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Who employs your doctor? Increasingly, a private equity firm

nytimes.com

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Re: Who employs your doctor? Increasingly, a private equity firm

#331

Post by polygamous_bat »

civilized wrote: post #209
disgruntledphd2 wrote: post #172

Earlier quoted context omitted.

Full disclosure, I don't work in finance, so I may be getting a bunch of this wrong. > Why is private equity ending up with all these resources? Because they have cash, mostly from pension funds and insurance companies. > Who is selling to them and why? The doctors running the practices, more generally they're rolling up companies in relatively dispersed industries where they believe they can make money. In the best…

On the last point, interest rates aren't the only thing that matters to loans. The default rate also matters. If I borrow a billion dollars from you to pay myself and I have no good plan to pay you back, it doesn't matter how low interest rates are, you'll still be out a billion dollars.

> If I borrow a billion dollars from you to pay myself and I have no good plan to pay you back, it doesn't matter how low interest rates are, you'll still be out a billion dollars.

In a hypothetical zero interest rate world I can keep paying you the $0 "interest" to not have to pay back the billion. Only when the interest rate goes up do we find out who actually had any intention to ever pay back the original.

Re: Who employs your doctor? Increasingly, a private equity firm

#332

Post by verteu »

jmoak3 wrote: post #153

PE can be replaced with "Some guys". PE bought your hospital? More like, "some guys" bought your hospital. Ask why "some guys" bought it instead of using their money in the market, or why your hospital sold in the first place. As anyone who's company has been purchased by private equity knows, it's probably because your hospital wasn't doing so hot to begin with and "some guys" were willing to gamble that they could…

> PE can be replaced with "Some guys". PE bought your hospital? More like, "some guys" bought your hospital.

The article is about how PE funds are large, and can thus buy enough businesses to reduce competition. Your "some guys" analogy doesn't hold here, right?

Re: Who employs your doctor? Increasingly, a private equity firm

#334

Post by AlexandrB »

s1artibartfast wrote: post #311
jameshart wrote: post #258

Earlier quoted context omitted.

> someone is on the other side of that transaction, lending the billions. Who does that and why? Are they perpetual suckers, unaware of the decades of experience we have doing this? The lenders in a PE buyout are securing that loan on the assets of the purchased company. Real estate, brand names, IP, capital equipment. Their worst case scenario is that stuff all gets sold off and they get paid back from the firesale…

If that's the case then there are no losers left holding a loss, what seems to be the problem? That's just a group of people buying a company and selling it off the assets for a profit.

The losers are the customers and employees of the company. When we talk about company efficiency, we generally mean ROI. But an inefficient company may be inefficient because it's providing surplus value to either its employees or its customers. When such a company is bought by PE and sold for parts, customers/employers are forced to deal with more "efficient" companies that are better at "capturing value".

If you zoom out a bit stuff like this is, I think, why modern products tend towards increasing monetization, selling of data, rental instead of ownership, etc. You either treat your customer like garbage, or you get bought by PE and replaced by someone who does.

Re: Who employs your doctor? Increasingly, a private equity firm

#335

Post by Buttons840 »

chmod600 wrote: post #326
Buttons840 wrote: post #215

Earlier quoted context omitted.

I want a political cartoon that shows "The Free Market Ideal" with a bustling market full of wooden stands with fruit and produce, handmade goods, handmade signs, lots of people making choices and talking with the merchants one-on-one, haggling over prices, etc. The next cartoon pane shows "The Free Market Reality", and it's a bunch of tired looking people standing in line for one of two automated computer terminals.…

That would be a great cartoon. For what it’s worth, I don’t like a lot of government meddling. Not because the free market is so great but because the meddling works out poorly and is subject to worse kinds of corruption and power games.

There's a balance.

Political discourse too often talks about "capitalism", "socialism", or "communism", and half the people using those words don't know the difference, only that capitalism is the good American one. I'd like it if we instead focused on more understandable clichés, like "consumer choice is good", "market competition is good", etc. When considering a new regulation it's hard to discuss whether it's socialist or not; it's easier to discuss whether it will increase consumer choice, or make entering and competing in markets easier for new companies.

We get one group talking about capitalism and what they like about it is consumer choice and free market competition between several companies. The next group likes capitalism because of wealth concentration and their ability to warp society with their money. Both groups talk and agree capitalism is great, without realizing they have very different things in mind.

Re: Who employs your doctor? Increasingly, a private equity firm

#336

Post by ComputerGuru »

civilized wrote: post #109
lordnacho wrote: post #46

To me it seems like PE has simply discovered a loophole in the system. We want a system where creating value for people is rewarded, but PE has found a way to legally get the rewards without improving society. Normally this is called a scam or a fraud, and there are laws for standard stuff like taking people's money without giving them what you promised. For PE however, they've found a way around it, using the machin…

I think it should be illuminating to balance narratives like this with simple questions along classical economic lines: 1. Why is private equity ending up with all these resources? Who is selling to them and why? Why didn't this happen before? It's not like PE is new. 2. When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions. Who…

> When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions. Who does that and why? Are they perpetual suckers, unaware of the decades of experience we have doing this?

In at least some of the cases, the answer is absolute corruption with PE paying the other party “on the side” to sign off on a deal only a sucker would agree to.

See for example this piece of investigative journalism into Medical Properties Trust and just how many red flags and obvious bribes were involved (not to mention potential murder to cover up their misdeeds!!): https://prospect.org/health/2023-05-23-quackonomics-medical-...

Re: Who employs your doctor? Increasingly, a private equity firm

#337

Post by multicast »

lifeisstillgood wrote: post #261

The thing about PE that confuses me, in fact it's about all finance. Why is it that a business can be bought by a PE firm, that uses the existing cash flow of the business to fund the loan repayments, but the business itself cannot get a loan to invest in new capital / buy the CEO a yacht etc? There feels like there is a missing market. There is the super safe regulated world of public corporations, where you loan MS…

> that uses the existing cash flow of the business to fund the loan repayments, but the business itself cannot get a loan to invest in new capital / buy the CEO a yacht etc

Loan repayment to banks and other financial institutions is the first and highest priority. During this process the company is constantly turned more efficient and profitable. If it adds value, jobs and capital in form of machines etc. is added, therefore PE firms do not only reduce employment. The goal is also to sell irrelevant jets / yachts and eliminate other expensive non-business related expenses from which often a few benefit. The goal is not to buy new yachts. In fact a PE firm is committed by contract and by incentives through own investments, to not use the company to fund lavish lifestyles. After on average 5 years the company is sold for a multiple.

> But where is the middle market where a PE firm makes an offer and the next day the business itself puts up a prospectus and is able to find enough semi-liquid capital to take the self same bet? Why is it so hard to raise funds?

I think I don't really get your point here. There is no infrastructure which provides businesses this option, because it does not make sense. Private businesses are often sold through investment banks, and if the desire to sell comes from the owner, then there is often a form of auction involved. Companies with a solid business are getting a very good price this way. But raising funds for an existing business and selling a business are two completely different things. You don't accept a PE firms invitation to a call, and then turn the other way to get funding and keep ownership.

Re: Who employs your doctor? Increasingly, a private equity firm

#338

Post by p0pcult »

wpietri wrote: post #81
cscurmudgeon wrote: post #71

Earlier quoted context omitted.

That is not conclusive either. If PE had not acquired them, may be they would have been worse or better? This analysis doesn't answer that.

If your standard for "conclusive" is "study must fork the universe to compare the same business with different timeline" then you may be waiting a while. Regardless, in this case, where the ongoing harm could be very large, we have to at some point go with the best evidence available.

[dead]

Re: Who employs your doctor? Increasingly, a private equity firm

#339

Post by multicast »

YPCrumble wrote: post #188
lordnacho wrote: post #136

Earlier quoted context omitted.

My current working theory. Happy to hear from any of the actual PE people who are reading this. 1. As you can imagine, not everyone has the wherewithal to launch a PE firm. Only people who are well connected in the financial world will get access to the funds. People who have friends in the investment sector for instance. There's plenty of stories about how VC (which isn't the same thing) investment is hard to get a…

It feels like most answers to “who is at the losing end of any transaction” is pension funds, which are guaranteed by the government. So by your theory PE firms are sucking in taxpayer money by fleecing pension funds run by financiers who aren’t smart enough to get into PE. Basically until pension funds aren’t bailed out by the government this will continue.

Wrong. PE investments today make a small portion of the overall portfolio of a pension fund (varies from state to state). In widely swinging markets a PE form that does not speculate in the market but buys and flips with a lot of expertise a private company, and often generates higher and more sustainable returns. This is a reason why PE investments by pension funds are increasing, but they still make a small portion of the pie. In addition, pension funds are not funded through tax money but through portions of ones wage. And not all pension funds are from the state (e.g. CalPERS), most of them are run by pension fund specialized corporations or if big enough by the employer itself.

Re: Who employs your doctor? Increasingly, a private equity firm

#340

Post by bko »

YPCrumble wrote: post #188
lordnacho wrote: post #136

Earlier quoted context omitted.

My current working theory. Happy to hear from any of the actual PE people who are reading this. 1. As you can imagine, not everyone has the wherewithal to launch a PE firm. Only people who are well connected in the financial world will get access to the funds. People who have friends in the investment sector for instance. There's plenty of stories about how VC (which isn't the same thing) investment is hard to get a…

It feels like most answers to “who is at the losing end of any transaction” is pension funds, which are guaranteed by the government. So by your theory PE firms are sucking in taxpayer money by fleecing pension funds run by financiers who aren’t smart enough to get into PE. Basically until pension funds aren’t bailed out by the government this will continue.

Pension funds are investors in PE, they're not the debtors. In other words, if PE firms do well, their investors (pension funds) do well. They're also not stupid

This whole conversation about PE is non-sensical. It's all based on this naive notion that PE firms borrow money to buy investments and use that money to pay themselves, more often than not bankrupting the original company, and since it was borrowed money, they can come out unscathed.

But no one can answer, why would anyone lend PE firms money if it's a bad investment? Debt normally doesn't have an upside. Best case scenario is you get paid back what you're owed plus interest.

A lot of online criticism can't even get the relevant players right and relies on naive tropes like "they're greedy" or "corruption", as a hand-wavy way to explain complicated dynamics. And then they throw out theories that could be dispelled by reading the first few paragraphs on investopedia regarding PE firms. Why is the discourse in this particular field so poor on hacker news? Low quality conversations regarding technical topics would not fly on this forum. If someone mentioned Y2K and you made a low quality comment like "greedy corporations wanted to save money by not storing more than 2 digits for the year", you would get downvoted to hell. So why does this topic have such poor comments?

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