Cerberus Alumni Mold the Pentagon in Their Private Equity Image

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1:27You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. It's today's big take. It's one of the most read stories on the Bloomberg Terminal. It's a Business Week deep dive into the department of Cerberus.

1:41Carol Massar:Yeah, like, you know, this firm, it's a financial firm. If you're paying attention during the financial crisis, then you know this firm. You remember them from the auto bailout and takeover of some of the auto companies. Deputy Defense Secretary Steven Feinberg wants America's war machine to get cozier with companies. The private equity firm he co-founded is building a constellation of next-generation businesses to answer the call. As we mentioned, it is among our most red. It is the Bloomberg Big Take. Here with more on his reporting, it is a very deep dive. Bloomberg News investigative reporter Caleb Melby.

2:13Carol Massar:He joins Tim and me in our Bloomberg Interactive Brokers studio. Quite a mission and missive, I should say. Tell us about, first of all, for those who might not know what Cerberus is, but I believe that the Bloomberg audience knows, but remind us kind of their history and what they're up to now. Yeah. Private equity and alternative asset manager founded in 1992 by Steve Feinberg, who is the subject of this piece. Cerberus has been in this business for a few decades now. And in recent years, basically since the early 2000s, Steve Feinberg, who has a personal interest in national security and defense and spycraft, has really started to push them into investments that contract with the Department of Defense and are otherwise involved in what we might otherwise call the national security space.

3:05So critical minerals, supply chain, stuff like that. I don't typically think of private equity firms as defense contractors. Explain how Cerberus got there. Yeah. So they actually appeared for many years on the government's list of top 100 contractors to the Defense Department through their ownership of DynCorp. DynCorp was the largest services firm in Afghanistan. They did things like train police forces, build barracks and similar activities. They continue to operate in acquiring companies that contract with the Department of Defense, including some new big ones, including M1 Support Services, which services aircraft and is also among the largest contractors to the Defense Department.

3:48Private equity firms typically, well, I don't want to say there's a typical way, but some would argue that there's a textbook sort of like, depending on if you're doing a leverage buyout or not, but you make an investment, you buy a company, you create efficiencies at the company. Efficiencies can be a euphemism for laying people off. Correct. Or just running a business better, to be fair. Yep. Then they sell it. Yeah. And there's a return. Is that the model that Cerberus and Feinberg are using for defense companies? It's a really interesting question. And we're starting to get some clues about that for this new wave of companies that they started acquiring and in some cases investing in because they created a venture arm as well going back to about 2018.

4:27But one company we talk about and look into in our story is called Subcom, which lays subsea fiber optic cables. Very important right now with straight of Hormuz and everything else. They recently put Subcom into a single asset continuation vehicle. um uh its valuation sextupled over like um about eight years uh to 2.3 billion dollars and that will allow them to kind of circumvent that sort of uh deal life cycle that you're talking about here they'll be able to hold onto that asset through their funds for longer

5:00Carol Massar:um they really care about it and they're really interested in it you know safe to say fair to say accurate to say that we have an administration where the lines get a little bit messy yeah so here you have someone who created this firm, co-founded this firm, and now he's Deputy Secretary of Defense. Yeah. And then he's making investment. Like, tell us how that works. Yeah, absolutely. How do you unfold all of that? So coming into the Defense Department with Steve Feinberg are four other guys who have worked with him on these types of investments at Cerberus. He's created a whole team within the department that includes these Cerberus guys.

5:39They're in several very important roles. One is running the newly created Economic Defense Unit, and the other is running the Office of Strategic Capital, which has a$200 billion lending budget to help onshore America's critical mineral supply chain and other important investments. At the same time, over here, Cerberus is in the process of acquiring, building, and investing in a lot of companies that do business with the Defense Department.

6:06Carol Massar:How does that work? And to be fair, just because something looks like it's very connected doesn't mean that there's anything going wrong i want to be fair about that but yeah so so uh our story documents a few places where where things are overlapping so um the u.s is behind in hypersonic weapons and hypersonic technology um uh cerberus owns stradolaunch uh one of the premier um companies for testing hypersonic technology in america and it's and they're playing part of the role to catch up to that so they're getting new government contracts in real time. And the U.S. has also been interested in a while now for creating essentially what some people call a Huawei killer, finding a way to onshore communications technology back to the U.S.

6:52and create an AI native 6G network. And Cerberus also owns a company that is enmeshed in this kind of syndicate of companies, most of them much bigger, NVIDIA, Booz Allen, Hamilton, that are working with the Defense Department to develop that technology as an America first technology. One point that you make in your piece is that this isn't really new to Cerberus. And at least in terms of like being a defense contractor, owning companies that are defense contractors in 2010, as your piece points out, they were the 11th biggest U S defense contractor. Why has it waxed in Wayne so much? Is it tied to politics at all?

7:29It's tied to some of their, their biggest, um, and, uh, defense contractors that they hold. So dying core, when they bought it was already getting into a lot of trouble with the government. Allegations of overbilling the government, allegations of shoddy work. And Cerberus bought it basically as like a classic turnaround effort. Can we clean up this company and everything else? But U.S. intervention in Afghanistan obviously went away. And instead of winning new contracts, Dyncor lost a lot of contracts. So you saw DynCorp's revenue fall, and then you saw them sell DynCorp. And from what we can see, we don't have 2025 data from the government yet, but from the companies they bought in 2024, it looks very likely they'll start to reappear on those lists in the future of the biggest contractors.

8:23Carol Massar:A lot of questions. There's a lot in here, and I highly recommend everybody check it out online. but it's just kind of fascinating to track. And you do, you know, there's questions of oversight, right? Yeah. I mean, really what we have in Steve Feinberg is a guy who cares a lot about America's competition on the global stage and invested as a private businessman to do that. And now he's leading with a lot of the same strategies and a lot of the same focuses and a lot of the same people on the other side of the equation. Yeah. As they say, Department of Cerberus. but within the government. We barely scratched the surface.

9:01Check out the story. It's got incredible visuals.

9:04Carol Massar:Yeah. And a lot of information. It is the Bloomberg Big Take. It is among the most read stories and it is by the amazing Caleb Melby. He's Bloomberg News investigative reporter joining us here in studio.

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