AIG, Private Equity and Venture Capital

AIG: Maurice Greenberg’s piece today Wall Street Journal almost caused a seizure attack. I’m not sure I’ve read such a wrong editorial and self-service for a long, long time. I’m pretty surprised WSJ he would publish such nonsense. However, we all know that Big Mo controls parts of AIG shares both directly and through the management of CV Starr, so let’s just say we know where it comes from. When he started arguing about the rescue inconsistency, he had my ear. But when he went to praise the Citigroup package while sanctioning the AIG deal, I couldn’t help but call it a bull $ hit.

So far, the government has shown everything except a consistent approach. He did not support Lehman Brothers. But he pushed for a much-expanded and now abandoned plan to buy assets. The government also pushed for a sanctions program for the United States International Group (AIG), which only benefits its counterparts in exchange for the company’s default loans. And now some of the nation’s largest banks are buying non-voting repurchased shares.

The Citi agreement has many meanings. The government will put $ 20 billion into the company and act as a guarantee for 90% of the $ 306 billion loss in toxic assets. In return, the government will receive $ 27 billion in dividends and guarantees of 8% of the preferred shares, giving the government a potential 8% stake in Citi. Citi’s board is to be congratulated for keeping the jobs and insisting on an agreement that benefits taxpayers.

But the government’s strategy for Citi is very different from its initial response to the first companies to experience liquidity crises. One of those companies was AIG, a company I ran for many years.


Maintaining the situation will lead to the loss of tens of thousands of jobs, blocking the loss of billions of dollars for pension funds that are significant shareholders of AIG, and eliminating the savings of millions of retirees and millions of ordinary Americans. That’s not what the broad economy needs. It is a loss-making proposal for everyone, but for counterparts to the exchange of AIG’s credit separations, which will be completed under the new agreement.

The government, instead, should apply the same principles that apply to Citigroup to create a win-win situation for AIG and its stakeholders. First, the government should provide a federal guarantee to meet the guarantee requirements of the AIG counterparts, which have so far consumed most of the funding provided by the government.


The purpose of any federal aid should be to preserve jobs and enable private capital to take the place of government when private capital is available. The current AIG-government agreement structure makes this impossible.

The role of the government should not be to force a company to leave the business, but to help keep it in business so that it can continue to be a taxpayer and an entrepreneur. This calls for a review of the terms of the federal government’s aid to AIG to prevent the company’s bankruptcy and its dire consequences.

Hank, you have to joke. U.S. taxpayers He saved the life of Citigroup, and we will reach 8% of the company. THIS is called the “punishment program” in Hank’s speech For the U.S. taxpayer. When you save a company in my world you own ALL the wealth, not 1/12 of the estate. With taxpayers reaching 80% of the AIG, now that is starting to make sense. I agree with Big Mo’s view: “The goal of any federal aid should be to keep jobs and private capital should take the place of government when private capital is available.” But that has nothing to do with post-restructuring property ownership. He added: “Maintaining the status quo will lead to the loss of ten thousand jobs, block billions of dollars in losses for significant AIG shareholder pension funds and eliminate the savings of retirees and millions of ordinary Americans.” Well, Hank, that’s 100% for you. You’d have to think things through a company and everything in the game and lost it before you built a culture. You tell that retiree how you screwed up that pensioner. This is called integrity. Personally, this secret call for rescue is offensive and offensive. And I don’t buy it. I’m sure even U.S. taxpayers don’t.

Private Capital: PE LP will almost certainly accelerate the chain of secondary sales interest. It’s one of those slow train disasters that is painful to watch. The calculation is easy to understand: public equity values ​​are declining, PE values ​​are more sticky and slower, rising to unacceptable levels as a percentage of overall PE assets, causing a wave of PE LP interest sales. An interesting feature of this dynamic is autocorrelation, where PE values ​​slow down despite being comparable in the public market. If industry is down 40%, don’t you think a portfolio of PEs in the industrial sector should be traded. Over 40% due to illiquidity? However, this is not the way many VET funds choose to see the world. In any case, this is just a secondary market – a market – and the discounts being put on tent funds like KKR and Terra Firma reflect this reality. Pensions and endowments have to throw things away, and they are trying to do that on part of their base. But it is also difficult to move goods in the sale price of fire. We will see in the coming months how disappointed these investors are. Can we see the KKR trading at 30 cents a dollar? Possible. And scary.

Venture Capital: I went to an interesting brownbag today with friends from betaworks. Much of the discussion was about the financing of the current hostile environment. Here are some accounts from the interview:

  1. Get ready to live with your current investment union.

  2. If possible, have a deep pocket investor as part of your union.

  3. Capital raising for 18-24 months, no less. This can be done through a reduction in capital and operating savings.

  4. Restructuring is getting ugly. Investors, both inside and outside, are demanding a haircut to return the last-round plus and preferred capital so that it can be fully repaid before anyone else gets anything. It feels like a look, smell and feel. This is why it is so important to have 24 months of capital in advance in the bank.

  5. In these times of decline, coalitions are formed between Management and New Investors and Old Investors. This misalignment of interests can lead to blockchain and lead to a company being sidelined.

There were many more but these were the high points. Even with the current difficulties, he was very excited about new businesses and new ideas, with the confidence that he would reach out to those who really deserve the money. In short, there is hope.

Author: Binaryoptionstradingsignals