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Biden Cabinet picks put private equity firm Pine Island in the spotlight

Private equity firm Pine Island Capital Partners just hit the revolving door lottery, for better or for worse.

Driving the news: President-elect Joe Biden plans to nominate retired Gen. Lloyd Austin as defense secretary, less than five months after he joined Pine Island as a partner. It also comes after fellow Pine Island partner became Biden's secretary of state pick.

Why it matters: It's common for someone to leverage public sector experience in the private sector, or vice versa, but fairly unusual to go from top-level public to private and then back into top-level public service. At least for non-lawyers.

  • One reason is that Biden is the first ex-VP since Nixon to return after an intermission.

As we previously reported, Pine Island was formed in 2018 by former CIT Group and Merrill Lynch CEO John Thain, former Goldman Sachs buyout big Phil Cooper, and ex-Coca-Cola exec Clyde Tuggle.

  • It focuses on mid-market companies in a variety of sectors, including aerospace and defense, and so far has bought two companies via a fundless sponsor model and raised $200 million for a SPAC.

Between the lines: Pine Island obviously knew it was adding partners with D.C. influence, and was pretty explicit about it in the SPAC prospectus, but couldn't have predicted that two of its hires would end up among the next administration's four most powerful Cabinet posts.

From a D.C. cynicism perspective, Pine Island hit it out of the park.

  • Sure a Sec. Austin would need to recuse himself from any related contracting or procurement decisions, but the historical relationship cannot be erased.
  • And having friends in the highest of places could indirectly help Pine Island raise money or add portfolio companies.

On the other hand, some potential targets and investors might fret about the appearance of conflict, or being tied to a private equity firm that's likely to become a GOP boogeyman.

  • The next Pine Island deal, if related to government, is almost certain to be on the N.Y. Times front page — the type of spotlight that many seek to avoid.
  • Pine Island also may be the subject of disclosure fights during Senate confirmation hearings, including requests for the identities of its limited partners (such agreements often include nondisclosure agreements).

The bottom line: Pine Island's days as an under-the-radar upstart are over.

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