Private equity is no longer doing its job, to the extent if ever had one.
If there were a poorly run company, private equity could use its own money to acquire it, restructure it to be more efficient and valuable, and capture cash flow while owning it and profit from taking it public again. They would make money, the economy would be improved, and a healthy new public company would build more public wealth.
This is a bit idealized, but something closer to this really did happen.
Now they use raise money from rich people and operate more as alternative investment management, take over efficient operations, strip them, use leverage in the opposite direct (acquisition targets take loans and transfer the money back to PE). We end up with worse services, unsustainable and over-leveraged businesses, money transfer from the public to the wealthy from increased welfare and bankruptcies, and a worse economy because of changes to the velocity wealth returns to the economy from private fortunes.
This stinks when it is the Office Depot or Friendly's, but it is a massive problem for residential real estate, delivery of medical care, medicine, and basic food production.
You would think that the brilliant folks at KKR, Carlysle, Blackstone, and others would read their classics and know the story of the ancien régime and Romanovs.
> Private equity is no longer doing its job, to the extent if ever had one.
Private equity's job is to take a slowly failing company, extract the value, and turn it into a suddenly failed company.
See department stores in the 90s, Circuit City, ToysRUs and restaurant chains more recently.
This is a win for the former owners who get cash for their business and can blame the failure on PE, rather than admit it was on a path to fail slowly. This is a win for PE, because they can often extract enough value to make a good profit. It's a win for Spirit stores, because they get great locations like the old Circuit City that still has those maroon tiles up in 2024 and the old ToysRUs that still has the R up.
When a sector of business is being bought by PE left and right, it's a sign of unhealthy businesses and the owners want out.
If there were a poorly run company, private equity could use its own money to acquire it, restructure it to be more efficient and valuable, and capture cash flow while owning it and profit from taking it public again. They would make money, the economy would be improved, and a healthy new public company would build more public wealth.
This is a bit idealized, but something closer to this really did happen.
Now they use raise money from rich people and operate more as alternative investment management, take over efficient operations, strip them, use leverage in the opposite direct (acquisition targets take loans and transfer the money back to PE). We end up with worse services, unsustainable and over-leveraged businesses, money transfer from the public to the wealthy from increased welfare and bankruptcies, and a worse economy because of changes to the velocity wealth returns to the economy from private fortunes.
This stinks when it is the Office Depot or Friendly's, but it is a massive problem for residential real estate, delivery of medical care, medicine, and basic food production.
You would think that the brilliant folks at KKR, Carlysle, Blackstone, and others would read their classics and know the story of the ancien régime and Romanovs.