PE, Equity Not Enemy.
And not Public either.
Over the last few months I’ve gotten more and more interested in Private Equity, both what it is and why it exists.
For the uninitiated; PE is basically shorthand for what were called “Corporate Raiders” back in the 80s. You know, that guy Michael Douglas played in Wall Street. Today a typical PE transaction is to take a company private by buying all its public shares (via credit), spending a few years restructuring & repairing the business, then returning to the public market with a cash splash - thus enriching the PE firm who navigates all these steps. PE firms have generated HUGE gobs of cash over the last few years; mostly on the backs of cheap debt and short-sighted shareholders.
When you hear quotes like this: “The new economy is leaving millions of Americans squeezed out of the middle class, without opportunities, while a very small number of people grow incredibly wealthy”, the PE industry is what the quotee is talking about.
What’s interesting about PE is that its rise is mostly due to flaws in the structure of public markets - and chronic failures at the Board level of various public companies.
Anyhow, we’ll all be hearing more about PE in the near future as one of the largest PE firms is itself going public: The Blackstone Group. Personally I’m an interested investor, given the feeding frenzy that is bound to occur surrounding their IPO.
