Private equity is pretty weird. Not only do they use some incredibly baroque tactics to loot and destroy productive businesses (while getting remarkably, stonkingly wealthy), but they claim that doing this is "adding value."
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They stole hundreds of millions from the PPP bailouts for "small businesses":
pluralistic.net/2020/07/15/3-f…
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pluralistic.net/2020/07/15/3-f…
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They're SO BAD at pensions that the Republican AG of KENTUCKY is suing the two biggest PE funds in the world, along with their CEOs, personally:
pluralistic.net/2020/07/22/sti…
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pluralistic.net/2020/07/22/sti…
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An excellent and ghastly microcosm of PE misconduct and crime is they way that PE has destroyed the nation's healthcare system, especially its emergency rooms, which are a thing we could sure use right now:
pluralistic.net/2020/04/04/a-m…
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pluralistic.net/2020/04/04/a-m…
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Writing for @Newsweek, @Oren_Cass makes a detailed, easy-to-follow case for PE as a system that "captures value" rather than creating it.
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When PE buys a company and loads it up with debt, fires employees, cuts wages and squeezes suppliers, keeping prices stable, no "value" has been created. All that's happened is that value was transfered from productive workers and productive suppliers to unproductive looters.
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"Resources that previously flowed to local businesses and families were rerouted to private equity partners and their lawyers and bankers in New York."
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That's the BEST case! Most PE money comes from "financial engineering," litigation, lobbying, price-hikes, or "outright looting of pensions."
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The reason all this matters is because the normal argument in favor of PE is that markets reward value creation with returns. So if you're rich, you did something good.
PE is a way to get rich by destroying value. By doing bad things.
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PE is a way to get rich by destroying value. By doing bad things.
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Cass cites scholarship to support his claims. For example, this report showing that, following PE acquisitions, we see a "sharp increase in debt, "revenue growth slowed" and "[capital expenditure] spending as a percentage of sales declined."
americanaffairsjournal.org/2018/02/privat…
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americanaffairsjournal.org/2018/02/privat…
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PE's business model is: "take control of businesses to increase debt and redirect spending from capital expenditures and other forms of investment toward paying down that debt. As a result, or in tandem, the growth of the business slows."
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An Oxford researcher found that "This wealth transfer from several hundred million pension scheme members to a few thousand people working in private equity might be one of the largest in the history of modern finance."
ft.com/content/803cff…
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ft.com/content/803cff…
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All this crowded out investment in productive businesses: "Net private domestic investment fell from nearly 1/10 of US GDP in the mid-1980s, to less than half of that by 2018. As a percent of corporate profits, it declined from nearly 100% in the 1980s to less than 40%."
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