Bird spokeswoman said three-fourths of Mr. VanderZanden’s award was tied to performance targets. A GoodRx spokeswoman said its co-founders’ package was “designed to provide value to co-CEOs in connection with the success of GoodRx’s business and growth of its stock price.”
Other CEOs or spokespeople for recently listed companies included in this article either didn’t comment on the record or didn’t respond to inquiries.
The mega-grants’ backers say they help motivate executives to sustain rapid growth. A key feature of many of the pay packages is that, unlike more traditional CEO stock compensation, some or all of the awards are tied to growth targets. That means those founders ultimately get that portion of additional stock only if the company grows in value—in some cases substantially—and thus benefits all shareholders, proponents say.
Palantir said in a securities filing that it created its pre-listing awards for executives “to incentivize and retain them through the public listing process, the critical early days as a public company, and into the years ahead.” Robinhood in a securities filing said its awards were subject to the company’s hitting “challenging share price goals,” including that Robinhood’s share price more than tripled from its IPO within eight years.
The CEO-compensation awards are almost entirely in company stock, stock options or similar instruments, as is typical for U.S. public companies. They generally are meant to be the bulk of a CEO’s pay for multiple years following the award, given that many of the awards vest—or become fully the executives’—allowing them to sell gradually over time or once the company hits performance hurdles. To pay many expenses, CEOs typically sell stock or take out loans tied to it.
CEO Pay Surged in a Year of Upheaval and Leadership Challenges
The values that companies report for the awards—such as Palantir’s $1.1 billion award—are based on share prices at the time of the grants as well as factors such as the likelihood hurdles will be met, a dynamic that means CEOs often end up receiving pay well above what is initially reported, if they hit the hurdles. If they miss hurdles, or the stock falls, they generally end up receiving less.
Founder mystique
The compensation packages largely reflect Silicon Valley founders’ growing influence and mystique. Despite disasters like WeWork Cos. and Theranos Inc., venture-capital investors have increasingly ceded power to founders, typically through a dual-class share structure that gives them more voting power than other shareholders. Many venture capitalists have described their corporate-board roles as akin to advisers, not enforcers, giving founders greater influence on issues such as pay.
Most of the largest tech companies rose to prominence under the leadership of founders, so investors and founders say it is worth having a founder with a firm vision at the helm—even if the price is higher than earlier. Many of these executives own smaller stakes in their companies than some of the founders of giant companies of the dot-com era because they took on so much outside funding early on, they say.
The rich packages frustrate some large public-market investors and compensation professionals who see them as part of a Silicon Valley trend in which companies there are reversing years of improving U.S. corporate governance. While shareholders elsewhere have been getting more say on issues such as directors and pay, the largest startups going public are often heavily influenced or controlled by founders who are also very well compensated.
Companies generally intend executive compensation to motivate CEOs to align their interests with other shareholders. Because founders typically have such large stakes, huge grants of additional stock aren’t necessary, said Simiso Nzima, head of corporate governance at the California Public Employees’ Retirement System, the nation’s largest public pension fund. “It doesn’t make sense,” he said, “because they already own so much.”
The payouts’ costs are often borne by future public investors with no say in their creation. The companies continue to pay out the stock compensation after an IPO, so a founder gets a growing slice of the company while other shareholders see theirs shrink. “That is dilution of shareholders,” Mr. Nzima said. “These shares are not just coming out of nowhere.”
Pay has jumped sharply for the heads of newly public tech companies with dual-class shares, typically run by founders. Such companies that listed publicly in 2020 paid CEOs a median of $21.9 million in total compensation for the year, up from $3.3 million for those of companies going public in 2019 and compared with a median of $1.9 million for those making a debut from 2010 through 2019, according to a Wall Street Journal analysis of data from securities filings and University of Florida professor Jay Ritter, who studies IPOs.
Many of the CEO pay packages are far in excess of what a company would pay a typical nonfounder CEO, and they show the sway of startup CEOs over their boards, said Robin Ferracone, chief executive of Farient Advisors LLC, a longtime compensation consultant for corporations and boards. “They are just bad practice,” she said of the mega-awards. “It’s a CEO who is taking advantage of his or her power.”
Air-taxi award
Brett Adcock, 35, and Adam Goldstein, 42, founded Archer in 2018 to make a battery-powered, six-propeller aircraft that can fly at up to 150 miles an hour. The energetic entrepreneurs previously founded a hiring-focused software company they sold for over $100 million, and hoped with Archer to help reshape urban transportation with a network of air taxis.
The two early this year entered into detailed discussions to merge with a special-purpose acquisition company, or SPAC, a publicly traded shell company that can merge with a startup and bring it public.
Days into Archer’s negotiations with the SPAC, Atlas Crest Investment Corp., the two sides began to talk about a deal that involved stock grants and high-vote shares for the founders, securities filings show. Amid a buoyant market for SPACs, Atlas agreed to a compensation package giving them “Founder Grants” of 20 million shares each, with 10 votes a share—designed to leave each holding potentially 18% of the newly public company’s market value, up from about 11%, securities filings show. The shares would vest if Archer hit various milestones.
Just as Archer and Atlas completed the merger in September, Archer said it received an early-stage regulatory approval of its aircraft. That unlocked a quarter of the award, a combined $99 million at the SPAC’s closing share price on Sept. 16, the filings show.
A generation ago, tech startups often brought in experienced managers as CEOs as companies matured. In recent decades, companies generally compensated those CEOs in line with their peers in corporate America, typically giving modest cash salaries with most compensation in annual or multiyear stock grants that eventually added up to a few percentage points of the company.
Amazon’s Mr. Bezos took no stock options, an annual cash salary of no more than $82,000 through his tenure as CEO—he stepped down in July—and other compensation totaling less than $2 million. For years, a line in Amazon’s securities filings read: “Due to Mr. Bezos’ substantial ownership in the company Mr. Bezos requested not to receive additional compensation.”
Facebook’s Mr. Zuckerberg takes a $1 salary and no stock grants. His $25 million in reported compensation last year included only company-paid security and company-paid personal travel. Jack Dorsey, co-founder of Twitter Inc. and Square Inc., takes less than $5 a year in salary and no stock grants between both companies.
While other founder-CEOs received stock compensation, the awards tended to be far smaller than the recent crop of founder awards.
Occasional large multiyear awards have gone to nonfounder CEOs like Apple’s Mr. Cook, but they have tended to represent tiny percentages of a company. Mr. Cook’s 2011 award was approximately 0.1% of Apple’s market capitalization at the time.
‘Founder-friendly’
The big-package trend traces to the middle of last decade, when money rushed into Silicon Valley startups. The most in-demand founder-CEOs could essentially choose their investors, helping lead venture-capital firms to compete on being what many in tech called “founder-friendly.” The notion of a nonfounder professional CEO fell out of favor, while venture-capital firms agreed to let founders of hot companies secure full control over their company despite owning a minority financial stake.
Snap Inc. in 2017—unprofitable at the time—awarded co-founder Evan Spiegel compensation valued at $637.8 million, partly as an incentive to list publicly. Tesla Inc. in 2018 gave Elon Musk a compensation package valued at $2.3 billion that gave him more stock if the then-unprofitable company hit targets to increase its market capitalization, revenue and profits. Both companies said in filings that they intended the awards to motivate the CEOs to continue expanding the businesses. Mr. Musk’s award has so far proved significantly more valuable than first reported, helping make him the richest person in the world.
The number of CEOs getting similar large awards has grown since, and the practice snowballed in 2020, as tech stocks soared in the pandemic.
Palantir’s 2020 award for Mr. Karp was one of the most valuable compensation packages of any U.S. public company on record since 2007, according to compensation research firm Equilar.
Mr. Karp, an eccentric cross-country skier with a Ph.D. in German philosophy, controls Palantir with two other co-founders, Peter Thiel and Stephen Cohen, under a structure that allows each of them to sell significant chunks of their stakes while retaining control.
Unlike the Tesla pay package, which is tied to operational and market-value goals, Mr. Karp’s 2020 compensation package isn’t based on the company hitting future performance hurdles. It is largely in stock options that gradually accrue over a decade if he remains CEO of the company, which has never posted a profit. Since Palantir listed its stock last fall, Mr. Karp has sold more than $830 million in its shares, securities filings show. Palantir has said some of the sales are tied to Mr. Karp’s desire to cover the taxes related to some stock options.
Startup boards of directors must approve compensation awards. As money has rushed into the startup sector, founder-CEOs have gained sway over their boards through high-vote shares and a broader deference to CEOs, say some venture capitalists and founders.
The environment has made some directors reluctant to fight about pay just before an IPO, these investors say. After a company lists publicly, new CEO pay packages can invite more scrutiny given public shareholder votes. Many venture capitalists, who often sell their shares months after listing, say they don’t want to get a reputation for clashing with founders.
The competitive market has made for an environment where “everybody’s worried about deal flow,” said Glenn Kelman, CEO of the venture-capital-backed real-estate brokerage Redfin Corp., which went public in 2017. “That means that right from the start there’s a very permissive board.”
One reason mega-awards have become so popular is founders look to each other for comparable deals, venture capitalists and pay consultants say. Typically, boards or founder-CEOs hire a compensation consultant such as Compensia Inc., a commonly used advisory company in Silicon Valley, which gives a board a list of comparable CEO pay packages.
“It starts to catch on like wildfire,” said Ms. Ferracone, the Farient compensation consultant. Once peers win large awards, she said, a founder “hears about it and wants it too.”
Some companies, including GoodRx, have tied CEO stock packages to performance goals that companies quickly met. The Santa Monica, Calif., company, which lets consumers compare prescription-drug prices, before its September 2020 listing gave co-CEOs Doug Hirsch and Trevor Bezdek each 8.2 million shares in restricted stock that would fully accrue only once the company’s stock passed $51 a share.
That payday came quickly for Mr. Hirsch, an early employee at Yahoo and a former Facebook executive., and Mr. Bezdek, who previously founded an IT consulting firm: GoodRx reached the target by October and the stock vested, becoming fully owned by the founders.
The recent frenzy for SPACs has enabled a new spurt of such compensation deals, including at Bird, an unprofitable scooter-rental company that announced a merger with a SPAC this spring. As part of the merger, Bird said it gave Mr. VanderZanden, the founder, the compensation package that gives him as much as an extra 7.5% of the company, should he remain as CEO for four years and hit various growth targets.
Mr. VanderZanden currently stands to own more than 11% of the company once it completes its SPAC merger. He sold tens of millions of dollars of stock in earlier funding rounds. His shares carry 20 times the voting power of a standard share, effectively giving him control over the company, which is valued at $2.3 billion.
The Bird spokeswoman said Mr. VanderZanden is keeping his annual cash salary to about $1,000. “Boards and CEOs should increasingly align their incentives with shareholders,” she said. “This includes lower CEO salaries.”
—Theo Francis contributed to this article.
Write to Eliot Brown at [email protected]
Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the October 16, 2021, print edition as 'It’s Payday for Startup CEOs.'
“I wish you would!”
-
youthathletics
- Posts: 15817
- Joined: Mon Jul 30, 2018 7:36 pm
Re: The Nation's Financial Condition
A fraudulent intent, however carefully concealed at the outset, will generally, in the end, betray itself.
~Livy
“There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.” -Soren Kierkegaard
~Livy
“There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.” -Soren Kierkegaard
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
Picture is hilarious. I don't think I agree that this is the case unless you label the bridge "the political class writ large abrogating their responsibilities for 30+ years"
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
How's this P&G story work with this forward projection from the Fed (who controls this rate)
https://fred.stlouisfed.org/series/FEDTARMD
(meanwhile a bank I work with got stuffed with a bunch of NCL and American Airlines Term Loan B, leveraged or syndicated loans, but I see the AA piece is trading at $103.58, so another incongruity between monetary policy and reality)
Procter & Gamble to Raise Prices on More Staples
Company says cost of materials and freight jumped more than expected, cutting into profit
Procter & Gamble, maker of Tide, said it was working to ensure it has products in stock amid rising costs.
PHOTO: KRISTEN NORMAN FOR THE WALL STREET JOURNAL
By Sharon Terlep
Oct. 19, 2021 7:06 am ET
Procter & Gamble Co. PG -1.44% is raising prices on a host of household staples as costs for freight and raw materials rise faster than the consumer-product giant anticipated.
The maker of Tide detergent and Gillette razors said it would start charging more for certain beauty, oral care and grooming products such as razors. The price increases come in addition to earlier moves to start charging more for staples from diapers to toilet paper.
P&G, which released quarterly financial results on Tuesday, said the moves, along with increased demand for its products, should help offset added costs.
U.S. inflation is at its highest level in a decade as price increases from pandemic-related labor and materials shortages ripple through the economy.
“We do not anticipate any easing of costs,” P&G Finance Chief Andre Schulten said in an interview. “We continue to see increases week after week, though at a slower pace.”
P&G said organic sales, a measure that strips out deals and currency moves, increased 4% in the quarter ended Sept. 30. Profit fell slightly. The company said core earnings per share fell 1% to $1.61.
Costs are rising faster than P&G forecast. P&G now expects to spend $2.1 billion more on transportation and raw materials such as pulp and resin for the fiscal year ending June 2022. The company in July predicted a $1.9 billion increase.
Mr. Schulten said the company’s higher spending is wide ranging, particularly as it works to ensure it has products in stock as consumers increasingly encounter sparse shelves at stores.
He said P&G is enlisting backup suppliers, changing up shipping routes to get around bottlenecks, reformulating products and, in some cases, limiting how much any one retailer can buy at a time to avoid stockpiling.
“To the consumer, it looks like we’re in good supply,” he said.
Despite the higher expenses, P&G maintained its sales and profit outlooks for the year, saying increased revenue and cost reductions will enable the company to stay on track.
Demand remains high for pandemic hot sellers such as cleaners, paper towels and toilet paper even as more people return to work and school, Mr. Schulten said. Organic sales rose in every segment last quarter, with consumers buying P&G products in higher quantities and paying more, both because of price increases and because they favored higher-end mainstays, from pricey razors to premium diapers.
The biggest sales increase was in P&G’s healthcare unit, driven by higher demand for respiratory remedies as more people contracted colds and other bugs, compared with a year ago when people in many parts of the world were locked down as a result of the coronavirus pandemic.
During the latest quarter, P&G’s net sales rose 5% to $20.3 billion, higher than the consensus forecast of $19.8 billion from analysts polled by FactSet.
https://fred.stlouisfed.org/series/FEDTARMD
(meanwhile a bank I work with got stuffed with a bunch of NCL and American Airlines Term Loan B, leveraged or syndicated loans, but I see the AA piece is trading at $103.58, so another incongruity between monetary policy and reality)
Procter & Gamble to Raise Prices on More Staples
Company says cost of materials and freight jumped more than expected, cutting into profit
Procter & Gamble, maker of Tide, said it was working to ensure it has products in stock amid rising costs.
PHOTO: KRISTEN NORMAN FOR THE WALL STREET JOURNAL
By Sharon Terlep
Oct. 19, 2021 7:06 am ET
Procter & Gamble Co. PG -1.44% is raising prices on a host of household staples as costs for freight and raw materials rise faster than the consumer-product giant anticipated.
The maker of Tide detergent and Gillette razors said it would start charging more for certain beauty, oral care and grooming products such as razors. The price increases come in addition to earlier moves to start charging more for staples from diapers to toilet paper.
P&G, which released quarterly financial results on Tuesday, said the moves, along with increased demand for its products, should help offset added costs.
U.S. inflation is at its highest level in a decade as price increases from pandemic-related labor and materials shortages ripple through the economy.
“We do not anticipate any easing of costs,” P&G Finance Chief Andre Schulten said in an interview. “We continue to see increases week after week, though at a slower pace.”
P&G said organic sales, a measure that strips out deals and currency moves, increased 4% in the quarter ended Sept. 30. Profit fell slightly. The company said core earnings per share fell 1% to $1.61.
Costs are rising faster than P&G forecast. P&G now expects to spend $2.1 billion more on transportation and raw materials such as pulp and resin for the fiscal year ending June 2022. The company in July predicted a $1.9 billion increase.
Mr. Schulten said the company’s higher spending is wide ranging, particularly as it works to ensure it has products in stock as consumers increasingly encounter sparse shelves at stores.
He said P&G is enlisting backup suppliers, changing up shipping routes to get around bottlenecks, reformulating products and, in some cases, limiting how much any one retailer can buy at a time to avoid stockpiling.
“To the consumer, it looks like we’re in good supply,” he said.
Despite the higher expenses, P&G maintained its sales and profit outlooks for the year, saying increased revenue and cost reductions will enable the company to stay on track.
Demand remains high for pandemic hot sellers such as cleaners, paper towels and toilet paper even as more people return to work and school, Mr. Schulten said. Organic sales rose in every segment last quarter, with consumers buying P&G products in higher quantities and paying more, both because of price increases and because they favored higher-end mainstays, from pricey razors to premium diapers.
The biggest sales increase was in P&G’s healthcare unit, driven by higher demand for respiratory remedies as more people contracted colds and other bugs, compared with a year ago when people in many parts of the world were locked down as a result of the coronavirus pandemic.
During the latest quarter, P&G’s net sales rose 5% to $20.3 billion, higher than the consensus forecast of $19.8 billion from analysts polled by FactSet.
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
-
Farfromgeneva
- Posts: 23816
- Joined: Sat Feb 23, 2019 10:53 am
Re: The Nation's Financial Condition
This is a good thing-theres too many folks in this business line my age and younger who think it’s about “de-risking and getting a cheap or free option on the upside” (have heard this from a ton of PE professionals who sit on their portfolio companies boards even in early 30s, because it’s extra comp not because they add value strategically)
Deal Breaker: Private-Equity Firm Bans the Word ‘Deal’
At Partners Group Holding, using the word can cost $1,000 for each violation; ‘Please don’t roll your eyes if I bust you’
By Miriam Gottfried
Oct. 20, 2021 1:50 pm ET
At Partners Group Holding AG, “deal” is a four-letter word.
David Layton, the Swiss firm’s chief executive, banned the term at a global town hall meeting in early June.
Role model
Never mind that as a private-equity firm with $119 billion in assets, Partners Group exists to do…deals. It has done $27 billion of them in the past 12 months, such as the $8.5 billion sale of software-engineering firm GlobalLogic Inc. to Japan’s Hitachi Ltd.
Mr. Layton said at the meeting that the firm would make a $10,000 donation to its charitable arm and deduct $100 from that donation any time the word was written or uttered by a junior employee. Partners using the D-word would be fined, in the form of a $1,000 donation to the charity for each violation. Enforcement would be based on the honor system.
It wasn’t long before Mr. Layton had to prove he meant business. A week later at Partners Group’s annual retreat at Lenzerheide, a mountain resort in the Swiss Alps, co-founder Marcel Erni said “deal” three times during his opening remarks.
Mr. Layton fined him 3,000 Swiss francs, or about $3,000, to go to the charity.
The CEO snapped a photo of Mr. Erni, who, unlike Mr. Layton, sits on the firm’s board, forking over three 1,000-franc notes. Mr. Layton asked his assistant to upload the photo to Partners Group’s internal message board, accompanied by a reminder: “how we communicate is how we behave.”
Mr. Layton, 40 years old, says he banned the word because he is trying to get his colleagues to shift from a transactional mind-set to one he calls “industrial.”
Two decades ago, Mr. Layton says, the buyout business was a $700 billion industry in which firms made big money with a simple formula: buy companies using a large amount of debt, make some cosmetic changes and sell them off. These days, it’s an $8 trillion industry, and if firms want to make the double-digit returns their investors expect, they have to think like entrepreneurs, he says.
“We want to act like founders, not financiers,” Mr. Layton says. “Do our customers love us? Is our product resonating?”
He says the word “deal” reduces the ownership of a company—which has executives, employees, a strategy and a mission—to a one-time event. He wants the employees of his firm to act like they are owners of businesses, not merely the doers of deals.
Preferred vocabulary includes “stewardship, governance, strategy, culture, entrepreneurship, operational excellence and sustainability,” he says. Some employees have resorted to using the word “investment” as a substitute for the banned word.
The ban has elicited sighs and eye-rolls from staffers, but many say it’s in keeping with the firm’s quirky culture.
Partners Group, which finished raising a $15 billion buyout fund in September, isn’t alone in seeking to put a better face on the oft-maligned private-equity industry. But it appears to be the first of its peers attempting to do so by striking a key word from its corporate lexicon.
“People in our business are called sharks, vultures, wolves…in Germany they call us locusts,” Mr. Layton says. “At Partners, we’re like penguins. When it gets cold they all huddle together to protect the young penguins.”
The firm was founded in Switzerland in 1996 by Mr. Erni, Alfred Gantner and Urs Wietlisbach, who had worked together as bankers at Goldman Sachs Group Inc.
The trio made a point of giving employees time to recharge every five years—a three-month sabbatical for partners and five additional weeks of vacation for lower-level employees—a foreign concept in the work-obsessed world of finance.
Partners Group was also the first private-equity firm to go public, in 2006, listing its shares on the Swiss stock exchange.
“Maybe because we were in the secluded Alps, we started to do things our own way,” Mr. Gantner says. “We didn’t breathe the same air that everyone else was breathing.”
In the early years, the three founders would take a half-day every four months and hike Wildspitz, a peak near their office. Smaller teams still sometimes make that 6- or 7-mile trek.
John Ivanac, a Partners Group managing director, who joined the firm from BlackRock Inc. in 2020, recently completed a trek to the top of Wildspitz. Some people struggled, he says, but their leader, who was previously the Swiss equivalent of a Navy SEAL, got them to the top. While at the summit, the group did an exercise where each member wrote behaviors they were going to stop doing on a piece of paper and tossed it into a fire. Members of the group now remind each other to abide by their pledges by saying “wild peak,” the translation of Wildspitz, whenever a lapse occurs, he says.
“I love it,” he says, of the “deal” word ban.
Mr. Layton became co-CEO alongside André Frei in 2019 and has been sole CEO since July 1, when Mr. Frei took on the newly created role of chairman of sustainability. Mr. Layton works out of the firm’s new U.S. headquarters, whose construction he oversaw. In determining its location, he sought out mountainous regions far from Wall Street. One option was Salt Lake City, but Mr. Layton, a Mormon, decided against it after ribbing from his colleagues.
“They called it ‘Dave’s plan for mass conversion,’ ” he says. “I didn’t want that hanging over it.”
Instead, he chose Denver.
As for the “deal” ban, the firm has regressed a bit of late. On Sept. 16, Mr. Layton, who has personally fined one other senior person besides Mr. Erni, posted another message to the internal network, with the subject line “no more deals.” He said the firm had made progress in June, July and August, but the dreaded word had been coming up again with greater frequency.
Slippages have typically happened in investment committee meetings or calls to discuss the firm’s investment pipeline, formerly known as “deal flow” calls.
Unless Mr. Layton or one of the founders happens to overhear, it’s up to the partner to pay the fine. There are signs that the honor system is working. Partners Group says donations to its charitable arm are up 65% so far this year, though the firm doesn’t know if all the donations were due to the “deal” ban.
“Please don’t roll your eyes if I bust you,” Mr. Layton wrote. “I’m taking this seriously.”
Write to Miriam Gottfried at [email protected]
Deal Breaker: Private-Equity Firm Bans the Word ‘Deal’
At Partners Group Holding, using the word can cost $1,000 for each violation; ‘Please don’t roll your eyes if I bust you’
By Miriam Gottfried
Oct. 20, 2021 1:50 pm ET
At Partners Group Holding AG, “deal” is a four-letter word.
David Layton, the Swiss firm’s chief executive, banned the term at a global town hall meeting in early June.
Role model
Never mind that as a private-equity firm with $119 billion in assets, Partners Group exists to do…deals. It has done $27 billion of them in the past 12 months, such as the $8.5 billion sale of software-engineering firm GlobalLogic Inc. to Japan’s Hitachi Ltd.
Mr. Layton said at the meeting that the firm would make a $10,000 donation to its charitable arm and deduct $100 from that donation any time the word was written or uttered by a junior employee. Partners using the D-word would be fined, in the form of a $1,000 donation to the charity for each violation. Enforcement would be based on the honor system.
It wasn’t long before Mr. Layton had to prove he meant business. A week later at Partners Group’s annual retreat at Lenzerheide, a mountain resort in the Swiss Alps, co-founder Marcel Erni said “deal” three times during his opening remarks.
Mr. Layton fined him 3,000 Swiss francs, or about $3,000, to go to the charity.
The CEO snapped a photo of Mr. Erni, who, unlike Mr. Layton, sits on the firm’s board, forking over three 1,000-franc notes. Mr. Layton asked his assistant to upload the photo to Partners Group’s internal message board, accompanied by a reminder: “how we communicate is how we behave.”
Mr. Layton, 40 years old, says he banned the word because he is trying to get his colleagues to shift from a transactional mind-set to one he calls “industrial.”
Two decades ago, Mr. Layton says, the buyout business was a $700 billion industry in which firms made big money with a simple formula: buy companies using a large amount of debt, make some cosmetic changes and sell them off. These days, it’s an $8 trillion industry, and if firms want to make the double-digit returns their investors expect, they have to think like entrepreneurs, he says.
“We want to act like founders, not financiers,” Mr. Layton says. “Do our customers love us? Is our product resonating?”
He says the word “deal” reduces the ownership of a company—which has executives, employees, a strategy and a mission—to a one-time event. He wants the employees of his firm to act like they are owners of businesses, not merely the doers of deals.
Preferred vocabulary includes “stewardship, governance, strategy, culture, entrepreneurship, operational excellence and sustainability,” he says. Some employees have resorted to using the word “investment” as a substitute for the banned word.
The ban has elicited sighs and eye-rolls from staffers, but many say it’s in keeping with the firm’s quirky culture.
Partners Group, which finished raising a $15 billion buyout fund in September, isn’t alone in seeking to put a better face on the oft-maligned private-equity industry. But it appears to be the first of its peers attempting to do so by striking a key word from its corporate lexicon.
“People in our business are called sharks, vultures, wolves…in Germany they call us locusts,” Mr. Layton says. “At Partners, we’re like penguins. When it gets cold they all huddle together to protect the young penguins.”
The firm was founded in Switzerland in 1996 by Mr. Erni, Alfred Gantner and Urs Wietlisbach, who had worked together as bankers at Goldman Sachs Group Inc.
The trio made a point of giving employees time to recharge every five years—a three-month sabbatical for partners and five additional weeks of vacation for lower-level employees—a foreign concept in the work-obsessed world of finance.
Partners Group was also the first private-equity firm to go public, in 2006, listing its shares on the Swiss stock exchange.
“Maybe because we were in the secluded Alps, we started to do things our own way,” Mr. Gantner says. “We didn’t breathe the same air that everyone else was breathing.”
In the early years, the three founders would take a half-day every four months and hike Wildspitz, a peak near their office. Smaller teams still sometimes make that 6- or 7-mile trek.
John Ivanac, a Partners Group managing director, who joined the firm from BlackRock Inc. in 2020, recently completed a trek to the top of Wildspitz. Some people struggled, he says, but their leader, who was previously the Swiss equivalent of a Navy SEAL, got them to the top. While at the summit, the group did an exercise where each member wrote behaviors they were going to stop doing on a piece of paper and tossed it into a fire. Members of the group now remind each other to abide by their pledges by saying “wild peak,” the translation of Wildspitz, whenever a lapse occurs, he says.
“I love it,” he says, of the “deal” word ban.
Mr. Layton became co-CEO alongside André Frei in 2019 and has been sole CEO since July 1, when Mr. Frei took on the newly created role of chairman of sustainability. Mr. Layton works out of the firm’s new U.S. headquarters, whose construction he oversaw. In determining its location, he sought out mountainous regions far from Wall Street. One option was Salt Lake City, but Mr. Layton, a Mormon, decided against it after ribbing from his colleagues.
“They called it ‘Dave’s plan for mass conversion,’ ” he says. “I didn’t want that hanging over it.”
Instead, he chose Denver.
As for the “deal” ban, the firm has regressed a bit of late. On Sept. 16, Mr. Layton, who has personally fined one other senior person besides Mr. Erni, posted another message to the internal network, with the subject line “no more deals.” He said the firm had made progress in June, July and August, but the dreaded word had been coming up again with greater frequency.
Slippages have typically happened in investment committee meetings or calls to discuss the firm’s investment pipeline, formerly known as “deal flow” calls.
Unless Mr. Layton or one of the founders happens to overhear, it’s up to the partner to pay the fine. There are signs that the honor system is working. Partners Group says donations to its charitable arm are up 65% so far this year, though the firm doesn’t know if all the donations were due to the “deal” ban.
“Please don’t roll your eyes if I bust you,” Mr. Layton wrote. “I’m taking this seriously.”
Write to Miriam Gottfried at [email protected]
Now I love those cowboys, I love their gold
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know
Taught me so well, that I grabbed that gold
I left his dead ass there by the side of the road, yeah
Re: The Nation's Financial Condition
https://www.bloomberg.com/news/articles ... f=vuYGislZ
"Trucking is an industry long beset by grueling hours and declining pay. Few know those hardships better than port truck drivers.
Port truckers are typically independent contractors, without the benefits and protections of unionized transport sectors or even major companies with shipping divisions, like Amazon.com Inc. Their jobs require them to line up for hours to pick up cargo, and they’re paid only when they move it.
“The port truck driver, for decades now, has basically been the slack adjuster in the whole system,” said Steve Viscelli, an economic sociologist with the University of Pennsylvania who studies labor markets and supply chains. The entire system, he said, is built around free labor from truck drivers as they wait for containers."
"Trucking is an industry long beset by grueling hours and declining pay. Few know those hardships better than port truck drivers.
Port truckers are typically independent contractors, without the benefits and protections of unionized transport sectors or even major companies with shipping divisions, like Amazon.com Inc. Their jobs require them to line up for hours to pick up cargo, and they’re paid only when they move it.
“The port truck driver, for decades now, has basically been the slack adjuster in the whole system,” said Steve Viscelli, an economic sociologist with the University of Pennsylvania who studies labor markets and supply chains. The entire system, he said, is built around free labor from truck drivers as they wait for containers."
-
youthathletics
- Posts: 15817
- Joined: Mon Jul 30, 2018 7:36 pm
Re: The Nation's Financial Condition
Anyone ask Bezos why he needs so many truck drivers and damaged our the process? Enticing move for independents....solid pay, benefits, known hours (for the most part). If you've never been to an amazon distribution center or local satellite store for your territory, just sip a cup of coffee for a n hour or two out front. Their use of truckers and vans.....'drivers' is astonishing.Kismet wrote: ↑Thu Oct 21, 2021 9:12 am https://www.bloomberg.com/news/articles ... f=vuYGislZ
"Trucking is an industry long beset by grueling hours and declining pay. Few know those hardships better than port truck drivers.
Port truckers are typically independent contractors, without the benefits and protections of unionized transport sectors or even major companies with shipping divisions, like Amazon.com Inc. Their jobs require them to line up for hours to pick up cargo, and they’re paid only when they move it.
“The port truck driver, for decades now, has basically been the slack adjuster in the whole system,” said Steve Viscelli, an economic sociologist with the University of Pennsylvania who studies labor markets and supply chains. The entire system, he said, is built around free labor from truck drivers as they wait for containers."
A fraudulent intent, however carefully concealed at the outset, will generally, in the end, betray itself.
~Livy
“There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.” -Soren Kierkegaard
~Livy
“There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.” -Soren Kierkegaard