471–480 of 483 posts
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If the market is healthy, there will already be two or three providers in town instead of one that has any sort of monopoly, and the LBO won't be lucrative to begin with.
They buy all of them.
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> The clinic is the collateral to the bank. VC stand to loose nothing This is actually a case where using the correct terminology clarifies. VCs don’t do LBOs. Private equity firms do. When their deals go bust they lose the equity they invested. That equity is the first layer to take a loss. When that happens, the lenders—whether they be banks or private credit firms—take over the company, often converting some of th…
PE includes buy-out (leveraged and not) and VC transactions. PE is typically any medium to long term equity investment not traded publicly on an exchange. Even this is cloudy now that the PE firms themselves are going public. LBOs are also not a black and white classification, at least not the way they were in the Gordon Gecko 80's, with varying levels of target-borne debt financing specific to the deal. So while I a…
The public or private status of the manager has no relation to private equity being cloudy. Out of all of the delineations, PE is a pretty sharp one. VC is PE. Private credit is not. It’s private debt. Not equity.
Trouble has been brewing in private credit for quite a while, but lenders and investors have been reluctant to write anything down, resorting to all kinds of "extend and pretend" games to avoid write-downs.[a] tick-tock, tick-tock, tick-tock... --- [a] https://news.ycombinator.com/item?id=47351462
You can always tell when there is a problem. When things are fine the companies keep the profits to themselves. When things start to get dicey - foist it off onto retail investers. Private equity (PE) is increasingly being introduced into 401(k) plans, driven by a 2025 executive order encouraging "democratization" of alternative assets. - Google AI
Thanks for the reminder! I need to switch my plan away from a TDF to avoid this.
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LBO firm will create a new company called Acquisition Co. ("AcqCo") and put $500K of cash into it (equity). The Blue Owl will lend $2M to AcqCo (debt). AcqCo uses the $2.5M to buy the vet clinic. AcqCo will use cash flow from vet clinic to pay Blue Owl loan interest. If AI makes vet clinic lose revenue because customers treat Fluffy's ear infection at home, then Blue Owl and LBO firm are in trouble. So the debt isn't…
Sure, it should say PE not VC. But it was pretty accurate. The PE firm won't be on the hook for much of the debt. The nano-debate over the word "push" is probably obscuring more than it's revealing.
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I’m not convinced. If you think you know what the fair price is for a put, then you can bid that price. If you don’t think you know what the fair price is, then you shouldn’t be trading options. There are reasons for not trading options, but the main reason is “you know less about price movement than you think you do”.
Realistically, if you don't have the volume to be a market maker, there's no point bidding anything except the current market price. Either the price is higher than your bid, and your order won't fill (so why place it?) or the price is lower than your bid, and you should expect the market knows something you don't.
There is no risk-free way to trade. You can place a market order and guarantee execution, bearing the risk that you get a bad price. You can place a limit order, and guarantee price, bearing the risk that your trade doesn’t execute.
It sounds like you’re starting with the assumption that you don’t know whether the options are undervalued or overvalued, and if you start with that assumption, yes, the correct answer is don’t buy or sell the option (barring some other reason to buy or sell). Duh. But the reason the market “knows something you don’t” is because it’s full of people doing research. Sometimes, the person doing the research is you, and you have an idea of where the price will go. That’s what an edge is. When you have an edge, you can make money, but maybe not very much and not very reliably.
Where it gets ridiculous is when people speculate with SPY options or dumb shit like that. The reason why speculating with SPY is so ridiculous is because it’s just so unlikely that you could get an edge with SPY. But in general? Yes, it’s possible to get an edge.
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> No bank would agree to such nonsense Ohhhh a live one! Sir do I have a wonderful bridge in Brooklyn to sell you! :) Fun fact: banks fund this sort of nonsense constantly. I've asked about this before: why they do it. They must be making money I just don't know how. The LBO guys pay themselves massive management fees and dump the debt on the company so they walk away scott free. My wild guess was the banks offload t…
> wild guess was the banks offload the eventual IPO onto investors and so make their money on the IPO fees and funneling their own clients the dead-man-walking shares The banks get paid back their debt when the next PE fund buys the company or the company pays it off. Unless an IPO is being done to pay off debt, which it never is, the mechanism you describe doesn’t occur.
I was not saying this is how they make money - I was saying I honestly don't know. If you do know please share. I would love to understand why the banks are so keen to fund what looks to my eyes like super shady vulture capitalism. We start with a profitable company and end with a smoking husk. The Wall Street guys are doing it to steal as much value as they can before it all blows up. Someone is eating the eventual loss. Who? Or are you saying the majority of these deals don't end up with the company being eviscerated?
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Realistically, if you don't have the volume to be a market maker, there's no point bidding anything except the current market price. Either the price is higher than your bid, and your order won't fill (so why place it?) or the price is lower than your bid, and you should expect the market knows something you don't.
> Either the price is higher than your bid, and your order won't fill (so why place it?) or the price is lower than your bid, and you should expect the market knows something you don't. There is no risk-free way to trade. You can place a market order and guarantee execution, bearing the risk that you get a bad price. You can place a limit order, and guarantee price, bearing the risk that your trade doesn’t execute. I…
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This can't be a to-die-on rule though. Retail would've never bought GOOG, or TSLA, or AAPL if that were the case. Maybe I'm just being pedantic.
I think you're both right. Those were great opportunities, but the proportion of such opportunities which are made available to retail traders has greatly diminished over time. There's a great chart out there somewhere (I couldn't find it) which breaks down the impact of private equity on the availability of such opportunities in public markets. It showed a dozen or so companies (like Google, Apple, Uber, Stripe, etc…
I suspect that the reason those "newer" companies were able to have the majority of their gains reaped pre-IPO was that during that time period, it was easy to acquire capital from investors without resorting to public market IPOs, where as the era of google and apple have not got the same level of private investment.
And i think it has to do with low interest rates. During the google early years, it is difficult to obtain low-cost loans (for private investors that is). Therefore, public markets look like an easier path for companies to raise money.
The "newer" companies in your list are mostly post-GFC, during a period of ultra-low interest rate. This makes money easy for private investors to obtain, and so companies have an easier time getting funding from those private sources. The IPO is realistically not a funding mechanism, but an exit mechanism for those early private investors.
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I don't think you're wrong if the following holds true: Before the housing bubble burst, banks lent funds to countless borrowers who couldn't, ultimately, afford their mortgage payments (because the banks didn't do their due diligence when underwriting the loans). This was widespread across pretty much every bank and mortgage banker. Not sure of the actual percentage of borrowers who, when all was said and done, had…
Even the best due diligence can't do anything if a crisis (not necessarily banking-related, a Middle East might just do the trick) starts manifesting itself and now many of those businesses have issues in paying down the debt they owe.
I've had quite a few conversations with someone who claims to be in the know about this situation (though, really, I don't think they're any more in the know than anyone!) and they swear up and down it's all a misunderstanding, which, cynic though I may be, immediately makes me think the accusations are at least somewhat true.
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Even the best due diligence can't do anything if a crisis (not necessarily banking-related, a Middle East might just do the trick) starts manifesting itself and now many of those businesses have issues in paying down the debt they owe.
"I did my due diligence but didn't anticipate these risks". Doesn't sound like due diligence to me. Not having a plan to unwind your position if SHTF doesn't sound like due diligence to me. You can argue it any way you like but it boils down to "The money was good and I didn't think the worst was gonna happen".