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Private equity bought America's essential services

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Re: Private equity bought America's essential services

#391

Post by convolvatron »

mikestew wrote: post #281
mmooss wrote: post #251

Earlier quoted context omitted.

In this case, why doesn't someone else see a market opportunity and sell competing tools for less?

Because capitalism and customer brand awareness don’t work like your Econ class told you. There is a lot more nuance, starting with the inertia of customer’s awareness of brand reputation. But don’t listen to my ramblings, this comment in this thread does a better job than I would: https://news.ycombinator.com/item?id=48295440

sure. not just that. certainly part of the issue is that the market is not perfect information.

but there are plenty of other reasons as well.

starting a new venture, whether from the foundation of an existing company or doing a new one takes investment and carries risk. maybe the sales relationships the existing company had were the results of decades of investment. maybe the ownership or the employees had a specific skillset or maybe they used tooling that could be bought easily anymore. maybe they had an important and established relationship with suppliers.

maybe PE moved in because the business was viable, but not really growing and there isn't sufficient upside to motivate investors.

or the business only existed because the owner just loved that thing so much and funded it at a near-loss out of family money.

or the business was based on a huge capital investment or ownership of property in a key location that happened 20 years ago and isn't possible to replicate because of changes in the environment.

there are 1000 reasons why these things aren't spherical cows.

Re: Private equity bought America's essential services

#392

Post by airstrike »

lenerdenator wrote: post #348
airstrike wrote: post #96

Earlier quoted context omitted.

Do you think losing the equity portion of the investment means no risk? It's not fully debt financed. And that debt financing bears an interest proportional to the riskiness of the asset's cashflows. There are lots to hate about LBOs but they aren't entirely devoid of value

> Do you think losing the equity portion of the investment means no risk? It's not fully debt financed. To quote the bandana-clad bard of Venice, CA, Mike Muir: "it's the difference between a Porsche and a Rolls Royce". If you're playing the LBO game at the level where you're looking at buying up chunks of a community's essential services, you are unlikely to be doing business in a way that presents meaningful risk t…

You don't have to take meaningful risk to your personal financial situation for an investment to be risky. The CEO of Coca-Cola also takes no meaningful risk to their personal situation. Should we forbid CEO roles?

Re: Private equity bought America's essential services

#393

Post by znnajdla »

The Abrahamic religions have a natural safeguard against excessive wealth concentration: ban interest-based loans to private individuals (usury is shunned in the Bible and the Koran) and instead encourage a wealth tax on hoarding that directly transfers charity from the wealthiest to the poorest (tithe or zakaat).

Some modern economists have suggested this should work theoretically if properly implemented. See Helmut Creutz, Das Geld-Syndrom (1993) and “The Natural Rate of Interest Is Zero” — Mathew Forstater & Warren Mosler.

Re: Private equity bought America's essential services

#394

Post by froindt »

bombcar wrote: post #293
triceratops wrote: post #258

Earlier quoted context omitted.

The S&P 500 already returns 7%. Why do pension funds need PE? And like FIRE devotees, maybe they should model a lower withdrawal rate.

Because if you're hired as pension manager, and you just shove all the money into VTI, you're going to feel like you're doing nothing, and eventually someone will notice your job is redundant, even if you're outperforming your peers.

Relatively famously, the Nevada public pension investment manager relies entirely on indexed funds. He has one person he works with on the investment side, avoids the expenses of consultants and a large office, and maintains incredibly low fees.

He has been in the role over a decade.

Re: Private equity bought America's essential services

#395

Post by freejazz »

throwforfeds wrote: post #388
iboisvert wrote: post #375

Earlier quoted context omitted.

> bloated pensions I find this characterization offensive. Who is to judge if the defined benefit pension if a primary school teacher or fireman, for example, is bloated? It's part of the negotiated pay package, nothing more or less.

At least here in NYC, a large part of a NYPD officer's pension is calculated based on a 3-year look back from their retirement date, so there is a huge incentive to work as much overtime as possible in order to bump that number in your last few years of service. There are lots of stories of NYPD handing out easy overtime in massive numbers for each other, particularly when they are about to retire. Teachers are the e…

All seem trivial compared to the money sucked up by billionaires, who seem to do little good for society. I'm not going to get angry at a police officer trying to maximize their retirement when we live in a society that celebrates people like Elon Musk, Jeff Bezos and Mark Zuckerberg.

Re: Private equity bought America's essential services

#396

Post by cyberax »

alexpotato wrote: post #376
yardie wrote: post #195

Earlier quoted context omitted.

One of the tools we use was bought by PE last summer. When it was time to renew our support contract had tripled in price. I use it across 10 projects so our costs went from $200k to $500k. I let our account manager know this was unacceptable but even his hands were tied. Cancelled those contracts and let them know we were retooling with a competing tool and opensource to fill those gaps. The impression I got was we…

> By year 3 they start the squeeze, layoffs, asset selloffs (stripping), and lowering quality, raising prices. That is where the real teeth of wolf are shown. To play devil's advocate: Doesn't this also open the market to new entrants? e.g. young person looking to start a HVAC company in the old days couldn't compete with the established firm that already had contracts and the local market wasn't big enough for two p…

A lot of markets can't support more than a couple of competitors. And in many cases, you can't easily open a new company because of upfront expenses. E.g.: an emergency room.

Re: Private equity bought America's essential services

#397

Post by Melatonic »

yardie wrote: post #195
spyckie2 wrote: post #118

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to pay for retirement checks for our old folks. Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone w…

One of the tools we use was bought by PE last summer. When it was time to renew our support contract had tripled in price. I use it across 10 projects so our costs went from $200k to $500k. I let our account manager know this was unacceptable but even his hands were tied. Cancelled those contracts and let them know we were retooling with a competing tool and opensource to fill those gaps. The impression I got was we…

Seems like their might be an opportunity to start a private equity that buys extracted software businesses for pennies on the dollar and then revive those businesses with actually valuable (to the customer) practices

Or maybe by then nobody trusts the name of the original company and it's just useless

Re: Private equity bought America's essential services

#398

Post by jmyeet »

gosub100 wrote: post #365
spyckie2 wrote: post #337

Earlier quoted context omitted.

To clarify the main point is it is wrong but because it affects old people no one wants to crusade against it. It has the perfect moral excuse to hide behind.

I've never heard of the tie between PE and pensions until today. I find it very hard to believe that if pensions didn't exist, nobody would have come along and exploited the same loopholes.

I've been thinking about that comment and I don't think it makes sense. When it comes down to it, PE is really just doing two things:

1. Taking advantage of a pricing inefficiency; and/or

2. Using local monopolies, inelastic demand and regulation to jack up prices.

But what powers PE is the LBO (leveraged buyout). That is, you buy csome company with borrowed money and then you borrow against the assets of that company to repay your original loan.. That... shouldn't be allowed. Obviously that company is saddled with debt and it's usually structured to explode at some future point when the buyers won't actually own it anymore. I think of it like subprime lending in a way.

Now passive funds kind of have to buy sufficiently large companies. This has been an issue with the SpaceX IPO because SpaceX is doing a small float (~5%) and NASDAQ has changed the rules to essentially force passive funds to buy SpaceX where up until now that wasn't the case unless at least 25% of the company was available to buy. It's so nakedly corrupt.

Anyway, if a LBOed company saddled with complicated debt gets re-listed it kind of has a captive market of buyers with passive funds.

So going back to (1) there is long historical precedent for pricing inefficiencies. I'm speaking about the corporate raiders of the 1980s. The movie Wall Street was about this era (well that and insider trading). Essentially ailing companies would be trading below their book value. The book value was simply the value of assets (real estate, etc) so you could buy the company, sell it for parts and make a profit. All the lost jobs be damned.

The companies that tend to get targeted for PE own real estate. This has been a competitive advantage because yet other rent-seekers can't exploit them by jacking up rents. But real estate is an easy asset to sell to pay back your LBO and you can even split the real estate into a separate company and lease it back from that company. It's just financial hocus pocus.

Re: Private equity bought America's essential services

#399

Post by freejazz »

cameronh90 wrote: post #310
mcphage wrote: post #269

Earlier quoted context omitted.

> 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…

>That's only possible if the financial system is valuing things systematically incorrectly.

...have you looked around? Some of the biggest companies in our economy basically just serve ads...

Re: Private equity bought America's essential services

#400

Post by srigbok157 »

elevation wrote: post #226
burkaman wrote: post #175

Earlier quoted context omitted.

How is a new graduate supposed to start a business without a loan?

Could a veterinary business not be bootstrapped? Assuming you had $$$ for some supplies but couldn't afford to lease a commercial building, you could provide small mammal services from your vehicle, driving to people's homes to give vaccinations and well care. Being mobile would also allow you to serve a larger market than a fixed clinic; you could serve a couple small towns on Monday, a couple others on Tuesday, and…

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