Mitt Loves N.Y.: Henry Kravis


With Mitt Romney as its de facto candidate, the roster of Restore Our Future, Romney’s designated Super PAC slush fund, reads like a laundry list of New York City’s wealthiest denizens. And, according to the Center for Responsive Politics and contrary to popular belief, Super PAC’s are receiving a huge majority of their donations from these single individuals rather then enormous corporations.
So, here at the Voice, we’re going to tell you a little bit about our neighbors, one donor at a time:
The Delivering Alpha conference in New York last month invited the wealthiest hedge-funders, stock profiteers and private equity extraordinaires to speak about the state of finance. It’s the sort of event that gives Occupy Wall Street protestors nightmares. Henry Kravis, Co-CEO & Co-Chairman of Kohlberg, Kravis & Roberts, was a keynote speaker and told the crowd his thoughts on the public perception of his (and Romney’s) call to arms:

“In the ’70s and ’80s, what private equity did is it changed corporate America. It started holding companies accountable and for the first time owners started thinking like managers. I’m not sure [Romney] needs to be defending private equity per se because he comes from Bain and, in the private equity world, he will get a lot of arrows shot at him.”

Luckily, this disparity of trust in the shadowy sector didn’t stop the man whose net worth of $4 billion clocked him in at #88 of Forbes’s list of U.S. billionaires from donating to the cause.  In July, Kravis poured $200,000 into the Restore Our Future SuperPAC. And, knowing Kravis’s past, there’s probably plenty more where that came from.

Kolhberg, Kravis and Roberts (KKR) LLP was the product of an exile. In the mid 1960s, Henry Kravis and his cousin George R. Roberts joined the ranks of the now-infamously-defunct bank known as Bear Sterns. There, the men met Jerome Kolhberg, a manager who was high up in the corporate hierarchy, and the cousins quickly assumed the positions of partners. But, they had a different agenda on their minds that separated them from the rest of the banking world.

Soon enough, the trio began what they called “bootstrap investments” – the three would offer companies leveraged buyouts to boost productivity and delete inefficiency; in other words, they have a keen eye for private equity. Their first major deal in 1964 was the acquisition of Orkin Extermination Company; harkening back to his Delivering Alpha monologue, the transaction is now in the financial history books as one of the first successful leveraged buyouts in American financial history. The higher-uppers at Bear Stearns got wind of what the three were doing and deemed it unorthodox behavior, leading the trio to leave the company and form a company up by Columbus Circle that now oversees assets worth over $65 billion.

And how’s Bear Stearns been doing? Well, you know how the story goes.

Along with ventures into the retail market, Europe’s debt, major lobbying efforts and partnerships with other enormous Romney equity donors like Clayton, Dublier & Rice, this monetary success runs off the coattails of some of the biggest acquisitions in corporate history, one of which was later translated into a book and an HBO movie. Barbarians at the Gate, written by the investigative journalists John Heylar and Bryan Borrough, chronicles KKR’s takeover of RJR Nabisco; Andrew Ross Sorkin, the New York Times mind behind the 2008 financial expose ‘Too Big to Fail,’ said it was the best business book out there. And that says a lot coming from him.

If the title of the movie/film is unsettling, you should know that the price for Nabisco was somewhere around $24.88 billion – the highest price paid for a company up to that point in our history. And Kravis blew his own record out of the water just a few years ago when KKR swallowed Energy Future Holdings for $45 billion. This deal has gone down as the most expensive corporate takeover in history. Calling Gordon Gekko…

Okay, enough of the hyperboles and dollar signs; they get us nowhere if we can’t connect them to the Bigger Picture or, in this case, national politics. Kravis has always been a mainstay of the Republican world, arguing against taxation of private equity assets, supporting Papa Bush and John McCain and dabbling with the Republican Leadership Council, a “non-profit” organization that is fueled off that whole corporate, quasi-rugged individualism. This naturally led him to support Mitt as a candidate; a man in the Oval Office that shares the same work experience and views on private equity taxation as you is a political match made in Heaven.

Kravis, as well as several other donors in this public service series, is a member of the Council on Foreign Relations and has created a fund for up-and-coming entrepreneurs called the Henry R. Kravis Prize in Leadership, given by his alma mater Claremont McKenna College. In his words, “A real entrepreneur is somebody who has no safety net underneath him or her”… just a shit ton of private grant money.

See, what is so enthralling about the private equity field in this Presidential election is Mitt”s emphasis on how it proves he can rejuvenate the economy. Yet he is fearful of Bain attacks, deeming them immoral and playing the part of the bullied underdog, even though he is surpassing Obama by huge amounts in regards to donations. And this money is coming from absolute titans like Kravis – the Daniel Boone of private equity who cashed in on the same tricks of the trade as Mitt, just at a greater pace with much more money involved.

It’s a clusterfuck of unbelieavable financial connections and electoral emotions. With ‘Mitt Loves N.Y.,‘ we try to explore the underworld of that nexus, minus the migraines.