Strong Buyout Fund Returns Drive Private Equity Stocks Higher

Private equity

Over the past decade, as private equity firms like Blackstone, KKR and Carlyle Group have grown into a gargantuan size and raised buyout funds nearing or eclipsing $20 billion, one critique of their cash gusher was that it would inevitably drive fund returns lower. Now, as the U.S. economy emerges from the Coronavirus pandemic and markets soar to new record highs, recent earning results from America’s big buyout firms reveal a trend of rising returns even as funds surged in size.

Fueled by piping-hot financial markets, returns from the flagship private equity funds of Blackstone, KKR and Carlyle are on the rise. Mega funds from these firms that recently ended their investment period are all running ahead of their prior vintages and raise the prospect that PE firms can achieve net investment return rates nearing or exceeding 20%.

Carlyle, which reported first quarter earnings on Thursday morning, is the newest firm to exhibit rising performance. Its $13 billion North American buyout fund, Carlyle Partners VI, which was launched in 2014 and ended its investment period in 2018, is now being marked at a 21% gross investment rate of return and a net return of 16%, or a 2.2-times multiple on invested capital.

The fund has realized $8.8 billion of investments, like insurance brokerage PIB Group and consultancy PA Consulting, and sits on a portfolio marked at nearly $20 billion. The returns are two-to-three percentage points ahead of Carlyle Partners V, the flagship buyout fund it raised just before the financial crisis. That fund is on track to earn a net IRR of of 14%, or a multiple of 2.1-times its invested capital.

Rising fund profitability, even at scale, is helping to fuel Carlyle’s overall profitability. Net accrued performance fees from Carlyle VI ended the quarter at nearly $1.4 billion and Carlyle sits on a record $3.2 billion in such performance fees that will likely be fully realized in 2021. The firm’s once-lagging stock has recently risen to new record highs.

The trend is even more clear at Blackstone and KKR, which have both used spongy IPO markets to realize multi-billion dollar investment windfalls in recent months.

Blackstone’s flagship $18 billion private equity fund, Blackstone Capital Partners VII, was closed in May 2016 and ended its investment period in February 2020, just before the Covid-19 economic meltdown. After taking public or exiting investments like Bumble, Paysafe and Refinitiv, this fund is now marked at a 18% net investment rate of return, five percentage points better than its prior fund, which raised in the aftermath of the 2008 crisis.

In the past two quarters, the fund has been the single biggest driver of Blackstone’s record profitability, generating over $1.6 billion in combined accrued performance fees. In the first quarter, the fund was responsible for 82-cents in quarterly per-share profits, filings show. Overall, Blackstone sits on a record $5.2 billion in net accrued performance fees.

At KKR, it’s a similar story. The firm’s $8.8 billion Americas XI fund, which was raised in 2012 and ended its investment period in 2017, is generating net IRRs of 18.5%, or a 2.2-times multiple on invested capital, according to the its annual 10-k filing from February. That sets up the fund to be KKR’s most profitable buyout fund since the 1990s.

KKR’s first quarter results, set to be released in early May, may show even bigger windfalls and higher returns. Its recent public offering of Applovin looks to be one of the greatest windfalls in the firm’s history, bolstering returns and profits for its even newer $13.5 billion Americas Fund XII. Asia could also be an area of big returns as its $9 billion Asian Fund III monetizes investments.

As returns rise, PE firms have seen their stocks soar to new record highs.

Once a laggard, Carlyle is up 36% year-to-date to a new record high above $42, according to Morningstar data. The firm, now led by chief executive Kewsong Lee, has returned an annual average of 23% over the past five-years.

KKR has done even better, rising 40% this year alone and 125% over the past 12-months. It’s five and ten-year total stock returns are now 33% and 13.5%, respectively.

The top performer in the industry is Blackstone Group, which recently eclipsed a $100 billion market value. Up 39% this year alone, Blackstone’s generated an average annualized total return of nearly 19% over the past decade, which is about five-percentage-points better annually than the S&P 500 Index.

Bottom Line: With public markets hitting new record highs, buyout firms are reporting LBO returns not seen since the 1990s. Their stocks, which once badly lagged the S&P 500, are beginning to beat the market.

I’m a staff writer and associate editor at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, mergers, and banks. I’m a graduate of Middlebury College and the Columbia University Graduate School of Journalism, and I’ve worked at TheStreet and Businessweek. Before becoming a financial scribe, I was a member of the fateful 2008 analyst class at Lehman Brothers. Email thoughts and tips to agara@forbes.com. Follow me on Twitter at @antoinegara

Source: Strong Buyout Fund Returns Drive Private Equity Stocks Higher

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Death of Dividend: Here’s How to Recharge Your Passive Income Strategy

Death of Dividend: Here's How to Recharge Your Passive Income Strategy

The economic devastation caused by Covid-19 has been unprecedented, with most countries across the world only just starting to recover from the unforetold effects of the virus. One of the more prominent financial casualties of the pandemic has been the domain of “dividend-based income schemes,” often relied on by entrepreneurs as they seek to achieve the best of two worlds — capital appreciation of an equity investment with a regular cash flow customary for a fixed income instrument. This is a particularly convenient strategy for those heavily invested in their businesses while needing a regular income stream to fund their day-to-day expenses.

After a dire year for corporate payouts, where an increasing number of multinationals will have to cut or cancel their dividends altogether, a whopping 75 percent of all UK-based firms have already had to resort to such measures. To put things into perspective, this figure was only 40 percent during the last major dividend crises — i.e. the 2008 credit recession.

But dividends have been on the decline for decades, falling from grace since the 1990s when the average payout ratio for S&P 500 companies fell to 30 percent from a previous fluctuating average of 40 percent to 60 percent between 1950 and 1990. Additionally, as per data recently made available by global financial administrators Link Asset Services, one can see that during Q2 2020 alone, the total amount paid in dividends by UK companies fell by 57.2 percent to £16.1bn, signalling a cut of almost £22bn. Covid-19 has merely accelerated the inevitable: Cuts were coming anyway.

What’s causing this to happen? What lies ahead?

While there are many nuances to why dividends are going out of fashion, one of the main reasons at the moment is the need for companies to hoard cash due to today’s uncertain economic climate. Secondly, dividend receipts are incredibly inefficient and cumbersome when it is time for a person to file their taxes. Lastly, an over-reliance on dividend income tends to signify an absence of alternative attractive investment opportunities in the market.

The lock downs have also spurred on the aforementioned slew of dividend cutbacks, which  are likely to continue well into the future as companies start to pay off vast debts they may have gathered during the crisis. As a result, it is anyone’s guess as to how much more debt most companies will have to accrue, especially as lockdown restrictions continue to be implemented across the globe.

Alternative investment strategies worth considering. 

For entrepreneurs who rely heavily on dividend-based monetary streams, it may seem as though the ongoing pandemic has turned their world upside down. Since there is so much economic uncertainty across most markets today, individuals should maintain diversity across their portfolios, spreading their investments across a variety of different regions, sectors, and asset classes. For example, dividends emanating from companies affiliated with the defense, healthcare, and technology sectors have faced little to no pressure throughout the coronavirus crisis. They may, therefore, be potentially lucrative investment avenues.

Similarly, forward-looking entrepreneurs may choose to switch up and modernize their strategies by considering inflation-beating assets such as cryptocurrencies or even precious metals like gold. While neither Bitcoin nor gold pays any dividends, it’s always possible to sell some of your holdings during bull cycles in order to lock in profits, thus allowing owners to generate steady cash streams as and when required.

People might even want to consider different asset classes such as high yield and emerging market bonds that can routinely deliver gains ranging between 3 percent to 4 percent, which, in this low-interest-rate environment, could be quite an attractive option for many. Other options include ‘investment trusts’ since they can borrow from or use their ‘revenue reserves’ – which basically comprise of the dividends they receive any given year — allowing their backers to draw steady income streams even during leaner periods.

Lastly, micro-investing is another untapped domain that is fast gaining prominence. It affords entrepreneurs the ability to maximize their money’s growth potential while giving them a good shot at beating many common inflation-related woes. In fact, over the course of the last few years, a number of digital platforms such as OSOM Finance, Acorns, and Robinhood, have made the process of micro-investing extremely streamlined and hassle-free for those interested in exploring this space.

The new normal and the adverse effects of low-interest rates. 

With interest rates being cut by central banks globally, it has become easier for people to borrow money than ever before. For example, in the wake of the coronavirus pandemic, many Central Banks cut interest rates to essentially zero in 2020, primarily as a means to shelter their economies from the effects of the virus.

While on paper this may sound good because reduced interest rates can increase consumer/business expenditure, enhanced market investments, etc., it can also result in inflation and the creation of a liquidity trap which can severely devalue one’s local fiat currency.

For example, following the 2008 credit crisis, the Fed lowered rates and injected money into the economy to increase economic activity. However, the move created a liquidity trap — wherein people started to hoard cash in fear of another market crash — and as a result, the American economy failed to expand despite zero/very low-interest rates.

Low-interest rates can reduce one’s spending power and have an adverse impact on a country’s middle class because when interest rates are lowered, unemployment rates can increase since companies can lay off well-paid individuals in favor of contractors, temporary/part-time workers at much lower rates.

This, in turn, facilitates a wage decline across the board, creating a highly undesirable social environment wherein individuals have to reduce their standard of living since they can no longer afford to pay for even essential goods and services.

One final hurdle that entrepreneurs can face whether they are looking to make income off of dividends or not: Capital. The alternatives outlined above, whether cryptocurrencies, high-yield bonds or even micro-investing, are all far less lucrative if an individual doesn’t have a notable portion of money to stake in the first place.

This essentially creates a barrier to lower class citizens who may have little or no spare cash and are living paycheck to paycheck. While new services and technologies are certainly lowering the barrier for entry, realistically valuable returns are near impossible without sizable upfront investments, particularly for the instruments with a fixed income component.

Anton Altement

 

By: Anton Altement Entrepreneur Leadership Network VIP

Source: Death of Dividend: Here’s How to Recharge Your Passive Income Strategy

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I share a few warning signs that a dividend stock is going to get cut and how you can avoid losing thousands in dividend investing. Watch another Investing for Beginners video here: https://youtu.be/IGVfXwVP8Ws SUBSCRIBE to start the financial future you deserve: https://www.youtube.com/channel/UCbKd… #DividendStocks #Stocks #Investing
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The 5 Best Tax and Financial Franchises You Can Open This Year

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With a delayed tax day, PPP loans and government bailouts, personal and finances have rarely been as confusing as they are in 2020. Helpful experts are vital right now, and these financial businesses can provide a much-needed boost to their environments.

Whether you already have your own tax service company or lack experience in the industry, one of the top five entries in the sector of our Franchise 500 can help you make a good investment … and help your clients make one, too.

1. Goosehead Insurance Agency LLC

  • Entrepreneur Franchise 500 Rank: 129
  • Franchising since: 2011
  • Initial investment: $41,500 to $116,500
  • Initial franchise fee: $25,000 to $60,000
  • New units in 2019: 111 units (+26.2 percent)

Goosehead Insurance Agency LLC manages a portfolio of A-rated insurance carriers, allowing its franchisees to focus on sales and new business. The company, which started franchising in 2011, has shown tremendous growth over the past three years in particular, adding 345 U.S. franchises (a 181.6 percent increase).

Related: The 5 Top-Ranked Franchises You Can Buy for as Little as 5 Figures

2. Jackson Hewitt Tax Service

  • Entrepreneur Franchise 500 Rank: 197
  • Franchising since: 1986
  • Initial investment: $45,130 to $110,255
  • Initial franchise fee: $15,000 to $25,000
  • New units in 2019: 33 units (+0.6 percent)

Jackson Hewitt Tax Service offers a mentorship program and has regional directors who can help franchisees create their business strategies. Its Walmart kiosks expand the company’s brand across the country, and the year-round tax service specializes in computerized federal and state preparation for individual returns.

3. Brightway Insurance

  • Entrepreneur Franchise 500 Rank: 254
  • Franchising since: 2007
  • Initial investment: $42,300 to $178,916
  • Initial franchise fee: $30,000 to $60,000
  • New units in 2019: 25 units (+15.1 percent)

Brightway Insurance prides itself on being accessible to those without experience in the field. “In fact,” states the company website, “half of all Brightway locations with Books of Business over $10 million are owned and operated by people with no prior insurance background.” The company has seen strong growth over the past three years, going from 123 units to 191 since 2016.

4. H&R Block

  • Entrepreneur Franchise 500 Rank: 306
  • Franchising since: 1956
  • Initial investment: $31,557 to $149,398
  • Initial franchise fee: $2,500
  • New units in 2019: -564 units (-5.2 percent)

Founded by brothers Henry and Richard Block in 1955, H&R Block has since prepared more than 600 million tax returns. The company offers an array of financial services to its customers as well as to potential franchisees — tax business owners can sell their business to H&R Block and work with the company on a personalized exit plan that offers competitive buyout packages.

Related: 10 Low-Cost Franchises You Can Start From Home Right Now

5. Fiesta Auto Insurance and Tax

  • Entrepreneur Franchise 500 Rank: 336
  • Franchising since: 2006
  • Initial investment: $67,052 to $120,599
  • Initial franchise fee: $10,000
  • New units in 2019: 11 units (+5.6 percent)

Fiesta Auto Insurance and Tax was originally founded to meet growing demand for auto insurance within underserved Hispanic and blue-collar communities in Southern California. In the past decade, the company has seen strong growth, tripling its number of units from 68 to 207 since 2010.

By

Source: https://www.entrepreneur.com

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✪✪✪✪✪ http://www.theaudiopedia.com ✪✪✪✪✪ What is FRANCHISE TAX? What does FRANCHISE TAX mean? FRANCHISE TAX meaning – FRANCHISE TAX definition – FRANCHISE TAX explanation. Source: Wikipedia.org article, adapted under https://creativecommons.org/licenses/… license. A franchise tax is a government levy (tax) charged by some US states to certain business organizations such as corporations and partnerships with a nexus in the state. A franchise tax is not based on income. Rather, the typical franchise tax calculation is based on the net worth of or capital held by the entity. The franchise tax effectively charges corporations for the privilege of doing business in the state. Whether or not a business must pay a franchise tax to a state in which it does business can cause some confusion. Some states report using both the economic and physical presence tests, and in some states there are no written, public interpretations of their test at all.
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