The strange tale of a dramatic exit

Regrettably, private equity losses may on occasion translate to job losses. However, the circumstances of Robert Rowling's departure from UTIMCO, which manages investments for the University of Texas, are far from typical.

Rowling – chairman of the UTIMCO board and ultimately responsible for its private equity investments – recently resigned amid a Texas state senate hearing about the system's falling capitalisation. After a drop in the value of UTIMCO's private investment portfolio in 2008, Rowling told the Daily Texan newspaper: “In retrospect, we probably allocated – and I was on the board then – too much money to private investments in the past year.”

Rowling's decision to step down, however, did not appear to be about investment strategy. Rather, it seemed to be a reaction to intense grilling over UTIMCO's decision to pay performance bonuses to members of its investment staff.

Specifically, UTIMCO last November paid out hefty bonuses based on the year ending 30 June 2008, in which the system had made money and out-performed most of its peers. Those details did not seem to assuage the legislators, however, who argued that the bonuses should have been re-negotiated by Rowling or declined by the recipients in light of the poorer performance subsequently delivered.

After a lengthy dressing down by state senator Steve Ogden, Rowling said: “I've spent half my life at the University of Texas and UTIMCO. I volunteer, I travel, they never reimburse me for this stuff. It cost me a lot of time and money. The sacrifice of my family. The sacrifice of my friends and you know what? You can have my job, I resign… I'm outta here.”

“Most of the opportunity stems from the excesses of the buyout industry. Between 2003 and 2007 you had private equity firms buying the best companies they have ever bought but they paid ultra high prices. As a result, the quality of the debt is in many cases lower than on the poorer companies they backed before.”

Howard Marks, chairman of Oaktree Capital Management, talking to PEI (see p. 52)

“We want economic life to be organised to be as distant from that Madoff model as we can.”

In an interview with Bloomberg, New York University risk engineering professor Nassim Taleb calls for restrictions on leveraged buyouts because of the characteristics he alleges they share with Ponzi schemes. Taleb authored the best-selling book Black Swan, which is about the impact on the world of unexpected rare events

“We see the risk to currently vulnerable companies being that their lenders have neither the appetite nor the capacity to provide new financing to help them through the downturn.”

From a report by ratings agency Standard and Poor's which predicted that leveraged buyouts would help push corporate defaults in Europe to a record level this year

“The definition if you bought something and it's now worth a great deal less, you made a mistake. And I'm more than willing to say that I made a mistake. I was too optimistic in terms of the newspaper's ability to preserve its position.”

Real estate mogul Sam Zell expresses regret over his $8 billion purchase of Chicago-based media company Tribune, which collapsed under a $13 billion debt load last December, in an interview with Bloomberg Television