321–330 of 584 posts
"PE firms load acquired companies with debt, cut costs aggressively, then resell at a profit" The last part never made sense to be. Where do they find willing buyers for these debt laden, hollowed out husks?
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You don't understand! It's because it's not a truly free market. If it was truly free of regulation and government oversight it would be incredible.
I get this is sarcasm but... meanwhile the founders/great thinkers on free markets wrote extensively on how free markets REQUIRED strong government and strong government oversight.
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> So if you wanna fix or ban PE, solve pensions. We solved pensions. People have defined-contribution plans now. I would expect insurance float to dwarf pensions as a source of PE funding. The real reason PE exists is because it charges high fees. The financial industry does not make products to serve customer needs, though by happy accident that sometimes happens. It makes products to charge fees. Index funds remove…
Huh? Don’t many jobs still have gold plated pensions? Like millions upon millions? They need to be paid out somehow.
Do they have to be paid out in full, though? I remember cases in the past where a company went bankrupt and had to renege on some parts of pensions, so maybe you'll see that again?
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This is just the design of a PE fund. They run on a fixed cycle, so early on they heavily invest into their portfolio with the aim of resolving that risk and maximising the sale value by the end of the cycle. In principle, I don't think there's anything wrong with this. All investment expects a ROI over some time horizon. Public companies do the same thing. Anyone who founds a start-up is doing it too. The only real…
“ In principle, I don't think there's anything wrong with this. All investment expects a ROI over some time horizon” Huh? Why is there nothing wrong? Yes they wouldn’t make the investment if they didn’t think they had a way to get ROI, but how does that entitle them to one at any cost or make it necessarily moral? As an extreme example, If I invest to create a company that is clearly exploitive and addictive, nothing…
My view is companies don't have a conscience, and any expectation that they are going to independently act with moral righteousness is unrealistic. Any perceived conscience is either for marketing (green/pinkwashing), or the sum of the morals of their owners multiplied by their willingness to exert any moral authority over the company.
Besides, if you try to imagine a company having an independent conscience, what even would that conscience be based in? I'm vegetarian and think it's immoral to eat meat, but obviously I'd be insane to expect companies to divest from meat based on my peculiar moral position.
In most cases, people do not exert any moral authority over anything they own. Do you actively select your pension investments based on your morality and vote in the shareholder meetings? If you do, I'm genuinely pleased and happy that someone is. But the reality is most people don't give their investments any thought beyond "line goes up", so companies end up acting as ROI maximisers.
So: the main way we enforce morality on companies is ultimately the government. If you want companies to act morally, you set the rules such that an ROI depends on following our democratically agreed set of regulations. Maybe that even harms economic growth but we still consider it worth it (which is typically how we think in Europe, but look at our economies are doing!). However, the company and its investors are still acting as ROI maximisers.
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sure but a restaurant is always going to be a risky asset. I am thinking more in terms of a plumbing business. It's a business that will always have a need, no matter the economy because a bursting pipe doesnt care if its a recession or a booming market. I guess what I would like to see is a pathway to making it easy to buy or start up crucial businesses like a plumbing business, HVAC company, etc. As the current gen…
The thing is those businesses can't really be "sold" because they make enough money to support a few families, but they can't do the same AND carry the debt-load necessary to buy it. So they can only really be inherited or given away (and they often are). But if it's not to kids on death, it's moderately difficult to give away a business that has "paper value".
I'm sure there are tons of people in my local area who could happily and successfully run such a business, but nobody can swing it financially. The initial financial hurdle of going from "not a business owner" to "a business owner" is real.
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> how successful they have become at aggressively optimising for market value They use money to turn value into money, which they then use to turn more value, into more money. And in the end, they have a lot of money, and all of the value is gone.
That's only possible if the financial system is valuing things systematically incorrectly. IFF a company is truly, honest to god, less valuable than the sum of its parts, then it (or the subset that would have more value to someone else) SHOULD be dismantled, and those resources sold and reallocated to more productive use. You probably make these sorts of decisions in the capacity of your own personal finances withou…
Article doesn't really dig into the angle I personally find most horrifying, strip-mining social capital. In my area PE is gobbling up mom-and-pop apartment complexes, plumbing companies, restaurants, and generally making customers and employees alike pretty miserable. Hard-working founders should be able to cash out, but there has to be a better system than this one. Succession, maybe. Not that we should push an unm…
Family businesses have traditionally gotten around this by having their children involved for 10+ years prior to taking over. That way, you slowly transfer your "social capital" to the new owner (in this case your kid). This is understandably harder to manage with a stranger, because you can't transfer the value before they buy it, but they won't buy it if they can't guarantee you'll help them transfer the value.