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Is private equity good for the economy?

Private equity firms have been called "locusts" by the German chancellor Angela Merkel but proponents argue that private equity investors make companies more efficient, create economic growth and provide good economic returns to investors.
Economics

Private equity leads to more economic growth and imporovements in efficiency

Private equity leads to superior corporate management and greater efficiency. Companies that are owned by private equity firms grow and help the economy.

Private equity may help investors in its funds, but at the expense of workers, customers and the economy

Private equity may be a good investment for those investing in the private equity funds, but it is bad for customers, suppliers and the economy at large.

Private equity leads to higher default rates and more bankruptcies and worse outcomes for customers and workers

Private equity is a misnomer and should properly be called leveraged buyouts. Leveraged buyouts, by definition, increase borrowing and raise the probability of bankruptcy.

Private equity is a debt driven modelt hat leads to defaults. It should properly be referred to as Leveraged Buyouts (LBO) due to high debt

The term private equity is highly misleading. There is very little equity involved in most deals, and companies are generally loaded with debt. In the 1980s, the industry was more appropriately called the Leveraged Buyout (LBO) industry, due to the high degree of debt (leverage) involved in deals. When a wave of LBOs went bankrupt in the late 1980s and early 1990s, the industry rebranded and became known as “private equity.” Pirate equity is more appropriate. It is an extractive industry that takes as much as possible from the companies it buys through endless fees and special dividends. Acquired companies are loaded with debt, which they can only pay down by hiking prices on customers and cutting costs. There is no new equity added in almost all acquired companies. Every time the term private equity is used, it obscures the true nature of the beast. Unlike venture capital, which injects equity into companies and funds new ventures, or initial public offerings, which raise actual equity, private equity is purely extractive. Explore

Defaults for private equity (leveraged buyouts) can be 10x higher than for non-LBO firms

You do not need an MBA from Wharton to know that loading up companies with debt will lead to bankruptcy. Research shows that private equity funds acquire healthy firms and increase their probability of defaultby a factor of 10. They are the antithesis of conservative management. Explore

Private equity is behind most recent big retail bankruptcies

Most big bankruptcies recently are due to private equity. Explore

Customer care deteriorates when private equity buys companies

In a major stomach-churning investigation titled, “Overdoses, bedsores, broken bones: What happened when a private-equity firm sought to care for society’s most vulnerable,” theWashington Post chronicled the horrific practices that preceded the bankruptcy of ManorCare. In 2007, the Carlyle Group, a pirate equity group, bought ManorCare nursing homes for $6.1 billion and $4.8 billion of that was financed with debt. Explore

Most claims of growth and productivity by private equity are a sham

Studies have shown that private equity leads to higher defaults, its claims to increase productivity are a sham, and it causes higher rates of job losses and firings in target companies as well as lower wages. (Unsurprisingly, industry-funded studies are much more sanguine.) But perhaps the most damning indictment of the private equity model is that their returns are overstated and their performance simply not as good as they lead investors to believe. Explore
This page was last edited on Thursday, 27 Feb 2020 at 12:27 UTC