> Has private equity ever done anything good for anyone outside of the investors?
If it's not publicly traded, it's super secure from any public accountability.
And while I'm increasingly hostile toward the shareholder model, we do get one transparency breadcrumb from this (gov managed) contrivance: The Earnings Call
Earnings Calls give us worthwhile amounts of internal information that we'd never get otherwise - info that often conflicts with public statements and reports to govs.
Like CapEx expenditures/forecast and the actual reasons that certain segments over/underperform. It's a solid way to catch corporations issuing bald-faced lies (for any press, public, gov that are paying attention).
AT&T PR: Net Neutrality is tanking our infra investment
ATT's EC: CapEx is high and that will continue
I'll bet 1 share that there are moves to get this admin to do away with the requirement.
One of the reasons cited? All the work it takes. Which is just an insane response. If your business is so poorly run and organized that reconciling things each quarter represents a disproportionate amount of effort, something is very wrong. It means you definitely don't know what's going on, because by definition you can't know, not outside those 4 times a year. In which case there's a reasonable chance the requirement to do so is the only thing that's kept it from going off the rails.
>If it's not publicly traded, it's super secure from any public accountability.
Under the existing legal and regulatory model, yes.
But what abusing that model long-term will eventually result in government-level change that effectively bans the existence of such exploits, wide-spread vigilantism, and/or some sort of collapse.
I'd even go so far as to say that shareholding in PUBLICLY TRADED companies is one of the primary engines of enshittification. Shareholders want to extract rents from the ecosystem, full stop. And if the CEO isn't sociopathic enough about it, they’ll replace them with one who is. Everyone who buys shares at price X wants to sell at >X, forever. That incentive structure alone guarantees a race to the bottom.
How to fix it: let shareholders be gradually bought out—much as slaveholders in Europe were—by (gasp) utility tokenholders. Think Shares in Disney Corp vs Disney Dollars. You transition from extractive shareholders to people who actually use and depend on the ecosystem. That eliminates the parasitic shareholder class that drives most of late-stage capitalist enshittification, rent extraction, and negative externalities.
For clarity, here are just some of those externalities that flow directly from quarterly-earnings-driven incentives:
destruction of ecosystems
deforestation and rainforest loss
collapse of fisheries and ocean systems
factory farming / industrialized animal suffering
desertification of farmland
strip mining and toxic waste dumping
privatization and depletion of freshwater
carbon emissions and climate destabilization
environmental injustice and poisoning of local communities
lobbying to block regulation and accountability
social media addiction design for engagement metrics
monopolization and killing off smaller competitors
offshoring, wage stagnation, and worker precarity
financialization of everything (housing, healthcare, education)
political capture to preserve the whole machine
This is not some random accident, this is the inevitable equilibrium of shareholder primacy.
The entire model of late-stage shareholding is flawed. Corporations exist because governments grant them charters. Government sets the rules for how shares work—and can change those rules. Buying shares is not like buying bonds. Shares are residual claims with far higher risk. So we can absolutely add another risk: that shareholders may be gradually bought out and the institution wound down, the same way the FDR administration forced private gold holders into a buyout under the Gold Reserve Act.
That was far more authoritarian, because gold is a physical asset you own in self-custody. Shares, on the other hand, only exist because a third-party company continues to operate in ways that profit you. That dependency already implies higher risk. Therefore, we can add the additional risk of a structured, government-mandated transition away from extractive shareholder capitalism—just like Europe did when ending slavery. And let's be honest: late-stage financialized shareholding has been a blight on the planet.
And none of this is historically radical. Before the modern era, the idea that shareholders should dominate everything simply didn’t exist.
Pre-1960s:For much of the 20th century, a broader "stakeholder theory" was the norm. Management balanced employees, customers, suppliers, and communities—not just shareholders.
1960s:The turn began with Milton Friedman’s argument that a company’s only responsibility is maximizing shareholder profits (1970 NYT Magazine).
1980s:Shareholder primacy took over.
Hostile takeovers forced boards into short-termism.
Executive compensation was tied tightly to stock price.
Financialization embedded all of this into corporate DNA.
Shareholders were not always in control. Their dominance "waxed and waned," and the current form of shareholder primacy is a late-20th-century financial ideology posing as an eternal law of nature.
If that ideology got us enshittification, ecological collapse, and a sociopathic corporate culture, then yes, we can fix it the same way other harmful institutions were fixed: buy the incumbents out and transition to a saner governance model.
I'm not sure why private equity is singled out here, when every time a public company does a bad (eg. Boeing), people crow about how public companies only care about juicing next quarter's earnings.
The big difference is the extent to which PE will go to juice the quarters earnings. Public companies cannot and will not just fire all staff, fleece customers to the point they won’t return and take on debt that they have no intention of paying back. PE will do all of the above and more if it means they get their money. Which means, you as a customer get screwed over more when PE is involved.
To me PE is just secondary effect of incentivizing private pension schemes over pay-as-you-go schemes in the last half century to me.
A huge wealth transfer in disguise providing capital to financial actors (not at last PE) that are usually not aligned with goals of regular employess: affordable housing and healtcare and reasonably safe jobs.
As Germany is on it's way to dismantle it's core of it's pay-as-you-go mandatory state pension insurance and shift towards private, and privat-by-proxy schemes via company pension plans. Europe might be also going that way some time in the near future, but without the comparably healthy demographics of the US.
Funny that all those charts eventually go back to Carter allowing for 401k not, Reagan, though that reuse only happened later.
My bigger hunch here is supplying the capital markets with that much additional money was a mistake, that ultimately lead to the current guilded age and accelarated existing trends of in the productivity–pay gap, social stratification and wealth inequality, if not solely being responsible for it.
It seems outright impossible for most to compete with a economic reality where the accrued value of like a third of your and everyone else's paycheck is actively working against your net quality of living, when you're not in the top 1 to 10% where the capital gains are a still a net positive over the increased cost of housing and wage stagflation etc.
I think generally it is a complaint against the soullessness of corporatism versus ownership that actually cares about delivering a good product and treating their customers and employees right.
Greed is very high right now. And you can see that in the behavior of all types of companies. Historically when greed is high like this you eventually end up with a Lehman Bros or Enron situation that causes a painful market place correction.
Private equity is far worse. It means 100% ownership by a group of sociopaths who are executing on a plan to extract as much cash as possible quickly with no other goals at all.
At least public companies have some diversity in ownership and agenda.
> Has private equity ever done anything good for anyone outside of the investors?
Yes. Productivity typically goes up [1]. Its reputation for job cutting is overblown [2], as is its record on price increases [3]. And historically, it's tended to decrease concentration in the industries it operates in. (The conglomerate break-ups of the 1980s were fuelled by new entrants and carve-outs.)
Instead, what I think we have is a category error. Berkshire Hathaway is a private equity shop as is all venture capital [4], and most family businesses of any scale are structured identically to sponsor-owned firms. Meanwhile, LBOs have been unable to shake the private-equity label for decades, unless they're lead by a founder, in which case they're "take private" transactions. In essence, we brand failed alternative asset strategies as private equity ex post facto.
Moreover, transaction size is negatively correlated with returns, particularly for leveraged buyouts. So the biggest private equity deals, which represent a minority of transaction activity, are disproportionately (a) bad and (b) public.
Finally, we get a lot of false conflation of market failures to private equity per se. Private-equity owned hospitals are bad [5]. But I haven't seen great evidence they're worse than other privately-owned hospitals with similar scale. The problem is hospitals probably shouldn't be run for profit or on-locally. But because nobody in particular is defending private equity, that's easier to attack.
The question anyone reading this analysis should ask is: if private equity is so benign, where do the returns come from?
The unlock, which these papers don't understand, is the extractive nature of P/E that is hidden.
A few clues:
1. A .5%-1% increase in prices is meaningful (Overall industry prices rise after buyouts, but again the price increase is on average very modest.) Retails margins routinely are measured in fractions of percentage points (bps). As an example, even if overall hospital prices stayed similar, P/E firms have been caught jacking up prices on people who need it most. Research on "Surprise Billing" in emergency rooms spiked immediately after PE firms took over staffing groups. Are you surprised?
2. Equity multiples are "effectively" a form of stealing from retail / pension plans: this is where the real 'theft' happens (if you want to call it that). If you reraterevenue from 6x (private) to 15-20x, someone is now paying 2-3x more per dollar to have that company in society. The key is the P/E OWNERS reap that value, so even if there are no job cuts, the wealth being created aggregates 'money supply' to the owners. This has downstream impacts on inflation.
3. Independent of aggregate effects - local effects are quite devastating. This is not P/E's fault, but closing down plants can kill towns for good. The question here is ownership - a family feels some tie to the community to attempt to help their friends and neighbors. P/E absolutely destroys this tie - the subtle but measurable effects compound.
Finally, even if you like P/E as a VEHICLE (which - I would argue it hasn't been a 'good' ones since like the late 90s), you can't ignore the fact that it's returns have largely been eaten by fees.
You're right to say that P/E is just playing the market. That doesn't mean that its impact on society has been good - the entire reason we're in the current political and economic situation we are today are by following the 'laws of the market' which have hollowed out the middle class and created a pretty large affordability crisis despite the world having achieved record levels of wealth.
The transfer from 'doers' to 'owners' has been a net negative for American society, and one of the primary reasons we don't 'build' things anymore - it's just not capitally "efficient"
Private equity has rarely done good for investors too.
With the boom of popularity of ETFs in the last decades it has been increasingly hard for active fund managers to justify their costs by investing on public markets where benchmarks are visible and public.
Thus they removed themselves from the benchmark entirely and moved to private equity where there's no benchmark and returns are very hard to gauge.
Analysis shows that:
- The overwhelming majority of PEs lose money.
- Annualized return of PE in UK has been 2.1%, this doesn't even match parking money in short-term bonds.
- PE performance is extremely murky, as their gains are virtual and whether you exit profitably is heavily dependent on your timing
- The entire sector is ripe with corruption and little regulatory oversight. PEs keep ballooning their holdings valuations by essentially trading companies among themselves. So fund A sells Acme to to fund B at twice the valuation, and will return the favour by buying Foobar at inflated valuation. This all obviously requires access to cheap credit. Many startups are approached by PEs that have already lined up to sell the startup to another PE after few years guaranteeing everybody (from founders to all the PE managers) nice profits, up to the last sucker stuck with the bill.
The only ones that have profited out of PE, beyond the managers working there, are those that invested in the PE itself, meaning buying shares of the fund itself.
"Buyout funds continue to outperform public markets in all regions across time horizons longer than five
years"
> - Annualized return of PE in UK has been 2.1%, this doesn't even match parking money in short-term bonds.
Once again, read the report.
> The only ones that have profited out of PE, beyond the managers working there, are those that invested in the PE itself, meaning buying shares of the fund itself.
I sold my business to PE and I profited nicely. So I'm not sure what you're concluding here...
I mean, their counter-parties know all of this, but the fact that PE assets don't need to be marked to market on a regular basis can be good for a lot of these investors, as it introduces a delay in the spiral that can otherwise occur with public assets.
Like, if AI collapses, everyone's gonna sell Treasuries to cover losses as they are super liquid (mostly), but the PE assets can pretend that they're still worth whatever, thus reducing margin calls.
PE is generally bad, but their LP's are not entirely stupid and the ability to mark to imagination is worth a bunch of money sometimes.
Private equity are the crows of the economy. They pick off weak / dysfunctional businesses and open space for fresh competition (or for other markets to open up).
As far as I’ve seen that’s as far from the truth as it can be. They in fact consolidate terrible businesses, undercut the good ones and drive them out of the market until only they are left, after which point, they get even worse.
If only it actually played out that way[0][1][2][3]
Whatever legal and theoretical role they play in the economy does not match the actual, real role they are playing: PE firms are by and large, economic vampires. They have a well documented history of sucking the life out of a sector at the expense of workers and consumers alike
That's not true at all! Funds often look for mature companies with predictable cash flow. They can make returns while also squeezing margins under the illusion of expertise and economies of scale and seek to the next fund for a multiple. They're an alternative to the massive headache of going public and getting a liquidity event, not typically the model for your weak and dysfunctional company.
this would be somewhat arguable as okay except for their introduction into categories like daycare, emergency rooms, drug and alcohol rehab, care homes for the geriatric and disabled, etc. things that probably shouldn’t be profit oriented to begin with yet are and are being snatched up by private equity, worsening outcomes in basically all of them
They pick on the weak companies but the basic model is to pick over the corpse and leave someone else holding the bag. Make it look good on the surface, leverage it to the hilt, extract cash and let it die.
> Has private equity ever done anything good for anyone outside of the investors?
This is a bit like asking if public equity has ever done anything good for anyone outside of its investors. It really depends on what is meant by "anything good."
Has any company that has taken venture capital (a variety of private equity) ever done anything good for anyone outside the VCs?
Private equity is more often associated with late stage takeovers and reorganizations than with startups, however. An example might be the privatization and refocus of Dell. Was a refreshed Dell good for its workforce and customers?
I assume you're asking this rhetorically and just want people to affirm how 'evil' private equity is to support the narrative-driven belief you already have?
PE became a favorite journalist boogeyman in the 80s for saddling companies with high interest debt they could never repay or slicing up industrial companies and selling for parts. That's not reality today. A vast majority of private equity buyouts nobody ever hears about or cares about because everything turns out totally fine.
A private equity buyout that makes the company worse off, destroys customer trust, kills employee loyalty, and leaves room for competitors to swoop in is a failed private equity buyout. If that were true in the majority of cases the entire PE model wouldn't work at all.
Here's just a few success stories of companies you've heard of (there's thousands you haven't heard of, so no point in bringing them up).
- Hilton Hotels
- Dunkin Brands
- Beats by Dre
- Dominos Pizza
- Petsmart / Chewy
Businesses that sell to private equity are often businesses that are not doing well or are not long-term sustainable, hence why the owner wants to sell. Think about it logically. If you're running a fantastic business that is profitable, growing, sustainable, with happy employees -- why would you sell?? Or in the case of public companies being taken private, why would anybody take the risk if everything is going wonderfully?
Why is private equity different from any other form of organization? Publicly traded companies are even more addicted to getting revenue. Non-profits like universities may not have shareholders, but somehow the price of tuition keeps skyrocketing even faster than the prices at the dollar stores. And it's not like the religious charities have been pure.
In theory it helps people who have some sort of trade and just want to do that trade, focus on that, while the business experts from the PE firm handle the business side. Running a business is a skill, and people who want to sell some other skill often don't have it as you can't be good at everything.
Are there other ways of addressing that gap, like hiring experts? Sure, but its not like PE is entirely evil.
Keep in mind there is some selection bias here. You only hear about private equity when its being comic book evil. When things work out or its a non scummy PE company, you never hear about it.
If you have a pension, you're an investor in PE. If you live in a country with a sovereign wealth fund, you're a beneficiary of PE. If you're connected to a school with an endowment, a lot of that money ends up in PE funds, and can fund lots of research and student resources.
So ya, I'd agree the PE is rarely good for anyone but the investors, but you'd be surprised how many people are investors without realizing it.
If all of those things never invested a cent in private equity funds that buy up existing companies to turn the screws on their customers and put the money into new business creation instead, they wouldn't be making any less money and the whole world would be better off, including the investors themselves in their role as customers and employees.
I can't think of a single example. It normally means making a company worse whilst relying on existing name recognition to drive sales with the aim of re-selling it before people realise how bad the company has begun.
So I work in commercial real estate, obviously a large private equity influenced industry. I've worked in REPE and in other capacities.
There's degrees of PE. Some good, fine, and some worse.
Take real estate development. It's probably one of the suckiest businesses to be in. I know 3 developers who have committed suicide because when things go wrong, your entire life collapses (you put up all your assets in order to obtain construction loans). The litigation, brain damage, and risks are enormous. Increasingly, the payoff is awful (due to worsening legislation and NIMBYism and worse market condiditions)
However, private equity in development I think is a good thing. When there are investors willing to put this money at risk, we get much needed construction of housing (see Austin, TX where rents are falling off a cliff due to over building).
Now look at Los Angeles, which new permits are literally almost non-existent because LA is one of the most hostile places for developers. You can't make money in LA, so there's no capital available.
Then you end up with "affordable" housing developers adding the only supply at $600-900k/unit costs vs the market rate developer at $300-600k/unit.
----
On the other hand, "value add" private equity is much more suspicious. It's more cut throat, easier to end up in crony capitalist situations by operating with a "cut expenses, provide less, make big bucks" model. The people in this world are the kind of guys who have never done anything hard with their hands other than gotten a sore thumb from pounding too hard on their keyboards to adjust their excel model ("Mr. The Model is Always Right") too hard all night long.
This is how we end up with old properties who get flipped 4x each being sold with "upside the seller was too stupid to take advantage of" and ending up in situations where tenants get priced out due to private equity seeking infinite growing returns. Oh and by the way, every previous owner did "lipstick on the pig" jobs because why not try to save costs and make your levered IRR 16% instead of 12%? You cannot show that kind of return when you promised 18%... then it'll make it harder to fundraise your next deal!
This isn't to say that "value add" is a dirty business. We certainly need to balance the incentive to modernize and renovate properties. An d developers overbuilding isn't always a good thing.
So its nuanced. I think people need to fairly give credit that there are both good and bad. The capital efficiency is real and produces real world outcomes since there is a strong financial incentive at the end of the door.
But financial incentives sometimes bump up to issues causing harm in real life, which need to be recognized and called out.
Not yet. Sometimes employees if they get second bite of the big apple. PE do well in capital-intensive sectors. I'm not sure if their playbook fits the real needs of dollar stores. Instead of focusing on things like debt and aggressive cost cuts, most customers just want fair prices, stocked shelves, clean stores, friendly cashiers and basic respect—things that PE firms often ignore. In DFW, I was surprised to see 1-2 person dollar stores!
That's a good point. Private Equity is a fairly broad umbrella term that encompasses a variety of investment strategies and business models.
The type of Private Equity that most here are referring to is the type that buys up existing businesses, squeezes as much money as possible out of them, and throws their desecrated corpses in the gutter. These "investors" are a blight on society, this activity should be criminalized, they should be in prison.
But there are a lot of well-meaning investors who do great things for society that also get stuck with the same label.
WarOnPrivacy|2 months ago
If it's not publicly traded, it's super secure from any public accountability.
And while I'm increasingly hostile toward the shareholder model, we do get one transparency breadcrumb from this (gov managed) contrivance: The Earnings Call
Earnings Calls give us worthwhile amounts of internal information that we'd never get otherwise - info that often conflicts with public statements and reports to govs.
Like CapEx expenditures/forecast and the actual reasons that certain segments over/underperform. It's a solid way to catch corporations issuing bald-faced lies (for any press, public, gov that are paying attention).
I'll bet 1 share that there are moves to get this admin to do away with the requirement.ineedasername|2 months ago
I won't be your counterparty on that bet, you've already won:
https://www.forbes.com/sites/saradorn/2025/09/15/trump-wants...
One of the reasons cited? All the work it takes. Which is just an insane response. If your business is so poorly run and organized that reconciling things each quarter represents a disproportionate amount of effort, something is very wrong. It means you definitely don't know what's going on, because by definition you can't know, not outside those 4 times a year. In which case there's a reasonable chance the requirement to do so is the only thing that's kept it from going off the rails.
GolfPopper|2 months ago
Under the existing legal and regulatory model, yes.
But what abusing that model long-term will eventually result in government-level change that effectively bans the existence of such exploits, wide-spread vigilantism, and/or some sort of collapse.
unknown|2 months ago
[deleted]
EGreg|2 months ago
How to fix it: let shareholders be gradually bought out—much as slaveholders in Europe were—by (gasp) utility tokenholders. Think Shares in Disney Corp vs Disney Dollars. You transition from extractive shareholders to people who actually use and depend on the ecosystem. That eliminates the parasitic shareholder class that drives most of late-stage capitalist enshittification, rent extraction, and negative externalities.
For clarity, here are just some of those externalities that flow directly from quarterly-earnings-driven incentives:
This is not some random accident, this is the inevitable equilibrium of shareholder primacy.The entire model of late-stage shareholding is flawed. Corporations exist because governments grant them charters. Government sets the rules for how shares work—and can change those rules. Buying shares is not like buying bonds. Shares are residual claims with far higher risk. So we can absolutely add another risk: that shareholders may be gradually bought out and the institution wound down, the same way the FDR administration forced private gold holders into a buyout under the Gold Reserve Act.
That was far more authoritarian, because gold is a physical asset you own in self-custody. Shares, on the other hand, only exist because a third-party company continues to operate in ways that profit you. That dependency already implies higher risk. Therefore, we can add the additional risk of a structured, government-mandated transition away from extractive shareholder capitalism—just like Europe did when ending slavery. And let's be honest: late-stage financialized shareholding has been a blight on the planet.
And none of this is historically radical. Before the modern era, the idea that shareholders should dominate everything simply didn’t exist.
Pre-1960s:For much of the 20th century, a broader "stakeholder theory" was the norm. Management balanced employees, customers, suppliers, and communities—not just shareholders.
1960s:The turn began with Milton Friedman’s argument that a company’s only responsibility is maximizing shareholder profits (1970 NYT Magazine). 1980s:Shareholder primacy took over.
Shareholders were not always in control. Their dominance "waxed and waned," and the current form of shareholder primacy is a late-20th-century financial ideology posing as an eternal law of nature.If that ideology got us enshittification, ecological collapse, and a sociopathic corporate culture, then yes, we can fix it the same way other harmful institutions were fixed: buy the incumbents out and transition to a saner governance model.
gruez|2 months ago
darth_avocado|2 months ago
mxfh|2 months ago
A huge wealth transfer in disguise providing capital to financial actors (not at last PE) that are usually not aligned with goals of regular employess: affordable housing and healtcare and reasonably safe jobs.
As Germany is on it's way to dismantle it's core of it's pay-as-you-go mandatory state pension insurance and shift towards private, and privat-by-proxy schemes via company pension plans. Europe might be also going that way some time in the near future, but without the comparably healthy demographics of the US.
https://en.wikipedia.org/wiki/Revenue_Act_of_1978
Funny that all those charts eventually go back to Carter allowing for 401k not, Reagan, though that reuse only happened later.
My bigger hunch here is supplying the capital markets with that much additional money was a mistake, that ultimately lead to the current guilded age and accelarated existing trends of in the productivity–pay gap, social stratification and wealth inequality, if not solely being responsible for it.
It seems outright impossible for most to compete with a economic reality where the accrued value of like a third of your and everyone else's paycheck is actively working against your net quality of living, when you're not in the top 1 to 10% where the capital gains are a still a net positive over the increased cost of housing and wage stagflation etc.
venturecruelty|2 months ago
etempleton|2 months ago
Greed is very high right now. And you can see that in the behavior of all types of companies. Historically when greed is high like this you eventually end up with a Lehman Bros or Enron situation that causes a painful market place correction.
CPLX|2 months ago
At least public companies have some diversity in ownership and agenda.
JumpCrisscross|2 months ago
Yes. Productivity typically goes up [1]. Its reputation for job cutting is overblown [2], as is its record on price increases [3]. And historically, it's tended to decrease concentration in the industries it operates in. (The conglomerate break-ups of the 1980s were fuelled by new entrants and carve-outs.)
Instead, what I think we have is a category error. Berkshire Hathaway is a private equity shop as is all venture capital [4], and most family businesses of any scale are structured identically to sponsor-owned firms. Meanwhile, LBOs have been unable to shake the private-equity label for decades, unless they're lead by a founder, in which case they're "take private" transactions. In essence, we brand failed alternative asset strategies as private equity ex post facto.
Moreover, transaction size is negatively correlated with returns, particularly for leveraged buyouts. So the biggest private equity deals, which represent a minority of transaction activity, are disproportionately (a) bad and (b) public.
Finally, we get a lot of false conflation of market failures to private equity per se. Private-equity owned hospitals are bad [5]. But I haven't seen great evidence they're worse than other privately-owned hospitals with similar scale. The problem is hospitals probably shouldn't be run for profit or on-locally. But because nobody in particular is defending private equity, that's easier to attack.
[1] https://www.hbs.edu/faculty/Pages/item.aspx?num=67233
[2] https://www.jstor.org/stable/43495362
[3] https://centers.tuck.dartmouth.edu/uploads/cpee/files/Is_Pri...
[4] https://en.wikipedia.org/wiki/Early_history_of_private_equit...
[5] https://jamanetwork.com/journals/jama/fullarticle/2813379#go...
epsteingpt|2 months ago
The unlock, which these papers don't understand, is the extractive nature of P/E that is hidden.
A few clues: 1. A .5%-1% increase in prices is meaningful (Overall industry prices rise after buyouts, but again the price increase is on average very modest.) Retails margins routinely are measured in fractions of percentage points (bps). As an example, even if overall hospital prices stayed similar, P/E firms have been caught jacking up prices on people who need it most. Research on "Surprise Billing" in emergency rooms spiked immediately after PE firms took over staffing groups. Are you surprised?
2. Equity multiples are "effectively" a form of stealing from retail / pension plans: this is where the real 'theft' happens (if you want to call it that). If you reraterevenue from 6x (private) to 15-20x, someone is now paying 2-3x more per dollar to have that company in society. The key is the P/E OWNERS reap that value, so even if there are no job cuts, the wealth being created aggregates 'money supply' to the owners. This has downstream impacts on inflation.
3. Independent of aggregate effects - local effects are quite devastating. This is not P/E's fault, but closing down plants can kill towns for good. The question here is ownership - a family feels some tie to the community to attempt to help their friends and neighbors. P/E absolutely destroys this tie - the subtle but measurable effects compound.
Finally, even if you like P/E as a VEHICLE (which - I would argue it hasn't been a 'good' ones since like the late 90s), you can't ignore the fact that it's returns have largely been eaten by fees.
You're right to say that P/E is just playing the market. That doesn't mean that its impact on society has been good - the entire reason we're in the current political and economic situation we are today are by following the 'laws of the market' which have hollowed out the middle class and created a pretty large affordability crisis despite the world having achieved record levels of wealth.
The transfer from 'doers' to 'owners' has been a net negative for American society, and one of the primary reasons we don't 'build' things anymore - it's just not capitally "efficient"
epolanski|2 months ago
With the boom of popularity of ETFs in the last decades it has been increasingly hard for active fund managers to justify their costs by investing on public markets where benchmarks are visible and public.
Thus they removed themselves from the benchmark entirely and moved to private equity where there's no benchmark and returns are very hard to gauge.
Analysis shows that:
- The overwhelming majority of PEs lose money.
- Annualized return of PE in UK has been 2.1%, this doesn't even match parking money in short-term bonds.
- PE performance is extremely murky, as their gains are virtual and whether you exit profitably is heavily dependent on your timing
- The entire sector is ripe with corruption and little regulatory oversight. PEs keep ballooning their holdings valuations by essentially trading companies among themselves. So fund A sells Acme to to fund B at twice the valuation, and will return the favour by buying Foobar at inflated valuation. This all obviously requires access to cheap credit. Many startups are approached by PEs that have already lined up to sell the startup to another PE after few years guaranteeing everybody (from founders to all the PE managers) nice profits, up to the last sucker stuck with the bill.
The only ones that have profited out of PE, beyond the managers working there, are those that invested in the PE itself, meaning buying shares of the fund itself.
mbesto|2 months ago
> - The overwhelming majority of PEs lose money.
What? No. Read the report:
"Buyout funds continue to outperform public markets in all regions across time horizons longer than five years"
> - Annualized return of PE in UK has been 2.1%, this doesn't even match parking money in short-term bonds.
Once again, read the report.
> The only ones that have profited out of PE, beyond the managers working there, are those that invested in the PE itself, meaning buying shares of the fund itself.
I sold my business to PE and I profited nicely. So I'm not sure what you're concluding here...
Take the parent's post with a grain of salt.
disgruntledphd2|2 months ago
Like, if AI collapses, everyone's gonna sell Treasuries to cover losses as they are super liquid (mostly), but the PE assets can pretend that they're still worth whatever, thus reducing margin calls.
PE is generally bad, but their LP's are not entirely stupid and the ability to mark to imagination is worth a bunch of money sometimes.
chongli|2 months ago
darth_avocado|2 months ago
no_wizard|2 months ago
Whatever legal and theoretical role they play in the economy does not match the actual, real role they are playing: PE firms are by and large, economic vampires. They have a well documented history of sucking the life out of a sector at the expense of workers and consumers alike
[0]: https://www.wired.com/story/megan-greenwell-bad-company-priv...
[1]: https://www.theguardian.com/business/2024/oct/10/slash-and-b...
[2]: https://www.theatlantic.com/ideas/archive/2023/10/private-eq...
[3]: https://doctorow.medium.com/the-long-bloody-lineage-of-priva...
andrew_lettuce|2 months ago
hellotheretoday|2 months ago
VerifiedReports|2 months ago
LorenPechtel|2 months ago
seanmcdirmid|2 months ago
venturecruelty|2 months ago
adolph|2 months ago
This is a bit like asking if public equity has ever done anything good for anyone outside of its investors. It really depends on what is meant by "anything good."
Has any company that has taken venture capital (a variety of private equity) ever done anything good for anyone outside the VCs?
Private equity is more often associated with late stage takeovers and reorganizations than with startups, however. An example might be the privatization and refocus of Dell. Was a refreshed Dell good for its workforce and customers?
https://www.wallstreetoasis.com/forum/private-equity/the-lea...
tpmoney|2 months ago
danans|2 months ago
holysoles|2 months ago
pembrook|2 months ago
PE became a favorite journalist boogeyman in the 80s for saddling companies with high interest debt they could never repay or slicing up industrial companies and selling for parts. That's not reality today. A vast majority of private equity buyouts nobody ever hears about or cares about because everything turns out totally fine.
A private equity buyout that makes the company worse off, destroys customer trust, kills employee loyalty, and leaves room for competitors to swoop in is a failed private equity buyout. If that were true in the majority of cases the entire PE model wouldn't work at all.
Here's just a few success stories of companies you've heard of (there's thousands you haven't heard of, so no point in bringing them up).
- Hilton Hotels - Dunkin Brands - Beats by Dre - Dominos Pizza - Petsmart / Chewy
Businesses that sell to private equity are often businesses that are not doing well or are not long-term sustainable, hence why the owner wants to sell. Think about it logically. If you're running a fantastic business that is profitable, growing, sustainable, with happy employees -- why would you sell?? Or in the case of public companies being taken private, why would anybody take the risk if everything is going wonderfully?
xhkkffbf|2 months ago
bawolff|2 months ago
Are there other ways of addressing that gap, like hiring experts? Sure, but its not like PE is entirely evil.
Keep in mind there is some selection bias here. You only hear about private equity when its being comic book evil. When things work out or its a non scummy PE company, you never hear about it.
jimmydddd|2 months ago
bloppe|2 months ago
So ya, I'd agree the PE is rarely good for anyone but the investors, but you'd be surprised how many people are investors without realizing it.
AnthonyMouse|2 months ago
blitzar|2 months ago
gadders|2 months ago
eagleinparadise|2 months ago
There's degrees of PE. Some good, fine, and some worse.
Take real estate development. It's probably one of the suckiest businesses to be in. I know 3 developers who have committed suicide because when things go wrong, your entire life collapses (you put up all your assets in order to obtain construction loans). The litigation, brain damage, and risks are enormous. Increasingly, the payoff is awful (due to worsening legislation and NIMBYism and worse market condiditions)
However, private equity in development I think is a good thing. When there are investors willing to put this money at risk, we get much needed construction of housing (see Austin, TX where rents are falling off a cliff due to over building).
Now look at Los Angeles, which new permits are literally almost non-existent because LA is one of the most hostile places for developers. You can't make money in LA, so there's no capital available.
Then you end up with "affordable" housing developers adding the only supply at $600-900k/unit costs vs the market rate developer at $300-600k/unit.
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On the other hand, "value add" private equity is much more suspicious. It's more cut throat, easier to end up in crony capitalist situations by operating with a "cut expenses, provide less, make big bucks" model. The people in this world are the kind of guys who have never done anything hard with their hands other than gotten a sore thumb from pounding too hard on their keyboards to adjust their excel model ("Mr. The Model is Always Right") too hard all night long.
This is how we end up with old properties who get flipped 4x each being sold with "upside the seller was too stupid to take advantage of" and ending up in situations where tenants get priced out due to private equity seeking infinite growing returns. Oh and by the way, every previous owner did "lipstick on the pig" jobs because why not try to save costs and make your levered IRR 16% instead of 12%? You cannot show that kind of return when you promised 18%... then it'll make it harder to fundraise your next deal!
This isn't to say that "value add" is a dirty business. We certainly need to balance the incentive to modernize and renovate properties. An d developers overbuilding isn't always a good thing.
So its nuanced. I think people need to fairly give credit that there are both good and bad. The capital efficiency is real and produces real world outcomes since there is a strong financial incentive at the end of the door.
But financial incentives sometimes bump up to issues causing harm in real life, which need to be recognized and called out.
regera|2 months ago
jahsome|2 months ago
excalibur|2 months ago
The type of Private Equity that most here are referring to is the type that buys up existing businesses, squeezes as much money as possible out of them, and throws their desecrated corpses in the gutter. These "investors" are a blight on society, this activity should be criminalized, they should be in prison.
But there are a lot of well-meaning investors who do great things for society that also get stuck with the same label.
satvikpendem|2 months ago