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FEATURESFORBES ASIA MARCH 2020When the Detroit Pistons
opened their 2017-2018
season to a sellout crowd
and a big welcome from
rapper Eminem, the team’s
owner, billionaire Tom
Gores, beamed courtside.
part of a new guard of private equity titans who
are taking advantage of a world awash in cheap
capital and tax advantages and driving a boom in
the buyout business.
As investment banks and hedge funds struggle,
private equity—a business predicated on raising
capital subject to long-term lockups to invest in
assets using large amounts of leverage—is enjoy-
ing go-go times. The decade-long bull market has
helped the group log average annual returns of
13.7% over the 15 years ending March 31, 2019,
according to Cambridge Associates, compared
with 8.6% for the S&P 500. In 2018 alone, PE
deals amounted to some $1.4 trillion, and in the
U.S., private equity firms now own more than
8,000 companies, compared with 4,000 in 2006.
Down the road from Gores’ palatial offices, in
Santa Monica, California, José E. Feliciano and
Behdad Eghbali operate Clearlake Capital, a bou-
tique firm with a relatively modest $10 billion in
assets. Feliciano grew up in Bayamón, Puerto
Rico, a city known for fried pork rinds, before at-
tending Princeton. Born in Iran, Eghbali arrived
in the U.S. in 1986 at age 10 on a tourist visa with
his parents, who wanted to avoid his conscrip-
tion in the Iran-Iraq War. After graduating from
college, both Feliciano and Eghbali paid their
dues toiling at old-guard private equity firms like
TPG Capital. Then in 2006, they teamed up to
form Clearlake Capital.
By all accounts, their firm, which tends to buy
little-known software, industrial and consumer
products companies, has been a roaring success.
Clearlake’s 2012 fund, for example, has posted an
annual net internal rate of return of 42.7%. So in
2018, as the GP-stakes market was exploding, a
bidding war heated up for Clearlake. Feliciano
and Eghbali got Dyal and Goldman to team up
for a slice that valued Clearlake at a rich $4.2 bil-
lion, making Feliciano, 46, and Eghbali, 43, two
of the youngest billionaires in private equity.
The business reasons for these stake deals are
abundant. Cash is pouring into private equity.
When new funds are formed, institutions gen-
erally insist that firms show skin in the game by
putting their own money into funds. However,
liquidity can be an issue, especially for younger
firms. These GP-stake sales free up cash, provide
permanent capital and can help solve complex
succession issues.
But there is another factor driving these deals:
skirting Uncle Sam. Private equity already enjoys
the most absurd tax break in America—“carried
interest,” which allows these big fund managers to
pay capital gains taxes, rather than income taxes,
on their profit bonuses, on the idea that their in-
tellectual contributions should be treated equally
to the profits made by their investors. CarriedYes, the gleaming new $863 million downtown arena was worth cel-
ebrating, but Gores was finalizing the deal of his lifetime, a ten-digit
payout from his Beverly Hills buyout firm, Platinum Equity.
The deal was done quietly, without fanfare or a press release. Gores
forked over an estimated 15% of his stake in Platinum to another firm,
Dyal Capital Partners, which will garner $1 billion for him over four
years. In doing so, Gores, who’s now worth $5.6 billion after the trans-
action, scored a huge personal windfall, raised the valuation of his firm,
which he still controls—and avoided taxes.
He’s hardly alone. In the last four years, no fewer than 60 private eq-
uity firms have followed the same playbook, selling slivers of their gen-
eral partnerships, according to PitchBook, frequently at eye-popping
valuations. More than $20 billion was raised last year alone for more
such deals, half by Dyal, a unit of the large New York asset manager
Neuberger Berman, the rest by others, including units of Blackstone,
Goldman Sachs and Jefferies. Secretary of Education Betsy DeVos and
her husband, Richard, are getting into this game, out of their family of-
fice. Former Florida governor Jeb Bush has teamed up with Bahrain’s
Investcorp to invest in private equity general partnerships, as well.
“Some firms have grown rapidly and are seeing increasing GP com-
mitments. Many also want to invest more in their own deals, and this
is a very efficient mechanism as the proceeds raised usually are funded
over time matching the needs, and there are some tax advantages,” says
Evercore’s Saul Goodman, the investment banker on most of the gen-
eral-partnership-stake (GP-stake) deals.
Private equity firms, normally secretive about their internal econom-
ics, are loath to discuss these sales. Gores declined to comment, as did
pretty much all his private equity tycoon peers. However, based on
months of reporting and dozens of interviews with insiders and inves-
tors in these funds, Forbes has been able to identify 13 new billionaires
who have unlocked fortunes by this financial engineering. Ever heard of
Steven B. Klinsky, Egon Durban, Mike Bingle or Scott Kapnick? All are→