Well if you're an employee (or insider-investor) in Bain Capital, you use this little-known accounting trick called Co-investing.
What is a Co-investment?
Equity co-investment -- Wikipedia
An equity co-investment (or co-investment) is a minority investment, made directly into an operating company, alongside a financial sponsor or other private equity investor, in a leveraged buyout, recapitalization or growth capital transaction. In certain circumstances, venture capital firms may also seek co-investors.
Call it silence-investing in a sure-fire Leverage Buyout -- Do you want in? Think of it as "carried interest" for the little people ... those with a Bain connection, that is.
by Mark Maremont, Wall Street Journal -- Mar 29, 2012
In one particularly successful deal, Bain increased the equity value of a company it had acquired by 36-fold in 20 months. But some Bain employees saw a 583-fold increase over the same period on IRA money they invested in the special share class of that company. Being in an IRA, the gain could then be rolled over, without initially subtracting taxes, into fresh Bain deals, for years of compounding.
Bain's co-investment arrangements, not previously reported in detail, offer a possible explanation of the large size of Mr. Romney's IRA: between $20.7 million and $101.6 million, according to his finance disclosures. It is unusual for such an account, a vehicle devised to help workers save for retirement and one to which contributions are limited, to grow so large.
Aren't there investment caps to what a person can put in their "tax-free" IRA accounts?
Yes -- for most "little" people, they are. For Investment Equity people, not so much ... You see, when's it's LBO Loot -- there's a different rule book.
D.M. Levine, huffingtonpost.com -- 07/17/2012
It’s a whopping sum by most standards [Romney's $20.7 million to $101.6 million parked tax-free in his IRA]; according to the nonprofit Employee Benefit Research Institute, the average IRA held $67,438 in 2010.
There are limits to the amount of money individuals can contribute to their IRAs. Before Romney was elected Massachusetts governor, federal law capped annual pre-tax IRA contributions at $2,000 and annual 401(k) retirement contributions at $30,000 with a company match as the Journal notes. Cohan reported that Bain used what’s known as a SEP-IRA during Romney's time as head of Bain, which has a slightly higher yearly maximum contribution of $30,000.
Given these contribution limits, experts are scratching their heads about the rapid growth of the account in the decade since Romney officially left the private equity firm Bain Capital.
Yup that is an IRA stumper ... How'd they do that?
Maybe the IRS should look into such "magic" IRA's?
Well here's the 1%-er secret for how to stash those "skyrocketing" millions, tax free, no less.
Call it the Corporate Raider's Loot re-distribution plan ...
[WJS continues ...]
Even if the companies had only one share class, Bain frequently gave them two classes, usually called Class L and Class A, according to former employees, Bain internal documents and securities filings. Because Bain controlled the companies, it had flexibility in assigning values to the classes.
Class L shares, akin to preferred stock, were safer and had a higher initial value. They had priority if the company paid dividends, and holders of these shares were the first to receive proceeds from a sale or liquidation. The shares also accrued interest, often at 10% to 12%.
But once Class L shareholders got their money, Class A shareholders received the bulk of additional gains, often as much as 90% of them, according to the documents and former employees. In successful deals, the A shares could skyrocket.
Bain employees who achieved big payouts had skin in the game, with their investment money at risk. Still, the chance to co-invest with Bain was considered so attractive, former employees say, that they sometimes borrowed from relatives or friends to do so.
"I was just co-investing every dime I could get my hands on," said Sarma Melngailis, who was a Bain associate for a short time in the late 1990s. She said she even borrowed on her credit card to fund co-investments. She said co-investing "turned out to be a very good idea."
Quick mortgage the farm, Bainees -- and plow those funds into those Class A Co-investment stocks. And deposit those Class A shares in your Bain SEP-IRA, just like Mitt.
Buy low, low, low. Cash out high on the hog. 583-fold high.
Tell your bestest friends -- it's a chance of a lifetime. You too can own the spoils of an LBO!
[HuffPost continues ...]
But there are a few specific theories that attempt to explain the account's growth [Mitt's IRA].
The first is that Romney acquired stock from his Bain investments -- specifically high-risk, high-reward shares that had a low initial value (and ) but paid off when the companies became more profitable. If he filled his IRA with these stocks, that could account for some of the exponential growth, as Cohan notes.
“Even though the contribution limits are small, if the stock growth is tremendous, you could possibly get up to something close to [$100 million],” said Yin, adding “though it still seems amazing to me.”
Welcome to the world of Co-investing -- the Bain Capital way:
Put in $10,000 and wait for it to balloon
to $5,830,000 ... Once the LBO reaches its foregone conclusion. (Mitt, he knows Where Jobs Go, remember?)
Ah the magic of Co-investing interest. Compounded like chapter eleven clockwork!
Put in $25,000 -- and just wait for those $25,000,000+ Co-investing Gains.
Max out those Credit Cards Bain Partners, you won't regret it, as long as Private Equity firms continue to get a free pass, as the best of the American entrepreneurial way.
Bain may be "inventing something" -- but what it "creates" hardly qualifies as job creating -- "extreme wealth" creation for the insider few -- is the main "opportunity" these Raiders know how to create.