I see these private equity takes on HN frequently and am really baffled by the ignorance. There's a very clear difference between a public and private company - the fiduciary duty to shareholders.

There is a legal requirement for directors of public companies to act in the financial interests of all shareholders. In practice, and according to precedent, this means long term viability of the company, in other words, a sustained profitable business.

There is no such requirement for a private company. In practice (esp. recent history), this means private equity firms acquire successful businesses to "mine them" of their wealth - capitalizing their assets for personal gain, and leaving nothing left.

The question for public companies isn't how many retail vs institutional investors they have, it's whether an investor can make a claim about a breach of fiduciary duty. It's patently false to say that the institutional investors (who yes, do have more sway) aren't interested in the company acting in their financial interests.

The biggest difference is not the morality of the management of the two types of companies, but the type of business they are into.

Many private companies are growth businesses. On the opposite side, private equity targets businesses which are stable, but not growing or declining. PE looks for products which have high cost to switch or products with no alternatives.

So when private equity buys the business they extract money in 3 ways: - Raise their prices. This is similar to the public companies, but they do it more aggressively, because their customers don't have a choice. For reference see, what VMWare did after it was bought by Broadcom (Broadcom is a public company which acts as a private equity). - Reduce costs, via layoffs and cutting smaller products. Also done by public companies, but the difference here is the magnitude. It is quite common for Private equity owned companies to have several years of 20% layoffs, until the original workers are completely replaced by workers in cheaper locations. Or not replaced at all which leads to a worse service. - And finally the third way a private equity extracts money from the acquired company by providing "services". Employees from the PE company are elected on the board of directors of the acquired company. A PE executive can become a CEO of an acquired company. PE companies have satellite companies, which provide legal, administrative and financial services to their companies.

On top of that the acquired company has to pay the loan which was used to be acquired.

Let me explain this with a simple example:

* If a company controlled by PE goes bankrupt, shareholders (PE) likely make a profit * But if a publicly listed company goes bankrupt, shareholders lose their money

In other words, PEs almost never lose money, so they could extract the last bit of a company, even more short sighted than shareholders of a public company

If you’ve ever spoken to employees of a public company that was sold to private equity, you’ll know how much of a difference there is. It is a significant difference.

> The rest of the shareholders (eg. pension funds, insurance companies, endowments, family offices) can be assumed to behave like ruthless capitalists chasing the highest returns, regardless of whether the company is public or not.

Right but they are seeking the highest returns as equity holders typically, usually through things like stock buybacks.

Private equity firms have much more devious ways of looting the companies, like management fees, acquiring other portfolio companies, and various other tricks.

If you’ve ever seen the Goodfellas scene where they bust out the nightclub, that’s quite literally their business model.