“You are in a position to make 20 percent to 30 percent on your position in the fund. Why wouldn’t you buy in at Libor-plus to leverage that up?”
That quote is from Tom Bernhardt, a senior vice president at TorreyCove Capital Partners, a San Diego-based private-equity consultant.
Tom is referring to Tim Geithner who just secured a line of credit with JP Morgan to invest in a $12 billion private equity fund launched by Warburg Pincus, the former Treasury Secretary’s current employer.
As Bloomberg reminds us, “when raising a new fund, private-equity principals and their firms often commit their own money, in part to encourage outside investors to sign up.” In other words, “you can trust that this is a good idea because look, I threw my own money at it.”
Bloomberg goes on to note that contributions from PE principals amount to around four-and-a-half percent of the capital the funds raised in 2014. That’s nearly double the figure from 2011.
For this particular fund, Warburg Pincus put up 6.7% of the $12 billion in commitments. Geithner is president at the firm, which puts him just under Joseph Landy and Charles Kaye who are co-CEOs. Warburg manages some $40 billion invested in VC assets and plain vanilla buyouts. Here's a bit more from The New York Times:
Timothy F. Geithner has joined fellow Warburg Pincus partners in securing financing to make personal investments in the private equity firm’s funds.
Mr. Geithner, the former Treasury secretary who joined Warburg two years ago as its president, has a line of credit with JPMorgan Chase, according to a December filing with New York State.
Warburg’s co-chief executive, Joseph P. Landy, and four managing directors — Christopher C. Gunther, Peter R. Kagan, James W. Wilson and Daniel Zilberman, — also arranged lines of credit with JPMorgan in the last year backed by collateral that includes stakes Warburg funds, according to the filings.
The $12 billion Warburg Pincus Private Equity XII fund would be the first main fund the firm has closed since Mr. Geithner joined it.
Apparently, Geithner’s net worth of $3.2 million wasn’t sufficient when it came to chipping in on the firm's latest fund, so he reached out to an old friend.
“While at the New York Fed, Geithner recruited a number of finance executives to join the board of directors of the reserve bank, arguing it needed to better reflect the composition of the financial system,” Bloomberg goes on to note. Among his recruits was Jamie Dimon, who in June 2009 at a conference announcing the repayment of $25 billion in TARP loans (i.e. your tax dollars), read from a mock letter to Geithner.
“Dear Timmy, we are happy to be able to pay back the $25 billion you lent us,” Dimon said. “We hope you enjoyed the experience as much as we did.”
Incidentally, this is precisely why Bernie Sanders and Donlad Trump are polling so well in the race for the White House. This is just one more example of the incestuous intermingling between Wall Street and Washington. It's a swiftly revolving door that to the general public appears deplorable and hopelessly corrupt. Let's say you want to invest in Warburg's new fund for instance. What do you think the chances of getting a line of credit from JP Morgan are?
We’re sure “Timmy” will “enjoy the experience” of being able to use funds provided by Jamie Dimon to lever up and make a few extra million (or more) in his new life as PE financier.
After all, he’s got a long way to go before he catches up net worth wise to his predecessor at the Treasury, who is worth nearly half a billion.