Defend The Indefensible: Private Equity

we gotta ban this shit

https://www.404media.co/libraries-scramble-for-books-after-giant-distributor-shuts-down/

ITT please chronicle how this unholy manifestation of late capitalism has ruined various industries

https://www.theatlantic.com/ideas/archive/2024/04/vet-private-equity-industry/678180/

I can try to defend it if people want…

sure! what am I missing? is there anything good about this?

This is similar to the 80s trend of corporate raiders … it’s just a different name. There’s also the “private credit” industry which is connected.

Private credit is actually more “trendy” than private equity… part of the appeal of private credit vs private equity on the investment side (i.e. rapacious capitalism) is that creditors are earlier in line to get paid in cases of bankruptcy than equity holders… it’s kinda a response to the 2008 crisis.

Not especially convinced by this defence tbh.

i understand private equity more than most but i won't defend it

happy to answer any questions you have about it though

The key term is private… as opposed to being open to the public… though some of the private equity firms are publicly traded

Like it’s largely about getting higher returns than the market… as well as from the entity being invested in being able to have opacity in its finances or in other cases it wouldn’t be considered a “good investment” … so there’s often more risk involved in investing in these entities.

The most positive potential result is that the entity benefits from the capital invested by the private equity firm and becomes a better business…and the private equity firms are silent partners… however, this often doesn’t happen in the sense that we would define “better” … as in improved labor conditions and compensation for the lowest paid workers, improvements to the products/services they offer, including reduced costs due to economies of scale.

But most of the time, as in the articles sleeve posted … this doesn’t happen. Because they are looking at higher returns on their investment… or they are investing as a means of consolidating any given entity with other entities… they generally dgaf about the workers. A lot of their investments are done in ways similar to the “leveraged buyouts” of the 80s. They borrow money to acquire the entity their private equity is being invested in. So they not only have to generate higher profits than the market for their clients/investors … they have to pay back the borrowed money plus interest.

so what's been ruined so far?

- nursing homes/assisted living facilities
- vets & pet stores
- Toys R Us
- Jo Anne's Fabrics
- those sewing pattern design companies
- etc

Private credit often looks better from the entity perspective because the private credit fund is a lender and not an owner … so hypothetically the entity can retain autonomy of operations. However, as in any case where you are borrowing a significant amount of money, you have to meet certain conditions and do things to appeal to the lenders …

there's a sordid history of this awful company doing a hostile takeover of the family-owned Pacific Lumber Company up in Humboldt (I had many family members & friends employed there prior to this):

Between a desire to turn a higher profit and the need to start paying off the debt incurred from acquiring Pacific Lumber, Hurwitz's Maxxam replaced the sustainable growth policy of the previous owner-managers (primarily the Murphy family) with one of clearcutting.

Oh maxxam was the one all the tree people were protesting back in the day, yeah?

yes.. Julia Butterfly among them

It's not just nursing homes, large hospital & clinic groups are getting bought by private equity too.

Music publishing/legacy catalogs, which is putting its thumb on the scale of their value vs all other music.

Private credit otoh does the thing investment banks were doing 20 years ago…bundling risky debt into securities and creating tranches that get rated more highly than they should and then sold to investors that have risk restrictions

recommended text: Gretchen Morgenson and Joshua Rosner, "These Are the Plunderers: How Private Equity Runs―and Wrecks―America"

interview with the author here

https://www.npr.org/2023/04/26/1172164997/how-private-equity-firms-are-widening-the-income-gap-in-the-u-s

I'm sure there are arguments that scavengers are part of a healthy ecosystem, just like you can defend short selling and other hostile practices. Defend is the wrong word, accept I guess? I assume there are resources to resist or limit such practices, by the economic actors and market itself, but also potentially government. Not my field. But from what I understand, private equity is much larger than vulture capitalism, and it's hard to imagine that wealthy individuals / hedge funds etc wouldn't be able to invest outside of stock exchanges, that startups wouldn't find funding etc. If retail investors had access to that type of trading, it would be a disaster. I apply a liberal-minded principle that it's better to let the money flow, find the leakages / bad effects / opacity, so that at least you have a basis for action - whether legal, regulatory, interventionist, etc. It's hard to speak in general though, every nation has a different culture for dealing with such things - but I assume there's a common basis that your SMEs are your economic backbone etc.

And maybe I'm cynical, but for the specific case of vets exposed by the Atlantic, I don't know, for a generation like mine who saw the death of small businesses coincide with the internet and rise of corporations like Amazon, for a generation who saw healthcare premiums explode because of big pharma lobbying, it's a little hard to feel very shocked or emotional over vets becoming cash machines. I could not care less if people agree to send their dog on chemo and half of the 2000 USD bill ends up funding a rich guy's vacation. I do care about the human impact - elderly homes being privatized and margins optimized through human suffering is one example I am thinking of. But again I see it as a regulatory challenge, it does not matter that the money is private or public or nationalized.

Late capitalism is a funny term as well. When I was twenty, I though capitalism was in a terminal stage and would logically end. I thought the far-right was a last flash of resurgence from the pre-68 generation, and that it had a couple of years at most. I was told oil had probably already peaked. "Banning private equity" sounds a little bit like that.

you... aren't from the US, nor do you live here, correct?

Absolutely correct. Was that a requirement for your thread? We do use money and banks, imagine, we even have investment firms!

yeah i mean private equity is easy to hate of course as a convenient symbol for greed above all else, a symbol it's earned and then some. i think the tensions between capitalism and regulation are just going to keep doing their little dance with egregious exploitation on one side and mystifying and bewildering red tape on the other. a dialogue i want to stay out of as much as possible, which will surely keep me living from paycheck to paycheck until the end of my days. honestly it all boils down to this planit is fuckd up and god is a crul ringmaster imo.

xp no I was just trying to parse how you could be so out of touch with the IRL effects of this shit in the States, that's all.

lol map <3

Asset stripping was the word I blanked on … thanks budo for the link which reminded me

In terms of what’s next — municipal and state owned property and public utilities being sold to private equity firms in order to solve budget deficits

Like LA Dept of Water & Power sold to Apollo and being renamed something horrible like LuzLAqua

Or county dumps … sold to KKR … and then managed and operated by Disposily!

I could not care less if people agree to send their dog on chemo and half of the 2000 USD bill ends up funding a rich guy's vacation. I do care about the human impact

bro what this fuck is this post

every time i re-read your post it makes even less sense

I don't know how we deal with the pet care guilt phenomenon. Private equity buying up practices and pushing services is a part but people buying into it or feeling a deep sense of shame if they don't/can't is a broader problem. If you don't have $7500 set aside for your dog's ACL surgery or the ability to get a payday loan-quality credit card from the company that gave me a card to pay for pneumonia X-rays 15 years ago, you're a heartless monster who shouldn't have a dog to start with, etc. etc. etc.

if the poster wants more """""human""""" reasons, how about private equity suddenly buying multiple places to rent and kicking people out during COVID? Is that bad enough for you?

https://www.thecity.nyc/2022/02/23/when-private-equity-came-knocking-these-bronx-renters-were-given-two-options-buy-or-get-out/

I've dealt with private equity in my job as investors or potential investors in a couple of companies I worked for. In one of them, I rode the cycle from pe investment to sale, at which point I lost the job I had been in for 10 years. That being said, the one I dealt with the most wasn't terrible as these things go, but also the things they were doing didn't really justify imo the insane returns they received.

Xp - there is also a segment of private equity that just does real estate…. The firms we were previously talking about (and not defending) were more generalized and/or focused on business acquisitions

https://cdn.bsky.app/img/feed_thumbnail/plain/did:plc:vbo2gklkphe43dcg664zdxnh/bafkreigep564nt7depb5tdw5qvbpom3tepp76eklt7kqjpx6cladb47ojm@jpeg

This is actually something I've been wondering about for a while -- what is the devil's advocate case for private equity?

For one thing, I read lots of terrible stories about it ruining specific businesses. Are there a notable number of counterexamples where it actually achieves what it's theoretically supposed to achieve - making a business run better, creating actual efficiencies, etc., rather than just sucking the life out of it? Which ones are the exceptions and which ones are the rules?

For another, what is it about Private Equity in particular -- is it just the particular form that rapacious capitalism currently takes, or is there something specific to the structure of Private Equity that makes it extra bad.

I mean, it seems mostly bad to me, just wondering if I'm missing something, so I guess I like that this thread was started.

Depends how you feel about Berkshire Hathaway & Warren B

if that's a noise act from ca. 2009 i probably love em

Lol I had considered a noise project called Barren Wuffett tbh

i know the devils advocate argument in favor of PE but if i post it the usual shriekers will attribute it to me and shriek. which i would normally be game for, but i am working on prepping next week’s lecture and have a conference submission deadline monday. maybe next week

i understand private equity more than most but i won't defend it

happy to answer any questions you have about it though

― 龜, Thursday, 30 October 2025 13:40 (two days ago) bookmarkflaglink

is there still alpha in PE (was there ever?) or has it been eroded and it’s all just financial engineering beta?

I would like to hear that flopson, I am interested in this. People should direct their shrieking at me instead.

It still is absurd to me that what are now called hedge funds do the opposite of hedging … like a lot of this type of finance is about passing the buck risk-wise and getting paid a cut. Like in order for private equity to do the acquisition and asset stripping, they need to create debt … and then there’s the issue of “where does the debt go?” …

that’s where private credit comes in … they buy the debt so that the private equity firms fka corporate raiders can keep on raiding and stripping. In the 80s the debt went to people like Michael Milken who turned it into junk bonds and sold it again to other investors. … after taking his cut. It’s kinda like house flippers, except they don’t actually improve the thing the way many flippers do the houses they buy.

But now the private credit firms have basically combined the junk bonds of the 80s with the mortgage-backed securities of the 00’s and they have these debt sausages that they sell tranches of and shares in and because it’s debt sausage and not a debt filet or a debt steak … it’s not as clear how risky the whole thing is … which you kinda got a taste of a week ago when almost every major financial institution stock price went down by like 2% or more in one day.

And this is also something that is affecting pension funds/403b plans etc … and the whole “time bomb” that is baby boomers retiring… idk what happens. I kinda think the budget problems a lot of cities have had recently because of pension obligations for Police and Fire is kinda a canary in the coal mine because… pigs and firefighters tend to retire earlier than most workers.

Basically the US government needs to massively subsidize health care and housing and increase immigration in order for things not to go to total shit in 10 years… is how I break it down to an extent

Not holding my breath due that

For that

Me neither

is there still alpha in PE (was there ever?) or has it been eroded and it’s all just financial engineering beta?

― flopson, Saturday, November 1, 2025 11:41 AM (two days ago)

i think the alpha in PE if anything is about identifying the right target. that was easy to do in the 80s and now pretty hard to do. but KKR, blackstone et al did not become the financial giants they are today if there wasn't any alpha.

PE isn't possible tho without the financial and legal engineering that occurred in the 70s/80s. it absolutely exploits the corporate legal structure to do what it does and it was all enabled by a long series of shareholder-primacy decisions in delaware which survive to this day. as long as PE firms could prove the deal was good for public company shareholders that's all that mattered

i think there was a money stuff this past year that talked about how there are too many PE firms now and not enough good targets. also why you see PE firms get into 'boring' businesses like dental offices and vet practices.

also feels to me like the efficiency playbook is pretty well known at this point. like everybody knows the way to become more profitable is to cut costs (i.e. headcount) and shed unproductive assets. the only thing that protects a company from that is growth.