The Next 2008 is Happening Now ... private equity raiding the pension funds
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🚔 Crime & Central Banking 💸
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I feel the majority of people don't understand private equity. Yes there IS some bad eggs that more or less act as "vulture funds", but the majority of private equity have little to nothing to do with pension funds, nor do they do the typical asset stripping people associate with bad private equity. The majority of private equity funds get their money from institutional investors (people with a net worth of a million or more) or family offices (basically a private hedge fund for uber wealthy family to manage their money)
It's far more profitable to make a company MORE valuable and resell it or keep it for enhanced cash flow than it is to asset strip it and bankrupt it.
Really what people hate are the "vulture fund" style private equity funds, and there's a simple solution to fixing it that doesn't effect any other business. Just make the technical owner of a business purchased by a private equity company that asset strips liable for any debt that stripped company holds. If you did that, the practice would cease overnight, since that's how they do it. They buy a company, arrange the ownership paperwork in such a way they're insulated from the purchased business, load it down with debt, and then asset strip it to maximize return, and declare bankruptcy after they'd siphoned away all the debt money and asset stripping proceeds.
Make any fund that asset strips liable for all that debt and the practice will cease overnight since that's the key. If you do it so that it ONLY effects companies that asset strip, then it won't effect anyone else since normal funds don't do that, hence if THEIR investments fail, creditors have a way of recouping SOME funds by seizing assets, whereas with vulture funds they're just left holding and empty bag.
Some are certainly better than others, but the workers for the business suffer either way, don't they? And besides, this is a classic example of private equity stripping pensions of the working man. And then the funds are used to promote deviant social values. It's corporate communism all the way down
No they usually only suffer under vulture funds. Most normal private equity funds only fire/lay off the useless "middle manager" class. Basically like what Musk did when he took Twitter private. Fire the useless workers who don't do anything but entrench themselves in corporate bureaucracy, usually actually pay DOWN debt to some extent, and then pump hundreds of millions to billions into the business to upgrade and scale it to make it more valuable. The way private companies are valued typically is by comparing them to a similar public company and using something like price/earnings ratio. So the formula for private equity is stupid simple. The more the company makes, the more valuable it is. So by laying off the worthless middle managers everyone hates anyway, and then pumping in billions to scale the business faster than it ever could on its own, they can typically 4-5X their money over the course of 3-5 years.
MOST private equity firms don't see a penny of profit on investments until they exit. They typically reinvest near 100% of the profits from companies they buy out back INTO the business during the improvement/scaling phase. So any given investment won't earn a penny in profit for 3-5 years and then they make all their money upon the sell of the company to someone else who wants it for the cash flow at that point because it's a fully matured and highly scaled business.
So MOST private equity firms actually cause the companies they buy to get rid of useless employees, and hire more productive employees. Often they'll even give incentives to employees like higher pay, bonuses, etc. In order to motivate them. Not anything ground breaking, they're not gonna double their pay or anything, but most companies targeted aren't exactly run optimally so there's lots of internal greed and inefficiencies that they work out of the system in order to maximize the value of the company.
Private equity isn't like, one uniform block, it's hundreds of different funds and companies. You only ever hear about the ones that end up bankrupting companies because they act as vulture funds. Using the figures this woman uses (3.8 trillion in bad loans) that's only roughly 25% of all private equity assets ($15 trillion plus). Meaning 75% of private equity operates like I've described, and most of the time you'd never hear about the companies they own. Usually regional insurance companies, machining/tooling companies, privately owned steel and chemical plants, car dealerships, smaller cell phone carriers, fiber optic lines operators, smaller trucking companies, etc. etc.
When she's going on about "everything" being touched, she's exaggerating because again, 75% of the funds in the industry DO NOT operate like this. Don't get me wrong, 3.8 trillion is STILL a massive number and probably enough to have a redo of 2008 but worse. But it's not like the majority of private equity firms are part of this process.
What we SHOULD be talking about it the massive 4.7 trillion dollar CMBS (commercial real estate Mortgage backed securities) market that has been holding on by a thread the past 4-5 years. Office real estate in particular is BARELY clinging to life thanks to hybrid work and work from home. It's so bad you've had buildings that were worth a billion dollars a few years ago get foreclosed on and sell for around 10 million. That's a 99% decrease in value. And it's only been getting worse. Those types of mortgages are typically over 5 years, so once they all come due this year and next year, it'll be 2008 but 10X worse since office will drag EVERYTHING down with it. The only good part of that is that residential will probably crash and make housing more affordable, but everything else will crash too.
Combine that with this vulture fund activity and we're probably in for a crash worse than the one that caused the great depression.
Fantastic info, sir!
Nice write-ups. To add, most of the responsible PE funds will hedge against a floating rate loan by buying caps, swaps, and collars, and mix in some fixed rate, for a balanced debt portfolio.
Money that is not earned through hard work, is dirty money.
Literally the dumbest thing I've ever heard of. So long as you're not rent seeking (THE LITERAL DEFINITION, not the stupid liberal socialist version), everything is fair money and not "dirty".
Just because work isn't physically hard, doesn't mean it's not hard. Can YOU run a multi billion dollar company and make all the hard decisions that come with it? It's not a lot of physical work but it most certainly IS hard work. Are accountant's and bag boys earning "dirty money" because their work isn't "hard"? What about fry cooks?
Difficult labor doesn't equal the only "fair" source of money. To say otherwise is ignorance.
As long as the money is coming from a legitimate source, and is being used in a responsible manner, it's "fair" money. Period, end of story. A white collar worker (no matter how high level) is earning the same "fair" money as any blue collar worker, so long as everything is on the up and up.
cathole953,
Have not seen you around GAW before, but your comments in this thread are 100% spot on.
Nice to see an honest defense of capitalism, and even private equity.
The movie "Wall Street" gave PE a bad name.
I've been on here around 4-5 years. I only really post or comment when I have something of value to say or knowledge that's applicable. Otherwise I'm a lurker.
Just so happens I'm rather knowledgeable of financial markets and systems.
Am I to assume that you are pro Wall Street? That's a big part of the problem. If you don't provide a service or product that people want, then that's dirty money. The stockholder is the problem. They don't do any of the work, yet they must be satisfied. Writing a check, is the easiest action there is.
Ok, allow me to rephrase this. Money not generated through some type of labor (physical or mental) is not earned, it's stolen. My wife works in an air conditioned office. You couldn't pay me enough to do her job. I work in an auto parts plant, (Tier 1 supplier) and she would not do my job. My point is there's been far too much cheating going on.
Money is ALWAYS earned through labor and/or mental work.
Even Paris Hilton, who did nothing at all to get a bunch of money, had that money handed to her by someone who worked for it. It was his to give away as he pleased, even if you or I might think he made a bad decision.
But it was his decision to make with his own money, not yours.
Your jealousy gets you nowhere.