Sunday, September 30, 2007

Aw, Shucks

Apparently TED has been anointed a charter member of the "Econoblogosphere." Thanks, Felix.

It is certainly flattering to be included in such eminent company, and I suppose I should not look a gift horse in the mouth, but I worry a little for some of Felix's readers who come to this site with no preparation other than his brief characterization. After all, he lumps your Tetchy Correspondent in with "The Finance Geeks," whom he describes as "translating Wall Street gobbledegook into English." Faithful Readers of this site know rather that my aim and design is to translate Wall Street gobbledegook into English gobbledegook. Besides, I think it would be much more fun to be sitting in the back row throwing spitballs with "The Snickerers." If only they could learn how to spell.

Oh, well. Do not despair, Dear Readers: the newbies will soon leave, bedazzled and befuddled, and we will have our limited-distribution blogo-nicheo-microsphere back to ourselves. Just remember our watchwords: turbid and orotund. Pass them on.

© 2007 The Epicurean Dealmaker. All rights reserved.

Friday, September 28, 2007

Confidence Game

Is it just me, or is the sound of whistling getting louder in here?

Helen Thomas from FT Alphaville told us earlier this week that the market mavens at UBS have declared the imminent health of the mergers and acquisitions market. Apparently, these Pollyannas took a gander at previous disruptions to the global financial markets—like the US savings and loan crisis and the implosion of Long-Term Capital Management—and have concluded there is no reason to speculate that this time things will be other than just peachy.

Sure, the sudden freeze in the credit markets has put the kibosh on free money masquerading as "covenant lite" debt, and the maximum feasible deal size for prospective LBOs has plunged over 80% to seven billion smacke(u)roos, but all else is for the best in this best of all possible worlds, according to our lederhosen-wearing pals. To what is their optimism due? Well, to the faithful corporate M&A buyer, of course, who they are sure is even now sprinting up to take the baton on the next leg of the global M&A steeplechase.

Now of course it is true that corporate buyers continue to account for the substantial majority of the M&A deal volume, as they have done from time immemorial. There was a time, not too long ago, when private equity accounted for less than 10% of the annual deal volume in the market, and it has only been over the past several years that it has peeked noticeably into double digits. A casual reader of the financial press might be forgiven for believing—based upon the column inches devoted to chronicling in nauseating detail the deal making, compensation, and social peccadillos of various and sundry PE plutocrats—that corporations have been taking a very long nap in the M&A coma ward over the past few years, but it is not true.

That being said, long experience and personal knowledge of many corporate dealmakers has left me with little reason to suppose that hordes of the same are chomping at the bit to preserve the frenzied dealmaking pace witnessed earlier this year. A little sober reflection on your part, Dear Reader, will surely lead you to the same conclusion. For what CEO, CFO, or even corporate development officer would feel compelled to leap into action and start spewing above-market bids left and right simply because a few drunken sailors (PE firms, natch) have left the field?

While it transpired, the credit market love fest which turned every second year Associate at Carlyle and KKR into Genghis Khan Jr. had little effect on the dealmaking proclivities of Corporate America or Europe, other than making them shake their wooly heads in wonder at the insane multiples said Associates and their betters committed to pay the delighted sellers. Now that the ersatz financial wunderkinder have toddled off to the nursery to play with smaller companies—or with none at all—your average workaday CEO is trying to calculate a decent interval of mourning before he or she launches a substantially lower offer for the juicy little acquisition target he or she has been eyeing these many moons.

But here we come to the crux of the matter. In order for M&A nooky to take place, there must be an agreement between consenting adults, and most of the potential sellers I am aware of are claiming to suffer from nasty headaches. Pourquoi? Well, wouldn't you have second thoughts, Dear Reader, about giving up the good thing if your paramour suddenly changed the dinner venue for your date from Le Cirque to Applebee's? Sure you would. The dramatic recent compression of valuation multiples offered has had a distinct chilling effect on the ardor of most potential sellers, for the simple fact that most potential sellers do not have to sell. For the average CEO, it is much better to remain in the C-suite, collecting juicy option reloads and undemanding performance bonuses than to settle for a golden parachute calculated on a less than stratospheric takeout multiple.

There is a similar and well documented "seller strike" syndrome in the residential housing market, where sellers refuse to acknowledge a market-wide reduction in the price level and insist on listing their property at the value implied by what their neighbor Bob realized three months ago. The effect in the housing and the M&A market is the same: the property languishes on the market indefinitely, until the seller pulls the listing in disgust or capitulates to offer it at the new, lower market price.

I would that it were not so, but we investment bankers as a class do little to dissuade potential sellers from behaving in this fashion. In order to win the assignment to sell a business, an investment banker must usually be exceedingly optimistic about both the potential value achievable in a sale and the speed with which the potential buyers can line the seller's pockets with moolah. (While most sellers give the pitching i-bankers some rigamarole about the importance of certain "soft" factors, like preserving jobs and such, there are only three things a potential seller is really concerned about in awarding a sale mandate: value, value, and value.)

After he has won the assignment, the investment banker's job largely consists of (1) persuading potential buyers against all contrary evidence that this property above all others is truly worth a king's ransom and (2) reassuring the seller that an unhinged buyer is mere days away from lobbing in an offer priced at the highest multiple ever recorded in M&A history. Once the final bids are in—usually falling pathetically short of the target value the i-banker told his client was in the bag—said intermediary must switch rapidly to spin and close mode, in which he simultaneously staves off both buyer's and seller's remorse until the final check changes hands in the closing ceremony. In short, a successful sell-side investment banker must have the patience of Job, the constitution of an ox, the self-delusion of a real estate broker, and the cast-iron cheer of a Frank Capra movie.

It is hard to fake such a persona, and unwise to turn it off in public, which is why we are now getting treated with articles like the one published today in the FT. After describing the ineluctable evidence of a dramatic slowdown in deal activity, the reporters regale us with a veritable parade of M&A honchos who tell anyone who will listen that the good times are coming back, in spades. As an industry insider, I tell you in confidence that they do this in part to preserve as much of the M&A department's bonus pool as possible against the inevitable cuts coming down from the executive suites of Wall Street. But they also do it because they realize that—unlike private equity, which depends on the ready availability of attractive debt finance to make their buyouts work—for corporate buyers confidence is the lifeblood and driver of strategic M&A activity. No confidence, no deals. No deals, no Testarossa.

So now you understand. The M&A market is subject to the same relentless march of progress as the rest of society.

In Ancient Egypt, there was only one Cleopatra. Nowadays, Wall Street is full of Queens o' de Nile.

© 2007 The Epicurean Dealmaker. All rights reserved.

Thursday, September 20, 2007

Moral Fiber

I saw a really promising article about hedge fund managers and real estate in The New York Times yesterday, and I thought, "Goody! Now we can see how the hedgies are adjusting to the new market realities."

I settled in with my coffee and roll for a nice helping of Sturm und Drang, a great wailing and gnashing of teeth, and a clash of Titans as the Irresistible Force of Hedge Fund Ego smashed against the Immovable Object of New York Real Estate. Instead, I got Woody Allen and Alan Alda bickering over the script of The Four Seasons.
So the pressure begins to build, and eventually, said Andy Kessler, a former hedge fund manager, “you stop spending.” Why? Fear, mostly.

“You worry about redemptions,” Mr. Kessler said, “you worry about margin calls, and you worry about working for free. Down 7 percent may be no big deal, but when your investors say, ‘Get me out,’ you have to sell everything.”

After years of eye-popping returns, sudden losses can be wrenching. Aware of the psychological impact that high-pressure trading can have, several funds have retained psychologists to counsel stressed managers.

“It has been a very challenging period for these people,” said Jonathan F. Katz, a psychologist who works with large hedge funds. “I have seen people shaken, their confidence eroded. They are upset and depressed.”

"Upset and depressed?" You're effin' kidding me, right?

Unfortunately not. The article continues:

Such distress can result in what some call a social contagion, as hedge fund executives let their woes at work affect their personal lives. Investors have said that their golf scores soar, that they lose their appetites and wake up in the middle of the night in a cold sweat.

To be sure, many investors are cool headed enough to not let inevitable setbacks derail them. But others find it hard to keep their sense of self insulated from losses.

“Some people are debilitated by it,” said Ari Kiev, a psychiatrist who works principally for SAC Capital, the hedge fund founded by Steven A. Cohen. “You can’t sleep; you can’t eat; you have catastrophic thoughts about losing your house.”

A prominent hedge fund investor, who like the other executives who discussed their anxieties asked not to be identified, spoke of a crisis of confidence. “It’s an intellectual destabilization,” he said. “All of a sudden, your funds are down 5 percent and the S.& P. is down 1 percent. Once you were master of the universe, but the market makes you humble.”

What?! These assholes suffer a 4% relative underperformance over one month and all of a sudden they're feeling humbled? The next thing you know we'll be reading about how they're suffering from hives and erectile dysfunction. Sheesh.

* * *

I don't know about you, Dear Readers, but I like to have my heroes and villains a little larger than life, with hair on their chest and balls a size or two too large for their britches. (You too, girls.) I don't want to read about some pussy who can't even maintain the conviction of his own Napoleon complex when he suffers a couple of slings and arrows. Where's the ranting and raving, the breaking of crockery? Instead, we get a gelded Tony Soprano with his thumb up his ass.

It occurred to me as I read on that this is what has bothered me most about all the column inches offered up by hedge fund apologists in the media these past years. Instead of J.P. Morgan thrashing a photographer with the temerity to photograph his ugly great schnozz, we get a pudgy, fleece-wearing Steve Cohen whinging about how all the money-making opportunities have disappeared and giving photo ops at his local Greenwich sandwich stand. Instead of Andrew Carnegie and Henry Frick crushing a steelworker's strike with hired thugs, we get Daniel Loeb picking lopsided fights with deer-in-the-headlights corporate managers who can't get out of their own way, much less his. Butterballs instead of titans; playground bullies in place of forces of nature. For cripes sake, I'd take even Dennis Kozlowski over James Simons any day. Simons may be smarter than Stephen Hawking and Albert Einstein combined, but the man's personality makes soggy melba toast look downright scintillating.

Where's the brio? Where's the chutzpah? Where's the moxie?

Who knows? There may be some interesting personalities out there in hedge fund land, but I can't for the life of me remember reading about them. Ken and Anne Griffin slobbering over each other's "passion" in Portfolio magazine? Puh-leeze. These people need a serious personality makeover.

Get some grace. Get some style. Get some class. It's not like you can't afford it.

If you need an example of how not to behave, just reread the NYT article. Word to the wise: don't send your bejewelled crack whore girlfriend to check out a $48 million Southampton estate so she can ask whether JetSkis are allowed on Lake Agawam. Putz. And if you're really suffering from severe depression and performance anxiety, don't take a full page confessional ad out in the Times. Go buy yourself a really nice English shotgun and go out in style, à la Ernest Hemingway.

This one should do nicely. It's efficient, and your heirs will appreciate that you left them a really fine piece of hardware.

You do want to leave a legacy, don't you?

© 2007 The Epicurean Dealmaker. All rights reserved.


That's a relief.

With the courteous assistance of those clever Dutch over at, I just tested whether TED has been blocked from viewing by the teeming hordes of Communist China. It has.

Up until this morning, I was beginning to worry that my snarky little posts pointing out the fraud, follies, and shenanigans in our lovely financial markets were beginning to disabuse all those budding criminals capitalists of their childlike hope in the future of the global market economy.

Fortunately, the Maoist-Confucian Society for Right Thinking has banned access to these pages by its citizens, no doubt along with all the other dreck and drivel collectively lumped under the domain "" Therefore, we can safely conclude that China's direct and indirect investment in The Blackstone Group, various hedge funds, and that special form of crack cocaine known as residential real estate is safe from imminent withdrawal.

Feel free to breathe a sigh of relief that the Greater Fool remains blissfully uninformed of its error of judgment, comfy behind its protective defenses. By the time the Chinese have figured out we have sold them a bill of goods—matched only in size and extent by the time we sold the entire commercial real estate stock of Manhattan six times over to the Japanese for 200% of replacement cost, and threw in the contents of the Metropolitan Museum of Art to boot—we will all be lighting newly unembargoed Cuban cigars with worthless fifty dollar bills on our repossessed hedge fund yachts in the Azores.

Talk about information asymmetry.

Hat tip to Lee Distad, who checked first.

© 2007 The Epicurean Dealmaker. All rights reserved.

Wednesday, September 12, 2007

Go West, Young Sheik

Greg Corcoran over at the WSJ DealJournal has a cautionary message today for US investment banks already reeling from subprime contagion, LBO “pier” loans, and an M&A market gone AWOL: The Arabs are coming.
According to this eFinancial News story, Dubai’s ruling sheik will open an investment bank that will compete in the Middle East and Africa and eventually move in on Europe and the U.S. You might want to remember the name: Al Noor Islamic Bank.

I don’t know why. The trashbins of Wall Street are cluttered with the names of foreign commercial and investment banks that tried and failed to make a go of it in the cutthroat US market. Every few years or so—usually during an extended upswing in the markets—yet another bright-eyed foreigner gets a hard-on about the idea of muscling in on Goldman Sachs, Merrill Lynch, and Citigroup in the biggest market in the world. They launch fancy new offices, snap up a bunch of high-priced talent from other investment banks, and throw their balance sheet around in a futile attempt to buy market share. Often (First Boston, DLJ, Dillon Read, PaineWebber, Bankers Trust, Alex. Brown), they shell out an outrageous sum to buy the brand name and rapidly depreciating loyalty of a bunch of Yankee i-bankers. They usually run very nice, expensive, four-color ads in all the right magazines.

And in three or four years, if they are lucky, they are gone, with only a gaping hole in their balance sheet to show for the effort. Some do cling to life here and even prosper, to an extent, but this is usually because they have brought so many American investment bankers on board that they really look and behave completely like a US investment bank. There is absolutely nothing Swiss, German, Japanese, or French about any of the US branches of the survivors. And if the foreign parent tries to force a little of the old country culture or business practices on their American cousins, eventually the only sound you hear is the shuffling of Gucci loafers out the front door.

So what makes these benighted sods think they can succeed where so many others have failed? Well, usually, in addition to an overoptimistic assessment of their own manhood, the answer is money. “We have gobs and gobs of money,” they say, “Why can’t we beat those conniving bastards at their own game?” Mr. Corcoran seems to buy into this argument as well, given how approvingly he reports the bajillions of petrodollars those clever sheiks are packing under their burnooses.

The answer, of course, is that money is not the only thing, or even the most important thing in investment banking. (We are not talking about bonuses now.) Investment banks derive their power, capability, reach, and skill from the strength and connectedness of their bankers’, salespeoples’, and traders’ networks, both within and outside the firm. If you do not have multiple personal and institutional relationships with potential investment banking clients, you stand a poor chance of getting good, profitable mandates. Likewise, if you do not have multiple personal relationships with other bankers, salespeople, and traders within your own investment bank, you will find it hard to call in favors, threaten, and wheedle to the extent necessary to make that pig deal of yours fly. You need both to be effective, and it takes time to build such internal and external networks based on favors, information exchange, and back scratching.

You cannot hire a bunch of superstar rainmakers who do not know each other—a favorite technique of foreign entrants to our market—and expect them to be as effective together as they were in their previous institutions. They simply do not have the internal networks required to be as effective as you expect them to be. This is what investment banking honchos really mean when they talk about “culture.” Extensive, robust, and proven internal networks are as essential to the proper functioning of an investment bank as its external client list. Both take time to build, and both must be built organically.

But everyone knows that investment banking is only about money, right? I remember a business school professor of mine, a published, well-respected, intelligent professor of management strategy, who told me in 1989 that if I wanted to become a successful investment banker I should go where the money is. She recommended Japan. Oops.

What my professor did not realize, and what many other intelligent people—yes, even financial journalists—do not realize is that investment bankers do not need to go where the money is to ply their trade. The money comes to them, and it gladly pays their exorbitant transaction fees because they really do add value in connecting their clients with the internal and external networks for capital and governance.

So calm down, all you worried Analyst and Associate wannabes: you do not need to rush out and learn Arabic in order to have a job in five years time. (Or Chinese, or Russian, or Portugese, for that matter.) Other than bags of shekels, Al Noor Islamic Bank seems to have nothing of what it needs to become a credible threat to Goldman, Citigroup, or even Deutsche Bank in the US: no people, no clients, no skills, and no relationships. Furthermore, it appears to want to wade into the biggest shark tank on the planet with both feet tied together and a nasty cut on its forehead. How else would you describe a bank that wants to be a player but which cannot participate in the largest securities market out there, fixed income? “Daft” might be polite.

Although, now that I come to think of it, Al Noor’s Shariah prohibitions against charging interest might be an advantage in the current credit market meltdown. “We didn’t put you in those nasty CDOs or subprime mortgage derivatives, Mr. Investor. Now, how about a nice plate of dates?”

Who knows, it might be kind of fun to do M&A deals dressed like Lawrence of Arabia. Inshallah.

© 2007 The Epicurean Dealmaker. All rights reserved.

Monday, September 10, 2007

For Whom the Bell Tolls

Gandalf had hardly spoken these words, when there came a great noise: a rolling Boom that seemed to come from the depths far below, and to tremble in the stone at their feet. They sprang towards the door in alarm. Doom, doom it rolled again, as if huge hands were turning the very caverns of Moria into a vast drum. Then there came an echoing blast: a great horn was blown in the hall, and answering horns and harsh cries were heard further off. There was a hurrying sound of many feet.
"They are coming!" cried Legolas.
"We cannot get out," said Gimli.

— J.R.R. Tolkein, The Fellowship of the Ring

Andrew Ross Sorkin is dancing a happy jig on the freshly filled grave of the private equity boom, and he wants you to know that you're next:

Comfortable? Let me offer a more dour view: wide swaths of Wall Street, and many of the industries that serve it, are in for some serious collateral damage. Not only has private equity been out of business for the last two months, but that activity is not likely to resume with any significance soon. And when it does, it will be at a fraction of its recent peak.

So what does that mean? For much of Wall Street, a severe case of withdrawal. Forget about cutting the size of bonuses: let’s start really thinking about the possibility of slashing jobs.

In his Sunday New York Times DealBook column, Sorkin goes on to identify a few of the likely victims: financial sponsors group bankers, private equity professionals, "irrational compensation packages" on Wall Street, management consultants, eager MBAs, and—cruelest of all—poor little SeamlessWeb, which delivers food to hungry analysts pulling all-nighters.

Well, shit, Andrew. Pull out the black armbands, why don't you?

The trouble is that Sorkin both goes too far in some respects and doesn't go far enough in others.

For one thing, he mentions irrational compensation in the same breath as private equity's 2% management fees, leading the uninformed reader to draw the conclusion that 2% of assets under management flows directly into the pocketbooks of a PE firm's professionals, with nary a stop for tea. Nope, sorry, my boy, that 2% counts as revenue to the PE firm, which must unfortunately be offset by such pesky little items as the expenses of running the business. Believe it or not, renting swanky offices on Park Avenue or 57th Street in Manhattan tends to chew up a great deal of that filthy lucre right out of the box. Then, of course, there are all those consultants the PE firms hire to do due diligence on deals and potential deals. While some of the outsourced services the PE firms use can indeed be charged back to its limited partners for successful deals, as Sorkin mentions, in most cases the GP cannot charge for due diligence on deals it does not close. And every PE firm out there takes a deep look and spends a lot of time and money on deals it does not win. No, it is an expensive proposition to run a PE firm, and very few GPs get rich on management fees alone.

Second, Sorkin misses or fails to mention vast swathes of the financial landscape which have luxuriated in the explosive growth of the private equity biosphere. In addition to management consultants, among those who have staffed up dramatically to serve PE clients in recent years, you can add accounting firms, sell-side investment banks, virtual deal room providers, data service providers, leveraged finance bankers, and lawyers. Had you attended one of the umpteen thousand private-equity-centered investment conferences in New York or elsewhere in the past few years, like I did, you would have been amazed at the number and diversity of service providers all jostling to lick the boots of their PE masters. Because they are so thinly staffed, private equity firms outsource practically everything. Now that PE deal volume is down, and likely to stay depressed for some time, things are going to get a mite sketchy out there on the savannah. With fewer lion, leopard, and cheetah kills to scavenge, the hyenas, jackals, and vultures are going to get mighty hungry.

Compounding this lack of joy in Mudville is the coincident carnage in the hedge fund community and at investment banks. Bankers and investors who could not distinguish Henry Kravis from Angelina Jolie are getting roiled by the same forces pummeling the credit markets which serve private equity, and cumulative net worth among these participants is disappearing faster than a cold beer on a hot day. All of Wall Street is taking it squarely on the chin (or chins, depending on your view of how fat those cats really are).

This means that the secondary fallout from this uproar will be pretty broadly distributed, some of it in places which on the surface seem far removed from the intersection of Wall and Broad. My favorite candidates include high end New York apartments, commercial rents in Midtown, vacation homes in the Hamptons, New York City tax receipts, Ferrari dealerships, "bottle service" at trendy nightspots, second and third rate contemporary art, and $3 hotdogs from Manhattan street vendors. I would expect a similar deflation of balloons in other financial centers as well, with London leading the way for Europe.

So while I enjoy a good session of Schadenfreude as well as the next guy, and appreciate a little grave dancing in the financial media to boot, I must in all honesty observe that all of us are going to feel some pain from this contraction. Not least of these, of course, will be journalists like Mr. Sorkin, who have hitched their rising star to the deal economy chariot just like the rest of us. And while he will no doubt be able to write some juicy stories of the decline and fall of financiers great and small, at the end of the day who will read his column if none of us are left?

No man is an island entire of itself; every man is a piece of the continent, a part of the main. If a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friend's or of thine own were. Any man's death diminishes me, because I am involved in mankind. And therefore never send to know for whom the bell tolls: it tolls for thee.

— John Donne

© 2007 The Epicurean Dealmaker. All rights reserved.

Saturday, September 8, 2007

The Wisdom of Crowds?

"It's like, how much more black could this be? and the answer is none. None more black."

— Nigel Tufnel, This Is Spinal Tap

Steve Schwarzman must be seriously pissed.

In addition to having Joseph Flom of Skadden Arps put a serious crimp in his social life by preventing him from waggling his private parts in public both during and after the Blackstone IPO, Little Stevie now faces the ignominy of a continuously tanking BX stock price. The naughty little security even had the temerity to close yesterday almost $10 per share (or nearly 31%) down from the June 21st IPO price of $31.

Blackstone's shares are not alone, of course, in having had a serious attack of the vapors ever since Wall Street remembered that Risk is not only a Parker Brothers board game. Listed hedge fund Fortress Investment has crapped out over 50% from its February high (although only a dollar from its IPO price), and legions of investment bankers at Goldman Sachs, Lehman Brothers, and Bear Stearns have seen massive markdowns in the value of all that lovely unvested stock their bosses have rammed down their throats over the last few years. Apparently, things have gotten so bad in the 10021 zip code that there are rumors the Park Avenue matrons are staging a Lysistrata-style sex strike until their husbands manage to restore their companies' stock prices to pre-June levels. (We'll see if anyone notices.)

Now, I don't care how many other billions you have, or how much water you draw in New York society, losing almost two and a half billion dollars on paper in less than three months has got to hurt. And if it doesn't hurt Steve, you can bet your Versace chastity belt that it hurts the lesser demigods at 345 Park Avenue, and plenty.

Normally, private equity professionals couldn't give what is colloquially known as a rat's ass about the post-IPO performance of the stock of portfolio companies they bring to market, except to the extent they want to sell their remaining shares as soon as possible at as high a price as possible. Unlike the typical public company CEO, PE guys are almost completely uninvested, emotionally and intellectually, in their companies' stock prices. In fact, many of them take an almost perverse pleasure in top-ticking the market when they take a portfolio company public. They feel that if the stock does not decline after the IPO, or appreciates too quickly, both they and their bankers have done a lousy job in extracting the maximum juice from the benighted public shareholder. This makes complete sense, of course, since a large part of private equity's business model depends heavily on the public markets selling companies too low and buying them back too high, compared to their intrinsic value.

But in the case of Blackstone itself, the inside shareholders are subject to a completely different—and, for most of them, a completely unfamiliar—dynamic. They are shareholders, and large, locked-up, unvested shareholders at that, completely at the mercy of the Great Unwashed Investing Public they have been used to making such liberal fun of in their investment committee meetings over the past several years. If they buy the Private Equity Council party line—which virtually all of them do—they believe wholeheartedly that private equity is an investment method which produces long-term value appreciation, almost regardless of fluctuations in the public equity and fixed income markets. But now they can see a real-time, tick-by-tick appraisal of the value of their own business by Mr. Market every trading day, which translates into a real-time update on each Blackstone professional's personal net worth. (And don't think that these professionals' wives and husbands don't do the very same calculation every time they plan a shopping trip to Henri Bendels.)

This must be a serious problem, especially for the poor slobs just starting out at BX. Sure, Senior Managing Directors can shrug off the loss of a few tens of millions or so each week, because they already have enough to buy a small principality somewhere, and the Missus has plenty of the folding to keep up appearances at the Central Park Hat Lunch. But an Associate or a Vice President, whose financial status as a PE plutocrat is largely on the come, has no such luxury. It's pretty hard to explain to your significant other why this weekend you can only afford a two bedroom summer share in Hampton Bays when last week you were looking at five bedroom exclusives in East Hampton. It tends to put a bit of a damper on the old love life.

Finally, it has to be galling for these Masters of the Universe—who without exception are hardwired to believe that their judgments of company value are always and everywhere superior to those of John Q. Public—to be handed a report card each and every day by the same JQP which rates their efforts at "B – ; Needs improvement."

Whether this sorry situation will have a long-term negative effect on the performance of Blackstone or not—for example, by distracting the attention and distorting the judgment of its investment managers or by making it harder to attract and retain the best PE professionals—is too early to say. All I would observe is that, in my experience, that little flashing stock ticker in the corner of an executive's computer desktop can be a mighty distraction, expecially if it is flashing red all the time.

© 2007 The Epicurean Dealmaker. All rights reserved.

Wednesday, September 5, 2007


I must say I am disappointed.

A few weeks ago, against the background of a steady stream of handbaskets carrying various and assorted market participants, credit ratings, and institutional balance sheets straight toward Old Beelzebub's Broiler, I decided to leave for a couple of weeks of relaxing R&R. The Dealmaker Family Unit had a lovely time, grilling the ancestral lutefisk over a cedarwood campfire, nailing the occasional squirrel to a knotty pine, and baying at the aurora borealis in Northern Manitoba. I can't be positive that the little Dealmakers truly remembered me after my habitual work-induced absence, but if not the Missus did a good job briefing them on how to pretend they recognized Dear Old Dad.

Unfortunately, when I returned to work this week I found that you people did not sort things out during my absence. The mainstream media, my fellow financial bloggists, and my trusty Bloomberg terminal are all still rabbiting on about the same old credit-contagion, market-crisis shite that consumed their attention three weeks ago. What's the matter? Weren't my instructions clear enough for you?

The current state of affairs in the markets reminds me of the old chestnut of the drunk who bumps into a lamp post. He thereupon begins walking in circles to try and avoid it. After he has collided with the same lamp post for the fourth time, he staggers to a halt and cries in frustration, "Help! They've fenced me in!"

I ask you: is that how you would like me to think of you, as a really bad, stale joke? I didn't think so. Snap out of it.

Fortunately, it seems that we did sort out at least one pressing issue of global significance while I was away: the background color to this blogsite. After extensive automated polling of the best and brightest the global financial markets have to offer—yes, you, Dear Readers—I have discovered that a substantial majority of those who voted prefer to keep this site as pure as the driven snow, color-wise, rather than the rather bilious lemon-lime yellow of yore. Some faithful partisans of The Early TED may rail at cruel and blind Fate, but the poll results are pretty clear:

Being a person who generally despises democracy as the last refuge of a scoundrel—unless you restrict the vote to free, land-owning males of a certain age, like the Athenians did—I was quite interested to see that this little exercise attracted 185 votes. Given the average number of feed subscribers over the period of the poll, that represents about 50% of the faithful TED-reading "electorate" who turned out to vote.

Now, if you paragons of civic virtue would only whip the markets back into some sort of shape, I might be able to get some of my deals back on track.

© 2007 The Epicurean Dealmaker. All rights reserved.