Because parasites usually outlive their hosts.
It’s disingenuous to make a “counterpoint” to my point that the reason PE firms are successful is because they cheat by pointing to evidence that they are successful (because they cheat).
Or were you agreeing with me? It’s hard to tell.
No, I’m pointing out that you don’t appear to understand what most PE is. Yes, some are parasites that suck the blood out of hosts. But most of them are not. Performance is based on growing the companies, not sucking them dry.
The typical PE group buys a company, replaces the management, injects capital, and grows it with the intent of going public or selling to a larger company. That’s not the PE that makes news, so you and most people appear to have a biased view of what PE is. The quiet PE’s have an advantage because they are insulated from the short term quarterly profit planning that can choke publicly traded companies.
Don’t like the parasitic PE’s? I’m with you there. End the incentive that encourage it. But don’t confuse them with PE in general.
Edit: Also, the performance from the study is the performance of the companies owned by PE, not the performance of the PE. I should have been more clear from the start. My bad.
I get what you’re saying, but 1. I disagree, and 2. the article you cited doesn’t really back up your thesis. It’s based on too narrow a condition: PE-back firms only during one financial crisis, during which other forms of corporate borrowing had completely dried up; as well as a transient event where many firms only had to make it through a few quarters of negative results before they could emerge on the other side post-bailout.
It’s like saying that a junk-food diet is healthy, and pointing to people who survived a famine on McDonald’s as evidence.
ETA: I will agree there are a spectrum of PE firms that vary from Pure Evil™ to merely opportunistic. The investment bank-spinoffs tend towards the former, while the PE firms that most closely fit to the latter are almost more holding companies, where they perform leveraged buyouts with the intent to acquire and hold, often as an asset that is complementary to their existing holdings.
That latter group I don’t usually think of as PEs, because they don’t have the strategy of buying, extracting, and dumping that one associates with PEs. For example, there is a big difference between Bain and Carlyle. Bain is terrible to the companies they acquire, and I can’t think of an example of a company Bain has touched that has come out the other side intact. In contrast, while I’m still not a fan, Carlyle tends to hold onto their acquisitions longer and is more likely to bundle complementary holdings together on exit with a decent chance of survival upon independence.
I really didn’t think we have much of a disagreement. Mostly on definitions.
Unfortunately, both what you call the Pure Evil™ and holding companies are both considered PE. I’m good with putting a stake through the heart of the former. That’s done by taking away their incentive, not just a blanket law against PE. At a minimum, restrictions on leveraged buyouts, just like we have with leveraged stock trading.
To get a feel for the proportion of Pure Evil™ vs the rest, I found some stats from 2013. Pure Evil™ extracted $66.2 billion (yes, someone calculated it). But the total money invested by all PE groups was $488 billion. Granted, money is taken out a couple years after being put in. But it’s still a strong indicator that Pure Evil™ is in the minority.
As for PE that isn’t Pure Evil™, but just ends up fucking things up more, well, that’s not restricted to PE. Some of it is from investing in distressed companies with good intentions, but nothing was going to save that company. Some of it is from incompetence. If only we could ban stupidity…
Maybe the long tail is really long, but when I look at the top 25 PE firms, the vast majority fit the Pure Evil™ category. There’s a handful that don’t. The scale of size drops precipitously outside the top ten, so, mathematically, there would have to be thousands of mid-sized PE firms, almost entirely outside the Pure Evil™ category, to outweigh the others in the top 25.
ETA: I mean, fucking Blackstone is #1, and $20B larger than #2, and that difference is bigger than the #11 PE firm. If Blackstone isn’t evil, then nothing is.
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