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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

#381

Post by lifeisstillgood »

bagacrap wrote: post #378
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…

It's about swapping an old, ineffective management team for a new one. PE is just a loan and a new executive team in one bundle.

It's (also) this I don't get. if shareholders own enough of the company to be able to sell to PE then they own enough to be able to replace the damn management with better. That's basically the point of (active) shareholders.

It seems this is an expensive way to get passive shareholders replaced with activist shareholders. it feels there is a better way.

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

#382

Post by xmprt »

burkaman wrote: post #236
tryptophan wrote: post #35

Earlier quoted context omitted.

Flat salary is an incentive to do the easiest option or least work. You can’t win with the incentive game. One nasty way that can manifest is to under test because if you don’t find anything you don’t have to do anything.

Doesn't this apply to all jobs? You're sort of suggesting that salaried employment can't work, because employees will be incentivized to do the easiest or least work. Clearly it does work in practice though, despite this alleged fundamental flaw.

Yeah. Doctors will be incentivized to do the easiest procedure. So what? As long as it treats me, the easiest procedure is probably the best one because it's so simple that it's harder to get wrong. There are scenarios in which the best patient care would involve complex procedures but in that case, the doctor is incentivized to do those because the complications that might arise from a simple procedure are much harder to deal with than doing the better, albeit harder procedure first.

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

#383

Post by lordnacho »

fairity wrote: post #360
lordnacho wrote: post #269

Earlier quoted context omitted.

It's the agency that causes the issue. And a little bit of financial engineering. Say you have a friend who often can't pay back his debts. But he can pay 80% of them. You have another friend who wants to lend to safe debtors. Why not get that safe tranche, the bottom 80%? He needs to show he's safe so he can take more risk. He loves going out to dinner with you. Another guy wants to take some risk. You give him the…

Nice sounding story, but do you have a source that debt lent to PE backed companies has negative real returns, on average?

One of the articles linked mentioned it. I wouldn't say negative real returns, probably just worse on a risk adjusted basis.

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

#384

Post by midoridensha »

thfuran wrote: post #351
boondoggle16 wrote: post #79

Earlier quoted context omitted.

Don't people live long enough already? We can't pay for our retirees. Old age medical care costs $1M+. I know the morally correct thing to do when I get old - give that money to kids instead. Vampires.

What's the right age for us to start decrying someone's continued existence? Is it wrong for people with chronic health conditions to seek treatment rather than just dying?

>What's the right age for us to start decrying someone's continued existence?

Either 22 or 30. There was a great movie about this, based on a novel. In the movie, it was 30, but in the novel the age was 22. When your lifespan is up, you go to a show called "Carousel" where all your friends watch you being killed.

Anyway, I think the OP, plus almost everyone here on HN, is overdue for Carousel.

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

#385

Post by robertlagrant »

underlipton wrote: post #282
fiprofessor wrote: post #226

Earlier quoted context omitted.

> A PE takeover is the signal that you no longer need to hedge those shorts; the company, loaded with the debt used to purchase it, will soon go bankrupt, and you will be absolved of closing your short positions, for all practical purposes. I think it's just the opposite: you'll be forced to close your short position when the PE company buys. When PE firms "take over" a public firm, they generally take it private, an…

I don't know if that's necessarily the case, in practice. Aside from the cases where a PE firm does keep the company public, there's at least one case where short-sellers weren't made to close out their positions when a company was taken private (Next Bridge Hydrocarbons, if you're curious).

How did that work? The company became privately owned, but somehow someone was still betting on the price of some public shares in that company? How's that possible?

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

#386

Post by thisgoesnowhere »

bagacrap wrote: post #374
thisgoesnowhere wrote: post #365

Earlier quoted context omitted.

I think the general idea is that VC and PE are parasitic but at least VC helps to build. PE often destroys as this article shows.

Helps to build what exactly? Airbnb, which makes housing less affordable? When has VC created something that approximates a public good, such as a hospital?

Stripe is great and is just a massive boost to the entire industry. Shopify is also great, Apple makes great products, Google search is fantastic. I could go on.

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

#387

Post by thisgoesnowhere »

ramraj07 wrote: post #367
thisgoesnowhere wrote: post #365

Earlier quoted context omitted.

I think the general idea is that VC and PE are parasitic but at least VC helps to build. PE often destroys as this article shows.

So VC is Bhrama and PE is Shiva. One monetized building and another the deconstruction. If you're mad at just the destroying entity you're missing the point. The rot of PE stems from the same incentives of VC from where I sit and see.

PE conceptually is fine and if it worked the way you describe then nobody (respectable) would be complaining. But in practice you see it turn healthy or struggling but fixable companies into a shell to hold onto debt.

Its a twisted way of using the financial structure to siphon money without creating value (I would argue it destroys value instead).

See the story of Toys R Us as an example.

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

#388

Post by disgruntledphd2 »

multicast wrote: post #348
disgruntledphd2 wrote: post #218

Earlier quoted context omitted.

Sure, but that the first day of PE, they had loads of massive conglomerates to strip. Those are all gone now, and the current management structures (except in tech) are hostile to insourcing so there's not as much fat to cut. Like, definitely some PE firms will survive, but I'm willing to bet (not short though ;) ) that an awful lot of them will go belly-up/be unable to raise more funds in the next 5-10 years.

Big PE firms are now setting up new investment vehicles that specialize in funding big investments of other PE firms. PE firms are starting to invest more and more into equity with their own investors money, thus amount of investments shrink - get more expensive - and the capital needed rises. But I am not sure that this causes more PE firms to close shop on a large scale, but more likely resulting in less transactio…

Yeah, that looks like an extend and pretend maneuver to me, at least.

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

#389

Post by mediascreen »

lapcat wrote: post #270
mediascreen wrote: post #254

Earlier quoted context omitted.

I know they are a right-wing think tank, that is why I referenced them when it comes to rank "market economy" factors that people who believe in and want to have "free markets" care about. In what way is it a political propaganda piece? From what I can tell it's a pretty transparent ranking of countries by factors that the organisation cares about. While the Scandinavian countries have high taxes and regulated labour…

One of their policy goals is deregulation in the United States. Thus, they have a vested interest in showing that the United States has too many regulations. And they don't even define what their categories mean. I'm willing to bet that "labor freedom" to them means "right-to-work" and no minimum wage, for example. In any case, without proper measurable definitions, they can easily manipulate their index to say whate…

I think that pages 403-415 provides pretty good definitions[0]

But that's not my point. My point is only that there are aspects of a typical free market economy (by American right wing definitions) that are better represented in countries other than the US.

[0] https://www.heritage.org/index/pdf/2023/book/2023_IndexOfEco...

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

#390

Post by fakedang »

civilized wrote: post #379
alephnerd wrote: post #205

Earlier quoted context omitted.

I'm adjacent to the space and I'd disagree with this statement: "fleecing pension funds run by financiers who aren’t smart enough to get into PE." Institutional Investment Funds (pensions, endowments, sovereign funds, etc) need returns well beyond inflation to ensure long term stability. To do this, they will mix and match various different investment vehicles to minimize risk. This means a fund will have a varying p…

And what do they accomplish with all that complexity and the absurdly large up-to-2% expense ratio? Any evidence that these funds deliver better than index returns after fees? Or is it just a jobs program for the spreadsheet set?

Some of the sovereign wealth funds like the Norwegian one and the Middle Eastern ones aim for a 10% annual return. They are extremely stringent about which funds they invest with, and in most cases they go for direct investments rather than passive ones. The funds from those are literally used to fund various welfare programmes for their citizens. They also hire some of the brightest, most talented traders and not some PE-rejects.

Just sucks that Western pension funds hire mostly second-tier folks with the right connections, with a few exceptions here and there, or some stupid union bosses, at least from my experience in PE.

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