By Ben Cohen: Two weeks ago, we broke a story on The Daily Banter about the potential of Mitt Romney having a lot more money than he is claiming. I had received a tip off from a source inside the banking industry that Romney is in fact a billionaire, not a millionaire, and after going through the numbers there seemed to be significant evidence that would indicate it to be true.
The distinction between millionaire and billionaire is academic to 95% of the population, but Romney's finances are about more than just the numbers. If he is worth significantly more than his campaign is officially claiming, it goes to the heart of a troubling theme that has defined his run at the presidency -- and that is one of extreme dishonesty and outright lying.
Last week, former investment banker and Bloomberg columnist William Cohan penned a piece for the Washington Post outlining pretty much the same thing. In an article titled 'Mitt Romney is worth $250 million. Why so little?' Cohan explored the murky nature of Romney's investments, his lack of transparency and the glaring fact that all of Romney's competitors are billionaires, and he isn't.
We know that the other people who founded private-equity firms around the same time that Romney and his partners started Bain, and who had to make do with a lower fee structure, are far richer than Romney. These men — Henry Kravis and his cousin George Roberts, the founders of KKR & Co.; the late Teddy Forstmann, the founder of Forstmann Little; David Bonderman and Jim Coulter, the founders of TPG Capital; Leon Black, the founder of Apollo Global Management; Steve Schwarzman and Pete Peterson, the founders of the Blackstone Group; David Rubenstein, the founder of the Carlyle Group; and Jonathan Nelson, the founder of Providence Equity Partners — each have a net worth measured in the billions. Schwarzman, with a fortune greater than $5 billion, is the wealthiest buyout mogul, according to the latest Forbes 400 list.
The glaring disparity in wealth between Romney and his peers should have raised some eyebrows in the media, but apparently it hasn't leaving a few solitary journalists to try and find out exactly why Romney did so badly compared to his competitors. Cohan takes a good stab at it going through the numbers (with greater rigor than we did -- after all he spent 17 years on Wall Street as a mergers and acquisitions banker), concluding in his piece that the sums really don't add up. There are of course many different plausible explanations as to why Romney didn't make as much money as his peers -- Cohan discusses the possibility that Romney gave larger equity stakes to his partners than would have been the norm, or that Bain wasn't as well capitalized as other firms when Romney was there for example -- but given Romney won't release his tax returns pre-2010, they are just theories.
I got in touch with Cohan to discuss his piece, discovering that he was surprised anyone else in the media had picked up on the story. "I was pretty savaged for attempting to make the same suggestion that you did," Cohan told me.
Apparently Washington Post readers are a little more conservative than ours as we received mainly positive feedback about the piece, as opposed to the venom Cohan was subjected to. "The WaPo should be ashamed, but they gave that up long ago when it became a largely DNC talking point replication machine," wrote one commenter. And that was one of the nicer ones.
Despite the savaging, Cohan still maintained that the public numbers available on Romney's fortune are completely inexplicable -- and he believes his background on Wall Street makes him qualified to judge accurately.
"I noticed that no one was really picking up on it and I wanted to write that," said Cohan of his piece. "But first of all, you either have to have worked with private equity firms, or worked on Wall St sufficiently to wonder about it yourself. Last time I checked there really weren't that many journalists who also worked on Wall Street for a long time let alone cover private equity firms."
And given the political persuasion of most people actually in private equity, speaking out about Romney's shady finances isn't exactly the done thing.
"I don't think anyone in private equity land would be interested in raising this issue because a) they don't want to raise the whole issue of their own wealth in the media, and b) they basically support the guy, so why would they do anything that might impinge on that support?" said Cohan.
"I talked to a number of private equity people, and no surprise, they are by-in-large completely supporting Romney," he continued. "So I sensed a certain amount of reluctance on their part to broach this topic. You know, I think the consensus was that they thought he was worth considerably more than he said."
When doing the research for the piece we broke on The Daily Banter, I too spoke to people in private equity, none of whom would go on the record, and all of whom believed Romney was worth considerably more than he was claiming by virtue of how much money Bain was raking in when Romney was there.
To put it in perspective, under Romney’s leadership Bain charged its investors fees an average of 50 percent higher than those of its competitors. Typically, standard industry fees were two percent of the money under management and 20 percent of the profits on individual deals. In contrast, Romney managed to get a three percent fee and 30 percent of profits, solely for the privilege of investing with Bain.
"They were making so much money that they were allowed to do three and 30 as opposed to two and 20," says Cohan. "So it's just completely illogical that he's not worth much more money... Even his own colleague is worth more than he is and he's been there less time? It just makes no sense. Of course with all of his peers being worth billions...the whole thing is just ridiculous."
The exact nature of Romney's invested fortune and his continued relationship with Bain is highly secretive, but we do know that Romney still has the right to make passive investments in Bain through his blind trust (which isn't exactly blind given his personal lawyer controls it), and that Bain is now worth an astonishing amount of money. Bloomberg News reported the following:
With Bain Capital valued at about $11 billion, Romney’s stake would be worth about $1.32 billion, the data show. Bain’s estimated value is based on the assets under management valuation ratio of KKR and TPG, two similarly sized private-equity firms with comparable businesses, according to data compiled by Bloomberg. Those figures don’t take into account some profits derived from successful investments.
Charlyn Lusk, a spokeswoman for Bain Capital who works at Stanton Public Relations & Marketing, declined to comment.
When Romney retired as CEO, he entered into an agreement with the Boston-based firm to retain the right to make passive investments in certain Bain Capital entities until 2009, according to financial disclosures he has filed. The exact terms of how Romney in those years participated as a passive investor and former partner aren’t clear, said Dartmouth’s Blaydon. In the decade after he left, Bain Capital’s assets under management increased more than 16 times to its current $65 billion.
The end result of going through the numbers, comparing Romney to his former peers and looking at what is publicly available on how he has set up the management of his money leads to one conclusion: Mitt Romney is most definitely hiding something.
"Romney already said that he paid taxes during those years [pre 2010] although he wouldn't release them because the claim had been made by the majority leader [Harry Reid] that he hadn't," says Cohan. "The only explanation that I'm left with is that it will show his net worth is worth considerably more than he said. And I'm sure that would be highly embarrassing and would make him out to be yet again, a liar."
"If you just do the math like I did based on his income tax that you know about, the dividends and interest income, the underlying portfolio has to be bigger than the 250 itself on that fact alone," he continued. "You add all these things up and he just has to be - you give him credit for charity, even if you give him credit for 10%, which is what they say he does, you know 10% for charity, $100 million in a trust for his kids, it still doesn't make sense."
For Cohan, the matter is more than academic as it plays into a wider pattern of deception and dishonesty that we have seen from Romney -- a man who wants to hold the highest office of the land.
"Its like why aren't the American people entitled to know this?" he asked. "I mean he still has investments in Bain, he still has investments in Goldman hedge funds, he still has investments in other hedge funds, aren't we entitled to know where his potential conflicts of interests may lie? Aren't we entitled to know whether he's been lying to us about his net worth?"
Finally, I asked Cohan whether he believed the alternative theories held much weight -- the notion that Romney missed out on the glory years at Bain, or was so generous with his money that he chose sharing over gigantic profits for himself. The response was pretty blunt.
"As I said, he's either lying, or he was not that good at private equity and maybe we should all rethink whether he knows anything about the economy."