In Depth

Jeb Bush’s private equity woes similar to what sunk Mitt Romney

Former Florida Gov. Jeb Bush’s recent business ventures reveal that he shares a number of liabilities with the Republican Party’s last presidential nominee, Mitt Romney, whose career in private equity proved so politically damaging that it sunk his candidacy.

Documents filed with the Securities and Exchange Commission on Nov. 27 list Bush as chairman and manager of a new offshore private equity fund, BH Global Aviation, which raised $61 million in September, largely from foreign investors. In November, the fund incorporated in the United Kingdom and Wales — a structure, several independent finance lawyers say, that operates like a tax haven by allowing overseas investors to avoid U.S. taxes and regulations.

BH Global Aviation is one of at least three such funds Bush has launched in less than two years through his Coral Gables-basedcompany, Britton Hill Holdings. He’s also chairman of a $26 million fund, BH Logistics, established in April with backing from a Chinese conglomerate, and a $40 million fund involved in shale oil exploration, according to documents filed in June and first reported by Bloomberg News.

His flurry of ventures doesn’t suggest someone preparing to run for president, according to a dozen fund managers, lawyers, and private-placement agents who were apprised of his recent activities by Bloomberg Businessweek.

Most private equity funds have a life span of 10 years. While it isn’t impossible that Bush could bail on his investors so soon after taking their money, “that would be unusual,” says Steven Kaplan, a private equity expert at the University of Chicago Booth School of Business.

One fundraiser for private equity adds that normally you’d be winding down such businesses, rather than expanding them, if you were going to run.

Until now, many people have assumed that Bush’s greatest challenge would be dispelling the perception among Republican primary voters that he’s a moderate in a party dominated by right-wing conservatives. In the wake of Romney’s bruising 2012 loss, however, Bush’s overseas funds, mysterious investors, and foreign entanglements could prove harder to overcome. As a budding private equity mogul, he’s begun to resemble a Mini- Mitt. Bush declined to be interviewed for this article.

“Running as the second coming of Mitt Romney is not a credential that’s going to play anywhere, with Republicans or Democrats,” says John Brabender, a Republican consultant and veteran of presidential campaigns. “Not only would this be problematic on the campaign trail, I think it also signals someone who isn’t seriously looking at the presidency or he wouldn’t have gone down this path.”

Bush, 61, was a popular governor from 1999 to 2007, earning a reputation in Florida as a serious-minded politician who stressed economic development and education standards. A real estate developer before going into politics, he surprised no one by returning to the private sector at the end of his last term. “His whole approach as governor was strongly pro-business,” says Matthew Corrigan, a political science professor at the University of North Florida and author of a new book, “Conservative Hurricane: How Jeb Bush Remade Florida.” “He essentially turned himself into the state’s chief economic development officer.”

Being governor didn’t do much to help Bush’s own bottom line. When he took office in 1999, public disclosure filings showed that his personal net worth was about $2 million. By the time he left in 2007, that dropped to $1.3 million. Upon leaving office, Bush made no secret of his desire to make money and embarked on a whirlwind of deals, partnerships, and advisory positions in aggressive pursuit of that goal.

A New York Times report in April found that he has earned at least $3.2 million in board fees and stock grants from public companies and given more than 100 speeches for which he is typically paid $50,000 each. At one time, he sat on six corporate boards.

Some of these arrangements proved problematic. In 2007, Bush became a paid consultant and director of a Miami building materials startup called InnoVida Holdings, whose founder went to jail after the company faked documents and misappropriated $40 million. (There’s no evidence Bush acted improperly.) In 2011, InnoVida went bankrupt.

Soon after his tenure as governor ended, Bush became an adviser to Lehman Brothers Holdings Inc. and, later, Barclays. As Lehman faltered during the 2008 financial crisis, he was called upon to use his family connections to try and broker a rescue from Mexican billionaire Carlos Slim. The plan, code-named Project Verde, was unsuccessful. At one point, according to testimony in Lehman’s bankruptcy case, Lehman Chief Executive Officer Richard Fuld considered asking Bush to have his brother, President George W. Bush, intervene on the company’s behalf with the British government, which was blocking a potential merger with a British bank.

For Jeb Bush, the family name has been a more propitious credential in China. In 2011 he visited the tropical island of Hainan, off China’s southern coast, and received a dignitary’s welcome from the governor of Hainan province, Luo Baoming.

According to Chinese media reports, Bush, bedecked in a necklace of flowers, praised Hainan’s environmental and economic development and spoke hopefully of establishing stronger ties between Hainan and Florida.

If Hainan rings a bell, it was the site in 2001 of President George W. Bush’s first foreign policy crisis, after a U.S. Navy plane collided with a Chinese fighter jet and made an emergency landing there. (Its captain and crew were held captive for 12 days. Coincidentally the captain, Shane Osborn, ran for Nebraska’s Senate seat as a Republican this year.)

In May 2013, Bush set up Britton Hill Holdings and dove into the private equity business with three younger partners: David Savett, a former natural gas trader for Credit Suisse; Ross Rodrigues, who worked in the same bank’s leveraged finance group; and Amar Bajpai, a former Lehman banker. But Bush’s role as chairman and part owner didn’t surface until six months ago, when the firm’s assets grew beyond $100 million, at which point it was legally obligated to register with the SEC.

Bush’s first fund invested in Inflection Energy, a Denver-based company exploring for natural gas in Appalachia, which named Bajpai to its board. His next one, BH Logistics, raised $26 million this spring from investors including China’s HNA Group, which is based in Hainan and operates a fleet of more than 500 jets through a subsidiary, Hainan Airlines Co. BH Logistics used the money to buy 1.4 million shares of Dorian LPG, a liquid petroleum gas shipping company that added Savett as a director.

“For the Chinese, the Bush name and the Bush connections to energy are a natural marriage,” says Derek Scissors, a scholar at the American Enterprise Institute who studies U.S. economic relations with China and runs the think tank’s China Global Investment Tracker. The family’s connections to the country go back decades. George H. W. Bush was U.S. envoy to China in the Ford administration.

“This is a classic example of the way sophisticated Chinese firms work,” says Scissors. “They don’t want to get involved directly in a U.S. startup that’s involved in shale, so they’ll take a minority stake to keep a lower profile. They’re looking for political protection, and the Bush name legitimizes the investment and makes him a perfect partner.”

In turn, Bush and his partners get a chance to profit from China’s insatiable appetite for energy. On July 25, Dorian announced a “memo of understanding” with HNA Group and explained in a presentation to investors that this would “enhance Dorian LPG’s access to the Chinese market and Chinese LPG importers,significantly improving its access in this growing market.”

In a bullish sign for Bush’s portfolio, the GOP won control of Congress in the Nov. 4 midterm elections. Prominent Republicans in the House (Speaker John Boehner) and Senate (Marco Rubio) have been pushing to export U.S. oil and liquefied natural gas.

Bush’s newest fund, BH Global Aviation, is his largest and most complicated. It deepens his financial ties to China and Hainan. Controlled by Bush through a U.S. holding company, it’s set up to receive money from foreign investors. The Nov. 27 SEC filing states that 98 percent of BH Global Aviation’s funding, or $60,883,500, comes from “non-U.S. persons.”

Typically, a fund’s managers kick in 2 percent, which probably explains the 2 percent from U.S. investors. Recent British filings show an identical 98 percent of the fund’s capital coming from an entity called “Oak Tree Investment LLC,” with the remaining 2 percent from seven U.S.-based investors or companies, including Britton Hill. Oak Tree appears to house Bush’s foreign investors. In July an “Oak Tree Investment, LLC” was incorporated in Delaware, which allows it to hide the identities of its managers and investors.

Since Britain eliminated its tax on income earned outside the country several years ago, it’s become increasingly popular for so-called corporate inversions, a controversial practice in which a foreign company buys a British company, primarily to lower its tax bill, says Andrew Needham, a tax partner at law firm Cravath, Swaine & Moore, which specializes in private equity and hedge funds. Investors in a private equity fund set up as a British corporation would also benefit from the country’s new tax rules. “In many deals, the U.K. effectively serves the same function as the Cayman Islands or Bermuda,” Needham says. “It’s like a tax haven, except it’s the U.K.”

The handful of the fund’s investors who are disclosed provide a globe-spanning snapshot of Bush’s financial universe. One, Armando Olivera, was chief executive officer of the electric utility Florida Power & Light Co. when Bush was governor. In 2009, Bush publicly pushed for a rate increase that would benefit Olivera.

Another is Guang Yang, CEO of Finergy Capital, a Beijing- based private equity fund. In 2010, Yang joined with Hainan Airlines to acquire the Pasadera Country Club and golf course in Monterey, Calif. Yang renamed it for his limited partner Jack Nicklaus. Last year the Monterey Herald noted that what is now the Nicklaus Club-Monterey “has been acting as a hub for U.S.-Chinese business relations.”

While BH Global Aviation doesn’t publicly disclose the nature of its business, a source close to Bush says the fund has invested in Hawker Pacific, an aviation sales and services company based in Hong Kong. “Boeing, every year, projects the Chinese to buy 8 zillion planes,” says Scissors. “HNA is looking to do more business in the U.S., and as an aviation firm, there’s certainly plenty of potential for U.S.-China cooperation on airplanes.”

Does any of this prove Bush won’t run? No, but it does present a series of hurdles if he decides to. It’s not clear how easily Bush could extract himself from his funds. Most have a “key man” provision binding the principals for the duration of the fund. In April, hedge fund manager Marc Lasry of Avenue Capital Group withdrew from consideration to become President Barack Obama’s ambassador to France when some investors wouldn’t grant him a key man waiver. A source close to Bush says he’s not a key man, but wouldn’t discuss how easily he could leave if he decides to run for president.

Then there’s the intense scrutiny a Bush run would cast on his investors. “The Chinese don’t like political attention in the United States, because anything involving China can be tainted,” says Scissors. “ ‘Aren’t they trying to steal U.S. technology? Are you helping them?’ There’s a big business opportunity here for Bush -- the Chinese really want to substitute away from coal. But he may be taking advantage of a political opportunity that’s going to cause him political problems down the road. It would be interesting to know if they have a story ready to explain what he’s doing.”

Bush’s spokeswoman, Kristy Campbell, wouldn’t identify his foreign investors, a step he would presumably have to take if he enters the race. “If Governor Bush were to become a candidate, he would certainly review all of his business engagements,” she says. “There is nothing related to Governor Bush’s business interests that would hinder a run for president in any way should that be his decision.”

In the meantime, says Al Cardenas, a friend and former campaign chairman, Bush is enjoying the good life of a private equity mogul. “He’s having a lot of fun, and he’s being very successful,” Cardenas says. “That adds to the list of things he’ll have to consider.” Bush, who criticized Romney during the last campaign, will also have to consider whether he would fare any better when he comes under the inevitable attacks on his business ventures. Political scientist Corrigan expects he will. “Jeb is not one to shy away from a political fight,” he says. “He’ll answer those attacks much more aggressively than Romney did. It’s in his bones.”

Cardenas agrees, but hastens to draw a distinction. “Bain Capital operated in a corporate environment and took over major companies,” he says. “Jeb’s an entrepreneur. There’s a difference between running a company where you invest a hundred million and a place like Bain where Romney invested billions. It’s not what you do for a living, so much as how people perceive you.”

Last month, during an appearance at his presidential library, George W. Bush was asked about the challenges his brother would face in a campaign. He shrugged. “You don’t get to pick the environment in which you run.” That’s true. But Jeb’s road to the White House could be trickier than he expects.