STOCK MARKET WATCH -- Thursday, 29 March 2012

[Demeter]

61. THE CHERRY ON TOP: Bain Gave Staff Way to Swell IRAs by Investing in Deals

http://online.wsj.com/article/SB10001424052970204062704577223682180407266.html?mod=djemalertNEWS

Just after Philippe Wells took a job in 1998 at Bain Capital, then run by Mitt Romney, he recalls hearing an unusual boast from a partner. The man's individual retirement account had jumped tenfold in five years.

Mr. Wells soon learned how this was possible. Bain, like many other private-equity firms, allowed employees to co-invest in its takeover deals. This posed a risk they could lose their whole investment, as they sometimes did. But because of the firm's success during the Romney era, employees ended up able to share in returns for Bain investors that averaged 50% to 80% annually.

Bain added a couple of unusual twists that made co-investing even more rewarding. It allowed employees to co-invest via tax-deferred retirement accounts, and to do so by buying a special share class that cost little but yielded much larger gains than other shares when deals proved successful, according to former employees and internal Bain documents analyzed by The Wall Street Journal.

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...

THE REVERSE ROBIN HOOD