Bloomberg Shifting Fortune to New Firm

NY Times

New York City’s billionaire mayor, Michael R. Bloomberg, has decided to remove his fortune from a private equity firm founded by his longtime friend, just 10 months after that firm became embroiled in a scandal involving the state pension fund.

The mayor is shifting about $5 billion from Quadrangle Capital Partners into a new investment firm devoted solely to his interest and that of his charitable foundation. About a dozen workers from Quadrangle will join the new enterprise, according to a letter sent by Quadrangle to its investors on Friday, suggesting the move is not being driven by a desire to change investment strategy.

In assets, Quadrangle will shrink by more than half, leaving the firm only private equity investments in the media and telecommunications industries.

The setback caps a year of struggle for Quadrangle, after Steven Rattner — the founder who is Mr. Bloomberg’s friend — departed last year to run the Obama Administration’s automobile task force. Mr. Rattner was implicated in the New York pension fund scandal within months of that appointment and stepped down from his government role last summer.

No charges have been brought against the firm or Mr. Rattner by the attorney general of New York or the Securities and Exchange Commission, which are both investigating Quadrangle’s past dealings with the New York state pension.

Mayor Bloomberg’s private fortune — built around his media business, Bloomberg L.P. — fueled his improbable victory in the 2001 mayoral campaign and helped secure a close re-election last fall. His decision to relocate his money may fuel speculation about his political ambitions: he is considered a potential candidate in the presidential campaign of 2012. If he were to run, he would undoubtedly finance the campaign himself, at a staggering cost: his aides previously put the price tag at $1 billion.

Quadrangle said in its letter that “Mayor Bloomberg believes creating this independent entity will allow his investment team to operate with the flexibility and privacy that he seeks.”

The mayor’s decision to disentangle himself from Quadrangle ends a storied partnership that elevated Mr. Rattner into spheres of influence in government and business, and that allowed Mr. Bloomberg to take bigger risks with his overall fortune, which is estimated at $15 billion, including his large stake in the media company.

Since the S.E.C. revealed details about Quadrangle’s dealings with the state pension last spring, Mr. Bloomberg has steadfastly defended Mr. Rattner. At the time, the mayor praised his work and called him “a great public servant.” Initially, the mayor said he had no plans to take his investments elsewhere, despite the questions that dogged its founder.

Mr. Bloomberg and Mr. Rattner remain close, frequently dining together and speaking by telephone, according to mutual friends. On Wednesday night, the mayor and his girlfriend left a book party for Henry M. Paulson, the former Treasury secretary, alongside Mr. Rattner and his wife, according to a person who attended the party.

Mr. Rattner’s involvements with the state pension investigation came to light when the S.E.C. filed a case against middlemen who helped investment firms like Quadrangle garner investments from the state pension. Mr. Rattner handled the discussions about hiring the middlemen. One of the middlemen was producing a movie called “Chooch,” and a company owned by Quadrangle made a deal to distribute the low-budget film, according to an S.E.C. complaint filed against the now-indicted middlemen.

The mayor’s office, and representatives of Quadrangle and Mr. Rattner, declined to comment.

Bloomberg's Budget(s) Blues

The Economist

New York's Mayor presents two grim economic pictures for the city

THE jobless rate in New York City increased from 7% in December 2008 to 10.6% a year later. Some 425,000 New Yorkers are looking for work, more than at any time since the 1970s, and the number is expected to grow. The city budget is a tough one to balance even at the best of times. In the worst of times, it is near impossible without support from New York state and the co-operation of the unions.

So when Michael Bloomberg, who has just begun his third term as mayor, presented his preliminary budget for 2011 on January 28th it wasn’t pretty. The city faces a staggering $4.9 billion deficit for 2011. This year’s $2.9 billion surplus has gone; it was spent on reducing next year’s deficit and paying bills and bond repayments. To close the gap, Mr Bloomberg is ordering every city agency to make cuts—the seventh round he has ordered since early 2007. That should save the city $1.6 billion over the next two years.

The mayor has proposed closing four city swimming pools and a Manhattan centre for the homeless. He has also suggested removing fire-alarm boxes from city streets, to stop hoax calls. Mr Bloomberg wants to reduce the city payroll by 4,286. Every department, from police to libraries, faces cuts. The mayor is postponing the next police academy class. Some 2,500 teachers could be forced out of their classrooms unless their union agrees to a 2% wage increase instead of a promised 4%. Teachers have enjoyed a 43% salary increase during Mr Bloomberg’s tenure.

Earlier, the mayor had painted an even bleaker picture when he testified before a state finance committee on January 25th on the impact of Governor David Paterson’s state budget on New York City. That budget eliminates large chunks of assistance from the state to the city, even though the city provides half the state’s revenues. This, Mr Bloomberg said, would force the city to shed 19,000 city workers, including 8,500 teachers by September. More than 3,100 policemen would lose their jobs, thinning the blue line to 1985 levels. Fire stations could be closed. City funding for soup kitchens, which have never been busier, could go. Rubbish collection would be reduced. (This is all worryingly close to the New York of the 1970s, when rubbish went uncollected, fire stations closed and police officers were laid off.) The mayor also fumed about the “intolerable burden” of state pension obligations, which have risen by 350% since 2002. He wants Mr Paterson to start reforming pensions.

And the politics of this? Doug Turetsky of the non-partisan Independent Budget Office said Mr Bloomberg hoped to send two messages in his two budgets. “Number one, cuts are the state’s fault. And two, labour has got to give.” Blaming the state is an old game; but the unions won’t give in without a struggle.