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Amundi warns that parts of private equity market resemble ‘Ponzi schemes’

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Re: Amundi warns that parts of private equity market resemble ‘Ponzi schemes’

#11

Post by clairity »

dislikedtom wrote: post #2

sometimes i feel the whole market resembles ponzi. things getting expensive because there is a promise of price rising and more people getting into the market.

this is a symptom of the short-termism in equity markets that we get from abstracting ownership away from involvement. it's a direct consequence that such markets become centers of gambling rather than long-term interest, because otherwise your focus would be on growing your main source of equity, rather than spraying and praying.

it's also why we should be wary of anyone spouting "markets provide liquidity" dogmatically. equity markets do provide liquidity, but only a trickle is needed for a well-functioning market, but the gamblers (traders, brokers, etc.) propel a tsunami of liquidity[0], because that's what benefits the gambling mechanics. we should leave gambling to casinos and let equity markets be about involved ownership. i'd made a related point yesterday about each person having one appreciating asset to nuture is great, but not having many: https://news.ycombinator.com/item?id=31573993 .

[0]: a similar phenomenon occurs in real estate, where only a trickle is needed, but brokers/agents try to drive sales past the natural equilibrium for their own benefit, and not the market's.

Re: Amundi warns that parts of private equity market resemble ‘Ponzi schemes’

#12

Post by zasdffaa »

zdkl wrote: post #8
zasdffaa wrote: post #6

Earlier quoted context omitted.

Surely others doing it is a perfect reason to do it. They pile in, market surges, you hop in and get lifted, and cash out before they do. Leaving aside the critical timing of that last step, it seems obviously right (for a short-term purely economics view)

And that's how you get less informed private persons (ie. the public, ie. the "economy") over-leveraged on real-estate or junky assets holding the bag.

Quite so. I didn't say it was a good thing; read my parethesised affix.

Re: Amundi warns that parts of private equity market resemble ‘Ponzi schemes’

#14

Post by Animats »

dpflan wrote: post #4

Is “everything a Ponzi scheme” unless the entity actually can create “value” greater than the money put into it? Is everything that exists in economies within the bounds of national economics and central banks a Ponzi scheme? A reshuffling of money within the closed economic system?

A Ponzi scheme is something where the payout for early investors comes from the pay-in of later investors. There's a lot of stuff with that property, from Uber to Bored Ape Yacht Club.

Re: Amundi warns that parts of private equity market resemble ‘Ponzi schemes’

#15

Post by zeruch »

Parts?

I'm quite biased here, having been in a few ventures that got absorbed by PE; "Vulture Capital" is being kind, and I maintain that I'd love to see PE as a category, regulated into oblivion.

But the market writ large is mostly fine. PE I find trash.

Re: Amundi warns that parts of private equity market resemble ‘Ponzi schemes’

#17

Post by anm89 »

Animats wrote: post #14
dpflan wrote: post #4

Is “everything a Ponzi scheme” unless the entity actually can create “value” greater than the money put into it? Is everything that exists in economies within the bounds of national economics and central banks a Ponzi scheme? A reshuffling of money within the closed economic system?

A Ponzi scheme is something where the payout for early investors comes from the pay-in of later investors. There's a lot of stuff with that property, from Uber to Bored Ape Yacht Club.

This is a completely invalid definition of a ponzi scheme. What you have described is anything that is sold on an open market that is not directly used by the first buyer. By nature, every one of those things only pays out earlier investors when later investors buy in.

A ponzi scheme involves a company who has no underlying revenue model and just shuffles money from late investors to early investors. So uber isn't a ponzi scheme because it generates revenue with an actual line of business. The fact that investors buy into at different times makes it a business like every other public business in our economy, not a ponzi scheme.

Re: Amundi warns that parts of private equity market resemble ‘Ponzi schemes’

#18

Post by itsoktocry »

clairity wrote: post #11
dislikedtom wrote: post #2

sometimes i feel the whole market resembles ponzi. things getting expensive because there is a promise of price rising and more people getting into the market.

this is a symptom of the short-termism in equity markets that we get from abstracting ownership away from involvement. it's a direct consequence that such markets become centers of gambling rather than long-term interest, because otherwise your focus would be on growing your main source of equity, rather than spraying and praying. it's also why we should be wary of anyone spouting "markets provide liquidity" dogmatic…

>this is a symptom of the short-termism in equity markets that we get from abstracting ownership away from involvement.

Except this is explicitly talking about private markets. You know, those places that VCs and people like Elon Musk claim companies need to be to avoid "short-termism" of public markets and have ownership be rewarded.

The reality is these money men want to be private so they never have to mark-to-market. The public markets enforce that.

Re: Amundi warns that parts of private equity market resemble ‘Ponzi schemes’

#19

Post by clairity »

zeruch wrote: post #15

Parts? I'm quite biased here, having been in a few ventures that got absorbed by PE; "Vulture Capital" is being kind, and I maintain that I'd love to see PE as a category, regulated into oblivion. But the market writ large is mostly fine. PE I find trash.

PE can definitely be 'problematic' to put it lightly, but i did witness one example of a PE deal done well: a company was bought out by PE with the help of an involved CEO, who set aside a pool of money for employees if they hit key growth metrics that allowed the PE firm to sell within some number of years. a number of otherwise not-well-compensated employees were about to buy houses/pay off mortgages who otherwise wouldn't have been able to do so.

there's a difference between finance-based PE and fundamentals-based PE, with the former unfortunately being much more prevalent than the latter. finance-based PE uses financial leverage to restructure a company's capital structure to squeeze out gains, which is not really improving the company at all, and usually to the detriment of the now debt-laden company.

Re: Amundi warns that parts of private equity market resemble ‘Ponzi schemes’

#20

Post by itsoktocry »

anm89 wrote: post #17
Animats wrote: post #14

Earlier quoted context omitted.

A Ponzi scheme is something where the payout for early investors comes from the pay-in of later investors. There's a lot of stuff with that property, from Uber to Bored Ape Yacht Club.

This is a completely invalid definition of a ponzi scheme. What you have described is anything that is sold on an open market that is not directly used by the first buyer. By nature, every one of those things only pays out earlier investors when later investors buy in. A ponzi scheme involves a company who has no underlying revenue model and just shuffles money from late investors to early investors. So uber isn't a…

>A ponzi scheme involves a company who has no underlying revenue model and just shuffles money from late investors to early investors.

Which is exactly what Uber has done for 10 years. Revenue has nothing to do with it.

How else do you explain people becoming filthy rich owning companies losing 10s of billions of dollars?

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