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Private equity: A fee too far [pdf]

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Re: Private equity: A fee too far [pdf]

#31

Post by heavenlyblue »

UncleMeat wrote: post #22
LatteLazy wrote: post #8

Earlier quoted context omitted.

The value is in the resources of the company being liquidated. Right now, those resources are being used to produce $X per year in profit. But if we sold them all, and just put the cash in a bank we could get $Y in interest. Make sense? If Y>X then the best thing to do is liquidate the company. An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and s…

> If Y>X then the best thing to do is liquidate the company. Only if you use a particular definition of "best thing." Consider a nonprofit. It raises funds and buys meals for people who are food insecure. No money is created for its investors. It has a brand that people like and feel good about. Now imagine the board of this nonprofit decides that making $0 is not their favorite thing so they halt all of their progra…

> Consider a nonprofit. It raises funds and buys meals for people who are food insecure. No money is created for its investors.

Non-profits create high-status jobs and spend massive amounts of money on marketing so they are not incredibly neutral in terms of "no value created for investors".

Re: Private equity: A fee too far [pdf]

#32

Post by Phiwise_ »

dfxm12 wrote: post #29
boppo1 wrote: post #12

Earlier quoted context omitted.

>you are „too big to fail“ for capitalism Isn't market intervention more like corporate socialism though? I mean that's literally not capitalism.

"Corporate socialism" is the privatization of the profits and socializing the risks. Who owns the banks that were bailed out by the US government in 08? hint: they weren't nationalized; they're still private. Capitalism comes in many forms. If market intervention enforces private ownership of capital, it is still a feature of Captialism.

Didn't think I'd run into the Department of Housing and Urban Development on HN today. Call me crazy, but I'm not sure they're the best party to be asking for capitalist definitions in this dispute.

Re: Private equity: A fee too far [pdf]

#33

Post by Phiwise_ »

throwawayqqq11 wrote: post #17
LatteLazy wrote: post #8

Earlier quoted context omitted.

The value is in the resources of the company being liquidated. Right now, those resources are being used to produce $X per year in profit. But if we sold them all, and just put the cash in a bank we could get $Y in interest. Make sense? If Y>X then the best thing to do is liquidate the company. An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and s…

What you say makes sense, but it still misses the main point: Market mechanism fail because of conflicting interests. Your example describes a functioning market, the article describes only one symptom (!) of the opposite. It's true, resource allocation is very important. But is the free market more important than for example the declining life expectancy in the US? I don't think, you will find a solution besides reg…

>But is the free market more important than for example the declining life expectancy in the US?

Perhaps the decline of the free market in the US might be exactly as important as the decline of life expectancy in the US.

Re: Private equity: A fee too far [pdf]

#34

Post by whall6 »

throwawayqqq11 wrote: post #18
whall6 wrote: post #16

Earlier quoted context omitted.

What exactly is the issue you’re seeing?

Ignorance. You can only solve problems that you see and with my conspiratorial hat on, i would say it is deliberate.

What is the ignorance you’re seeing here?

Re: Private equity: A fee too far [pdf]

#35

Post by ceejayoz »

LatteLazy wrote: post #20
ceejayoz wrote: post #15

Earlier quoted context omitted.

> An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and says "I'll give you 50m for the mill, I want to take all the equipment to Canada where there is a shortage of steel". He will fulfil more demand at a better price by doing that (hence he will offer 50m for a steel mill that only makes a pittance in the USA). And you can't ake the 50mil and buil…

No, actually. The fact people won't pay for X is exactly how you know that people don't want X. So a prolonged, less than cost of production, price for something DOES mean you should stop making it. That's sort of the whole point of prices... This sometimes forces us to confront hard truths (people want perfume and hamburgers and NFTs, not ever larger amounts of steel). But that's actually the big strength of capital…

> The fact people won't pay for X is exactly how you know that people don't want X.

"makes just $1000 a year" just means people are paying roughly the cost of production, unless you meant it to be revenue instead of profit.

There are plenty of things people won't pay for that they still want/need. I couldn't pay for a heart transplant without insurance, even if I'd die without.

Re: Private equity: A fee too far [pdf]

#36

Post by throwawayqqq11 »

whall6 wrote: post #34
throwawayqqq11 wrote: post #18

Earlier quoted context omitted.

Ignorance. You can only solve problems that you see and with my conspiratorial hat on, i would say it is deliberate.

What is the ignorance you’re seeing here?

In case of this article:

> Mr Sudarskis argues that the most vulnerable parties are not the investors, who recieve a share of the fees and willingly sign a contract with their fund managers, _but portfolio companies._

In terms of effected people, i would not call investors the "most vulnerable". Have-nots can't spread risk to the degree a fund manager can and are bound much more to local monopolies.

"The most vulnerable ones to powerful individuals abusing their power to enrich themselfes, are portfolios."

Sounds weird, doesn't it.

Re: Private equity: A fee too far [pdf]

#37

Post by multicast »

When an entity buys a business (majority ownership) it can do whatever it pleases to do. Outcries and discussions about fees they charge and other things they allegedly do is completely illogical. This article is unbelievable hopeless.

People have to understand that a 'PE' fund and also other alternatives like a 'hedge fund' is simply a private partnership / specific legal vehicle. The term 'Private Equity' and 'Hedge fund' does not even exist in legal terms, it is market jargon. Not only will there never be any regulation but there can't be any. You can't just regulate a certain field of activity that operates solely in the legal world. The private partnership has an agreement to acquire companies, but it could also be about anything else! Giving the fund enough freedom to buy companies, buy land, buy art etc.

A PE fund and a hedge fund are NOT REGULATED by the SEC, they are REGISTERED with the SEC. Their filings are also never checked for correctness, thus only accredited investors (wealthy - e.g. income above 200K) are allowed under law to invest in such private entities if the fund markets itself!

You can not regulate a private investment vehicle in a country takes certain economic and free-market principles and incentives halfway serious. And if the public goes on the nerve of these management companies they just rebrand 'Private equity' to something else.

And don't forget, they OWN the portfolio company. There is no serious argument for regulation that prohibits a legit owner of a company to do a certain activity.

Re: Private equity: A fee too far [pdf]

#38

Post by TrackerFF »

It is crazy how much money the PE folks have made by making a company worse off. In far too many cases, it's been like the anti-thesis of business: Instead of getting paid by improving a business, and thus delivering better service/products to the customer, the businesses have been optimized for debt - which in turn has been funneled back via dividends.

In the end the business is worse off, and the customers are paying more for less (or exactly the same before PE stepped in).

Luckily the days of cheap/free debt are over, but some few earned billions.

Re: Private equity: A fee too far [pdf]

#39

Post by monero-xmr »

TrackerFF wrote: post #38

It is crazy how much money the PE folks have made by making a company worse off. In far too many cases, it's been like the anti-thesis of business: Instead of getting paid by improving a business, and thus delivering better service/products to the customer, the businesses have been optimized for debt - which in turn has been funneled back via dividends. In the end the business is worse off, and the customers are payi…

If I worked 20 years building my business, and PE comes knocking and is willing to overpay as some sort of roll-em-up play (very common), then that benefits me - the owner. Everyone always forgets the other side of PE which is that they provide tons of liquidity for non-public companies, and also overpay to public shareholders.
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