alt Hacker NewsHas private equity ever done anything good for anyone outside of the investors?
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I'm not sure why private equity is singled out here, when every time a public company does a bad (eg. Boeing), people crow about how public companies only care about juicing next quarter's earnings.
> Has private equity ever done anything good for anyone outside of the investors?
Yes. Productivity typically goes up [1]. Its reputation for job cutting is overblown [2], as is its record on price increases [3]. And historically, it's tended to decrease concentration in the industries it operates in. (The conglomerate break-ups of the 1980s were fuelled by new entrants and carve-outs.)
Instead, what I think we have is a category error. Berkshire Hathaway is a private equity shop as is all venture capital [4], and most family businesses of any scale are structured identically to sponsor-owned firms. Meanwhile, LBOs have been unable to shake the private-equity label for decades, unless they're lead by a founder, in which case they're "take private" transactions. In essence, we brand failed alternative asset strategies as private equity ex post facto.
Moreover, transaction size is negatively correlated with returns, particularly for leveraged buyouts. So the biggest private equity deals, which represent a minority of transaction activity, are disproportionately (a) bad and (b) public.
Finally, we get a lot of false conflation of market failures to private equity per se. Private-equity owned hospitals are bad [5]. But I haven't seen great evidence they're worse than other privately-owned hospitals with similar scale. The problem is hospitals probably shouldn't be run for profit or on-locally. But because nobody in particular is defending private equity, that's easier to attack.
[1] https://www.hbs.edu/faculty/Pages/item.aspx?num=67233
[2] https://www.jstor.org/stable/43495362
[3] https://centers.tuck.dartmouth.edu/uploads/cpee/files/Is_Pri...
[4] https://en.wikipedia.org/wiki/Early_history_of_private_equit...
[5] https://jamanetwork.com/journals/jama/fullarticle/2813379#go...
Private equity has rarely done good for investors too.
With the boom of popularity of ETFs in the last decades it has been increasingly hard for active fund managers to justify their costs by investing on public markets where benchmarks are visible and public.
Thus they removed themselves from the benchmark entirely and moved to private equity where there's no benchmark and returns are very hard to gauge.
Analysis shows that:
- The overwhelming majority of PEs lose money.
- Annualized return of PE in UK has been 2.1%, this doesn't even match parking money in short-term bonds.
- PE performance is extremely murky, as their gains are virtual and whether you exit profitably is heavily dependent on your timing
- The entire sector is ripe with corruption and little regulatory oversight. PEs keep ballooning their holdings valuations by essentially trading companies among themselves. So fund A sells Acme to to fund B at twice the valuation, and will return the favour by buying Foobar at inflated valuation. This all obviously requires access to cheap credit. Many startups are approached by PEs that have already lined up to sell the startup to another PE after few years guaranteeing everybody (from founders to all the PE managers) nice profits, up to the last sucker stuck with the bill.
The only ones that have profited out of PE, beyond the managers working there, are those that invested in the PE itself, meaning buying shares of the fund itself.
Private equity are the crows of the economy. They pick off weak / dysfunctional businesses and open space for fresh competition (or for other markets to open up).
> Has private equity ever done anything good for anyone outside of the investors?
This is a bit like asking if public equity has ever done anything good for anyone outside of its investors. It really depends on what is meant by "anything good."
Has any company that has taken venture capital (a variety of private equity) ever done anything good for anyone outside the VCs?
Private equity is more often associated with late stage takeovers and reorganizations than with startups, however. An example might be the privatization and refocus of Dell. Was a refreshed Dell good for its workforce and customers?
https://www.wallstreetoasis.com/forum/private-equity/the-lea...
If you're a Dell customer, Michael Dell taking the company private again seems to have done wonders for them.
I assume you're asking this rhetorically and just want people to affirm how 'evil' private equity is to support the narrative-driven belief you already have?
PE became a favorite journalist boogeyman in the 80s for saddling companies with high interest debt they could never repay or slicing up industrial companies and selling for parts. That's not reality today. A vast majority of private equity buyouts nobody ever hears about or cares about because everything turns out totally fine.
A private equity buyout that makes the company worse off, destroys customer trust, kills employee loyalty, and leaves room for competitors to swoop in is a failed private equity buyout. If that were true in the majority of cases the entire PE model wouldn't work at all.
Here's just a few success stories of companies you've heard of (there's thousands you haven't heard of, so no point in bringing them up).
- Hilton Hotels - Dunkin Brands - Beats by Dre - Dominos Pizza - Petsmart / Chewy
Businesses that sell to private equity are often businesses that are not doing well or are not long-term sustainable, hence why the owner wants to sell. Think about it logically. If you're running a fantastic business that is profitable, growing, sustainable, with happy employees -- why would you sell?? Or in the case of public companies being taken private, why would anybody take the risk if everything is going wonderfully?
In general I have a pretty negative view of private equity. However I did see this awhile back that seems at least partially positive: https://www.cnbc.com/2023/07/27/private-equity-giant-kkrs-an...
Why is private equity different from any other form of organization? Publicly traded companies are even more addicted to getting revenue. Non-profits like universities may not have shareholders, but somehow the price of tuition keeps skyrocketing even faster than the prices at the dollar stores. And it's not like the religious charities have been pure.
In theory it helps people who have some sort of trade and just want to do that trade, focus on that, while the business experts from the PE firm handle the business side. Running a business is a skill, and people who want to sell some other skill often don't have it as you can't be good at everything.
Are there other ways of addressing that gap, like hiring experts? Sure, but its not like PE is entirely evil.
Keep in mind there is some selection bias here. You only hear about private equity when its being comic book evil. When things work out or its a non scummy PE company, you never hear about it.
It seems to offer interesting opportunities for young recent high level MBA's.
If you have a pension, you're an investor in PE. If you live in a country with a sovereign wealth fund, you're a beneficiary of PE. If you're connected to a school with an endowment, a lot of that money ends up in PE funds, and can fund lots of research and student resources.
So ya, I'd agree the PE is rarely good for anyone but the investors, but you'd be surprised how many people are investors without realizing it.
vc, private equity; potayto, potahto
I can't think of a single example. It normally means making a company worse whilst relying on existing name recognition to drive sales with the aim of re-selling it before people realise how bad the company has begun.
So I work in commercial real estate, obviously a large private equity influenced industry. I've worked in REPE and in other capacities.
There's degrees of PE. Some good, fine, and some worse.
Take real estate development. It's probably one of the suckiest businesses to be in. I know 3 developers who have committed suicide because when things go wrong, your entire life collapses (you put up all your assets in order to obtain construction loans). The litigation, brain damage, and risks are enormous. Increasingly, the payoff is awful (due to worsening legislation and NIMBYism and worse market condiditions)
However, private equity in development I think is a good thing. When there are investors willing to put this money at risk, we get much needed construction of housing (see Austin, TX where rents are falling off a cliff due to over building).
Now look at Los Angeles, which new permits are literally almost non-existent because LA is one of the most hostile places for developers. You can't make money in LA, so there's no capital available.
Then you end up with "affordable" housing developers adding the only supply at $600-900k/unit costs vs the market rate developer at $300-600k/unit.
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On the other hand, "value add" private equity is much more suspicious. It's more cut throat, easier to end up in crony capitalist situations by operating with a "cut expenses, provide less, make big bucks" model. The people in this world are the kind of guys who have never done anything hard with their hands other than gotten a sore thumb from pounding too hard on their keyboards to adjust their excel model ("Mr. The Model is Always Right") too hard all night long.
This is how we end up with old properties who get flipped 4x each being sold with "upside the seller was too stupid to take advantage of" and ending up in situations where tenants get priced out due to private equity seeking infinite growing returns. Oh and by the way, every previous owner did "lipstick on the pig" jobs because why not try to save costs and make your levered IRR 16% instead of 12%? You cannot show that kind of return when you promised 18%... then it'll make it harder to fundraise your next deal!
This isn't to say that "value add" is a dirty business. We certainly need to balance the incentive to modernize and renovate properties. An d developers overbuilding isn't always a good thing.
So its nuanced. I think people need to fairly give credit that there are both good and bad. The capital efficiency is real and produces real world outcomes since there is a strong financial incentive at the end of the door.
But financial incentives sometimes bump up to issues causing harm in real life, which need to be recognized and called out.
Not yet. Sometimes employees if they get second bite of the big apple. PE do well in capital-intensive sectors. I'm not sure if their playbook fits the real needs of dollar stores. Instead of focusing on things like debt and aggressive cost cuts, most customers just want fair prices, stocked shelves, clean stores, friendly cashiers and basic respect—things that PE firms often ignore. In DFW, I was surprised to see 1-2 person dollar stores!
To me, that is an utterly hilarious question to be posing on this website of all places.
Valve is private equity and seems to do a lot of good things, for gamers and for Linux users in general.
> Has private equity ever done anything good for anyone outside of the investors?
If it's not publicly traded, it's super secure from any public accountability.
And while I'm increasingly hostile toward the shareholder model, we do get one transparency breadcrumb from this (gov managed) contrivance: The Earnings Call
Earnings Calls give us worthwhile amounts of internal information that we'd never get otherwise - info that often conflicts with public statements and reports to govs.
Like CapEx expenditures/forecast and the actual reasons that certain segments over/underperform. It's a solid way to catch corporations issuing bald-faced lies (for any press, public, gov that are paying attention).
I'll bet 1 share that there are moves to get this admin to do away with the requirement.