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This Is Your Life, Brought to You by Private Equity

132 points by tysone 10y ago

Kinnard 10y ago
The New York Times has made great strides with interactive storytelling.
- tostitos1979 10y ago
  Not sure if you are being sarcastic or not. I liked it! It dumbs things down for sure and the graphics are very cartoony. The message hits spot on. I see this in the Bay area and in other places with well-paying jobs. The PE firms jumped to scoop up real-estate after the 2008 crisis. In the cases I saw, they upgraded 1500-2000 a month apartments to 3200-3600 a month fancy apartments (this is an example from Mountain View btw). The economist inside me says PE firms helped stabilize the economy and are bringing efficiency but the lil voice inside me says they are the scum of the earth and the reason I'll NEVER be able to afford a house and always be hand-to-mouth. As a rah-rah believer in capitalism, PE firms have changed my view and made me realize of the dangers of uncontrolled pursuit of wealth and profit. </end-rant>
  - Kinnard 10y ago
    I doubt they could do what they're doing without a supportive state, there's a lot more than "market dynamics" at play here. Are you an engineer?
nullcipher 10y ago
White text is really hard to read.
- ChrisLTD 10y ago
  Agreed. I'm surprised they didn't put a darker background behind the text. Otherwise it was an interesting piece.
dpeterson 10y ago
So private companies with the monopoly of force the government has. Again, the private part isn't the problem. It's the privilege government gives them through exclusive deals to pick the electorate's pockets.
- ChrisLTD 10y ago
  I wouldn’t be surprised to learn that a lot of these deals come from constrained government budgets rather than corruption. The conservative movement has been very effective at keeping taxes and government revenue low since the 1980s.
  - dpeterson 10y ago
    Yes, because every problem is easily solved if we only taxed everyone and everything into oblivion. Couldn't have anything to do with the government taking and printing endless streams of cash, wasting it to buy votes, then using their monopoly of force to prevent competition when they hand over the bungled job to private firms.
    - ChrisLTD 10y ago
      There is a middle ground between inadequate taxes and taxing into "oblivion".
      - briandear 10y ago
        Exactly. The Laffer Curve is very good at demonstrating this.
    - ubernostrum 10y ago
      On the local level -- which is where these monopolies are handed out -- it's actually been decades of "cut taxes, then cut taxes, then if it's not working cut taxes, and if you still have budget problems try a tax cut or ten, then cut taxes some more, then try a tax cut, and if you don't have any other ideas, maybe a tax cut will help". Which has predictably resulted in basic services being cut and things that even the hardest ultra-hardcore libertarian wants government to do -- like providing police and courts to enforce contracts and property rights -- having to resort to overpolicing in order to collect money from citations, since that's the only revenue stream the "10 CUT TAXES; 20 GOTO 10" mentality will allow.
dpeterson 10y ago
So private companies with the monopoly of force the government has. Again, the private part isn't the problem. It's the special deals government gives them through exclusive deals to pick the electorates pockets.
roymurdock 10y ago
Interesting way to present information. Very poor framing and discussion of the issue that lacks data or statistics of any sort, even top-line numbers to provide any context for how large the PE industry really is. Utmost importance even for a casual reader to get a sense of the relative size of the industry under discussion and how well PE-managed firms perform on average, not just a few cherry-picked examples that cast the PE industry in a slightly negative light, kind of dancing around the issue without making any argument head on. 50 largest PE firms manage $1.5t in assets. Total global equity market is $48.6t (from Dimensional's 2015 Matrix Book). Total market value of world's financial assets is probably >$200t (including land, commodities, currency, etc.). Here is some data for those who are interested: http://www.pionline.com/article/20150406/PRINT/304069998/big-private-equity-managers-ruling-the-roost http://www.pionline.com/article/20150406/PRINT/304069998/big...
- daveloyall 10y ago
  Roy, you seem like a good person to reply to https://news.ycombinator.com/item?id=12204481 https://news.ycombinator.com/item?id=12204481.
- chmaynard 10y ago
  > Interesting way to present information. The NYT manages to foul up the Safari browser's Reader View again. This is getting tedious.
  - Noseshine 10y ago
    "Reader view" seems to be meant for text articles. This is more like a graphic novel, little text.
  - the_watcher 10y ago
    It's an infographic. It won't look good on a Kindle, either. Reader view isn't meant for every single URL in the world.
    - gojomo 10y ago
daveloyall 10y ago
Hm. I have seen the phrase "private equity" a lot of times. I thought it meant "money that belongs to companies". But after skimming through https://en.wikipedia.org/wiki/Private_equity https://en.wikipedia.org/wiki/Private_equity for ten seconds, I realize that I have no idea what "private equity" is. This is embarrassing, but experience has taught me that I have to push through these situations, where I suddenly realize that my ignorance on some topic is truly profound... I thought all companies above a certain size were publicly traded. ...Wait, do I have some incorrect definition of publicly traded? It means there is stock in the company for sale, right? What percentage (by count) of companies are publicly traded? By volume? If a large company isn't publicly traded, does that make it a private equity company?
- joshjkim 10y ago
  private equity specifically does mean stock that is not publicly traded. BUT (and I may be wrong here, so apologies if I am!) I think some of the confusion may be that the term "private equity" is more commonly/generally used to describe private equity funds and their investment strategies. In that case, private equity funds are essentially investment funds with a strategy something like this (and I'm trying to be as bland in description here as possible, as private equity fund strategies very often result in some unpopular results - ie. mass layoffs, selling for parts, etc.): purchase a controlling interest in a company (often times financing the purchase with debt acquired by the company they are purchasing), operate the company with a super focus on some sort of efficiency (usually profitability or revenue), and then re-sell the company 3-5 years later at a 2-5X return (ideally, of course sometime that doesn't happen). the reason they are called private equity funds is that in order to get a "controlling interest", PE funds almost always either target (1) smaller private (usually industrial) companies that are operated by their owners (my cousin works at a fund that focuses on oil-services companies that are private but have $100m+ in annual revenue) or (2) public companies that they think are undervalued by the market or poorly run that they can "take private" by purchasing all the stock and then running more efficiently (these are the big sexy PE deals, biggest recent example is: Dell - http://www.forbes.com/sites/connieguglielmo/2013/10/30/you-wont-have-michael-dell-to-kick-around-anymore/#1a00b6494fd2 http://www.forbes.com/sites/connieguglielmo/2013/10/30/you-w...) there's a WHOLE lot of other details that I won't get into on how PE funds work, and about how PE funds are now so massive that they almost act like unregulated banks and have a bunch of strategies other than the one I described above, but that's the traditional fund strategy (at least based on my experience) and I think a good place to start. Another good way to learn would be to learn more about the biggest PE funds themselves: KKR: https://en.wikipedia.org/wiki/Kohlberg_Kravis_Roberts https://en.wikipedia.org/wiki/Kohlberg_Kravis_Roberts TPG: https://en.wikipedia.org/wiki/TPG_Capital https://en.wikipedia.org/wiki/TPG_Capital Silverlake: https://en.wikipedia.org/wiki/Silver_Lake_Partners https://en.wikipedia.org/wiki/Silver_Lake_Partners (work in tech a lot, did the skype deal where they bought from eBay and sold to MS) Another way to learn more might be learning how a leveraged buy out (LBO) works, as this is one of the more traditional PE fund financing strategies for their deals: http://www.investopedia.com/articles/financial-theory/08/leveraged-buyouts.asp http://www.investopedia.com/articles/financial-theory/08/lev... If you really get into it, the book "Barbarians at the Gate" is considered a classic book written by two WSJ journalists about KKR's takeover of RJR Nabisco, the largest PE deal in history ($25b in 1988), I enjoyed it!
Noughmad 10y ago
Once you get through the horrible way of presenting information that goes far beyond of https://xkcd.com/1273/ https://xkcd.com/1273/, there isn't much to the message. Yes, in a country whose citizens distrust the government and firmly believe in the invisible hand, products and services are produced and served by private firms rather than the government. Isn't this what you always wanted?
- ProAm 10y ago
  Except it's usually the government selling these projects to private firms, so the tax payer gets the worst of both sides of the coin. There are some things that are fundamentally necessary (e. g. roads and highways, water) that should not be sold to private industry as for public interest vs profit should be priority number 1.
  - rayiner 10y ago
    Profit serves an important function: it creates incentives to invest and guides investment into areas where demand exists. Our public services in the US are the subject of dramatic underinvestment and also malinvestment (I.e. why your public bus stop every block instead of every 5, why there are three guys standing around for every one guy doing road work). So clearly getting profit out of the equation hasn't worked well.
anonu 10y ago
Isn't this the by-product of the neoliberal mindset we have been promoting in the United States for at least a century now? This isn't a surprise to me and I suspect the article's real intention goes beyond conveying how PE firms actually work - and simply demonizing Wall Street - an industry that comprises a substantial percentage of our workforce.
- orthoganol 10y ago
  I have no issue with keeping the public up-to-date on what high finance is doing, even if biased towards mistrust. They tanked the economy in 2008 and hurt everyone. I would go as far to say, we should be mistrustful.
james-watson 10y ago
From Wikipedia: "Bloomberg Businessweek has called private equity a rebranding of leveraged-buyout firms after the 1980s. Common investment strategies in private equity include: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital." So this is just a continuation of the Gordon Gekko LBO firms, made possible by the deregulation of Wall St that occurred around that time. No surprise here. The Wall St genie is out of the bottle, and it will continue to wreak havoc until we have another Great Depression.
jbhatab 10y ago
I only see this being a problem if there are no free market forces being allowed. One of the examples was that 'some' of the private equity ambulances and fire trucks arrive late. As long as a better one comes in and replaces them, then what's wrong with that? I have a lot more faith in a greedy money driven investor and company to delivery on the end product than the government. At least they will do everything possible to maximize profits. If they get contracts and have a complete monopoly with no free market though, then this is an issue.
- nostrademons 10y ago
  Do you actually have a choice which ambulance and fire truck you get when you dial 911? Markets only work in the presence of consumer choice, agency, and evaluation. If there are no consequences for bad service, you will continue to get bad service. Similarly, if the consequences for bad service fall on people who do not have a say in which service is chosen, you will still get bad service.
- LA_Banker 10y ago
  >At least they will do everything possible to maximize profits. Yes, sometimes this involves slower ambulances or slow internet. This is especially the case when there is no/few alternatives. What are you going to do... not have a water supply? Walk to the hospital mid-heart attack? One need only to look at Comcast/Time Warner Cable data speeds in markets before and after Google Fiber entered the fray. Sometimes, maximizing profits involves maximizing consumer satisfaction. More often, it does not. And it's a phenomenon that isn't unique to the private or public sphere.
- st3v3r 10y ago
  "At least they will do everything possible to maximize profits" Including cutting corners and reducing service. That is why I do not believe they are a good idea.
mfairbank 10y ago
As a counter-point to the idea that private equity buyouts harm consumers, here is a recent paper documenting the impact of PE transactions in the restaurant industry. [0] Key bits from the abstract: "Analysis of health inspections conducted for over 50,000 stores in Florida shows that food safety and sanitation improve after private equity takeover, especially in areas related to food handling, kitchen maintenance and consumer advising." "Restaurants also reduce employee headcount and lower menu prices. This evidence suggests private equity firms are not simply financial engineers but rather active operators that improve management practices in the firm. Moreover, efficiency gains do not come at the expense of product quality." Unfortunately this does not address the main thrust of the New York Times piece, which focused more on natural monopoly sectors such as water, public transit, and emergency response. It does make intuitive sense that private firms would have less of an incentive to improve operations when buying a monopolistic entity that comes with significant pricing power already baked in. Hopefully good research on these is out there or in the pipeline, as it seems like an in-demand and under-served area of academic inquiry. Disclosure: I worked briefly as an undergrad for one of the paper's authors, on a distinct but similar project. 0: http://people.hbs.edu/asheen/BernsteinSheen_Restaurants_June23.pdf http://people.hbs.edu/asheen/BernsteinSheen_Restaurants_June...
- Noseshine 10y ago
  Is there any reason an experience from "restaurants" is meaningful in the context of what the article is about? At the very least I see not even an effort from you, as if it's all the same. It seems to me that those are entirely different categories. For example, the restaurant business is highly competitive, people can easily go elsewhere. Regarding the article though, I wonder what the purpose of spending 99% of the budget for the article on visuals rather than the actual article was. That's a really lame piece of pseudo-"journalism". It provides a very weak argument (if any), which is unfortunate given the importance of the topic.
  - screature2 10y ago
    I thought the restaurants example demonstrating that PE firms could have a positive impact on a business was actually a good counterpoint to specific points where the article was stating or implying that PE was bad (e.g. that 911 results could be slow and you'd be stuck with a bill, paramedic response times got worse under PE) Your point about restaurant businesses being a different category seems to be engaging only on the point of PE owned businesses are ubiquitous not on sub-text that PE turnarouds could be bad.
trequartista 10y ago
Does anyone have a few examples of the claims being made here? Like what utilities and services are being owned/managed by PE firms?
- callmeed 10y ago
  Probably some of these: https://en.wikipedia.org/wiki/Investor-owned_utility https://en.wikipedia.org/wiki/Investor-owned_utility
rbcgerard 10y ago
What types of public services (and their quality) are bing provided by private firms vs governments and municipalities is a very relevant conversation, and one we should be having. However, conflating private equity with wall st., and making a distinction between how firms under private equity ownership behave vs. public equity or closely held (no financial sponsor) seems pointless other than to further some other purpose (which i won't speculate about)
- LA_Banker 10y ago
  >However, conflating private equity with wall st., and making a distinction between how firms under private equity ownership behave vs. public equity or closely held (no financial sponsor) seems pointless other than to further some other purpose (which i won't speculate about). Agreed, and I say this as someone who's generally a fan of the New York Times' journalism. Here they simply seem to be trotting out the "look, it's Wall Street!" trope without offering deeper analysis (at least in this piece). Which is a shame because there are industries where private equity has a laudable record and others where the record is rather checkered. And this notion, of course, oversimplifies "private equity" into one monolithic actor. As though a competent private equity firm which seeks to maximize value through improving quality wouldn't operate a company differently from one which seeks to extract value solely through levered financial engineering. The scrolling art is nice though.
ThePhysicist 10y ago
Paris outsourced its water supply to a private company (Suez) a while back, only to witness exactly what the article describes: Rising prices and sinking quality. The city finally decided to take the water supply back into its own hands and did not renew a 20 year lease to Suez, creating its own water supply company instead, "Eau de Paris". Already in the first year of its operation, the city was able to decrease water prices by 8 %. Here's a short article in English: http://www.futurepolicy.org/food-and-water/remunicipalisation-of-water-services-paris/ http://www.futurepolicy.org/food-and-water/remunicipalisatio... Wikipedia article about water privatization in France: https://en.wikipedia.org/wiki/Water_privatization_in_France https://en.wikipedia.org/wiki/Water_privatization_in_France
- nostromo 10y ago
  Privatization only works in competitive markets. Privatization of a monopoly is almost always a terrible idea. (For what it's worth, water costs have risen much faster than inflation in the US too, where it's primarily managed by local governments. http://imgur.com/a/SNstZ http://imgur.com/a/SNstZ)
  - redblacktree 10y ago
    Well, unless you're the guy the government sells the monopoly to. Then it's a fantastic idea.
- rayiner 10y ago
  If an industry really is a natural monopoly (water probably is), the best structure is probably a regulated private monopoly. The problem is that if you're privatizing a function because you're incompetent at administration (which is usually the case), you're probably not going to be good at regulating either.
  - bdavisx 10y ago
    > the best structure is probably a regulated private monopoly I think that needs to be changed to "well regulated private monopoly". When the monopoly starts to unduly influence the regulators then it's no better than an unregulated one.
anonbanker 10y ago
While this is biased towards the NYT narrative (the last third of the article is their opinion on the situation), the key is to look up what the legal definition of Equity[0]. Start your own private equity firm. Or go one step further: incorporate in Delaware, Indiana, or Nevada (or Better yet, Bermuda, Nevis, or Antigua), and start generating some real income in the game. 0. http://legal-dictionary.thefreedictionary.com/Equity http://legal-dictionary.thefreedictionary.com/Equity
- LA_Banker 10y ago
  One doesn't exactly "start [their] own private equity firm." Tens of (more often: hundreds of) millions of dollars must be raised and even then, they must bid (or acquire by other means) on companies. Anyone with a net worth above $1mm can become a venture capitalist, given that VCs deal with earlier stage companies which, as a result of their youth, are happy to take small checks for minority investments. Private equity, because it deals with mature companies and (more often than not) involves controlling stakes, requires very, very large checks. And because investors don't like an undiversified portfolio, the PE firm must have the means to write many very, very large checks. This isn't an undertaking that just anyone can do. Of course, if someone has the means to raise hundreds of millions of dollars, has a nose for investing, is experienced in both buy-side mergers & acquisitions as well as the operations of a company in a given domain, then co-sign your advice. Though index funds or an advisor would be much less risky for someone with those means.
  - anonbanker 10y ago
    oh come on, Don't pretend it's hard to do; you can start a private equity firm to own your house and car. Sure, it won't have the same muscle as the larger ones, but it isn't impossible. just draft the documents, and agree to underwrite (or get a corporation to underwrite!).
    - LA_Banker 10y ago
      An LBO of a home is called "getting a mortgage." And yet, one's car or home isn't exactly a share-issuing company. You can form a company to own it – but that's not private equity. Are you familiar with what "private equity" is? Note that "private equity" is distinct from "private" "equity."
stuffedBelly 10y ago
This piece reads more like it's trying to rekindle hatred towards Wall Street than educating people what private equity is and how it works. If it's supposed to be investigative journalism then it certainly failed. Maybe try starting with improving accuracy of the terms by not using "private equity" and "Wall Street" interchangeably?
- blahi 10y ago
  This is the 2nd time I see a NYT article bashing on private equity. The first time it was about ambulances and it was factually incorrect (to put it mildly). https://news.ycombinator.com/item?id=11977710 https://news.ycombinator.com/item?id=11977710 Do not get tripped by the top comment.
  - dopamean 10y ago
    Two of the authors are the same. Danielle Ivory & Ben Protess.
- alphonse23 10y ago
  As soon as I read the article too I wanted to check if the NYT is owned by private equity. According to wikipedia, it's both part publicly traded on the NYSE and privately owned: https://en.wikipedia.org/wiki/The_New_York_Times_Company https://en.wikipedia.org/wiki/The_New_York_Times_Company. I wouldn't know where to find out how much of the company is privately owned and publicly traded, though. But spot on, it's a publicity piece (and you've played your part by clicking). But I think most would see that by the presentation. Was still entertaining though.
  - Noseshine 10y ago
    Why is it relevant that the NYT is private or whatever? Is the NYT a basic service formerly provided by government?
    - alphonse23 10y ago
rdtsc 10y ago
Also it is important to realize that a lot of private entities like have money for lobbyists and they use them very well. For example, they might "bribe" an official in charge of budget to cut the budget for schools in a certain area, if the PE happens to own and manage charter schools. School doesn't have money, is struggling. PE lobby firm issues a few press releases pointing out what a failure public schools are. Then another press release about how there is a way out -- go to their schools, and so on. Or if they happen to lease land and run an tolled expressway, they might lobby local government against expanding or improving local roads, because it means a but in the profits for them, and so on. The cheapest and most effective way to profits is to often to do just that -- lobbying and regulatory capture. That is what's scary with privatizing everything.
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Cshelton 10y ago
So much mis-information... I don't know where to begin. And why did they have to go on and call out named PE groups...(Fortress). What does that achieve NYT? What is the goal of this in the first place...? If we want to educate people on what PE really does, let's talk. But this is clearly just targeting the masses with a one sided viewpoint to try and get them to associate 2008 again and raise their pitchforks back up. Accomplishes nothing.
rayiner 10y ago
The article presents horrible examples. Transportation and water are two sectors ripe for disruption by the private sector. Governments around the country are polluting rivers and poisoning children with lead because they refuse to raise water rates on grandma to upgrade their infrastructure. And here in DC, the Metro literally keeps catching on fire. We have a multi-trillion infrastructure spending backlog in these sectors because government operation has been such a disaster.
jgalt212 10y ago
Private Equity was bar none the biggest winner in the financial crisis. They got to buy all sorts of assets super cheap, fund those purchases at interest rates not seen in many years, skirt Reg T[1], and a dodge taxes via the carried interest tax loophole. What's not to love about them. Oh, and let's forget they often secretly double dip on fees. i.e charge their LP's management fees, and their portfolio companies advisory fees (which are often not disclosed to their LPs). Despite all this hating, I'd sooner invest in a PE fund then HF or VC. [1] regular investors can only lever 2:1 in equities, but PE often leverages 10:1 or more.
daveloyall 10y ago
This conversation is a little off the rails, in my opinion. Colors of money, market forces, the political alignment of the NYT... None of these are the most interesting part. The government(s) exists to serve the people, right? To provide safety, predictability in the environment, in our lives. We exchange a little liberty for those benefits and indeed pay taxes, too. Corporations exist to make money. And to protect their owners from liability, I guess? I'm no expert on why corporations exist, and I certainly can't tell you why they should exist. This animated series of tweets from the NYT (it's hardly an article!) tells us that corporations, specifically a subset known as "private equity", now own things that the average person does not expect them to own. For me, the takeaway is: The number of things NOT owned by corporations is decreasing and traditional resistance (by the governments and individuals) is failing or has failed.
jjawssd 10y ago
A bunch of fear-mongering. Little substance.
adgulacti 10y ago
not much of an "article", rather "hey look, we can do this stuff with your browser" effort with financial factoids sprinkled all over.
dredmorbius 10y ago
Another spectacular example of how to put your medium entirely in the way of conveying your message. Stripped of cruft, and I'm writing as someone sympathetic to the message, there's not much there there: <q> This Is Your Life, Brought to You by Private Equity Since the financial crisis, the private equity industry has become hugely influential. Here’s how it plays out in your daily life. By JENNIFER DANIEL, JOSH WILLIAMS, BEN PROTESS and DANIELLE IVORY | A few years ago, that glass of water might have come from your local government. Today, it could be courtesy of a private equity firm. It may taste the same, but there’s a good chance your bill has gone up. Private equity firms are essentially savvy bargain hunters. They make money by buying up businesses they consider to be underperforming, looking to maximize profits and eventually sell them off. These investors have lots of money at their disposal, mainly from rich individuals and pension funds. They also face fewer regulations than banks. Since the 2008 financial crisis, they’ve expanded their horizons and begun shopping for bargains in new places. Their reach is probably all around you, from the clock on your wall to the toilet paper in your bathroom. And now, private equity firms are increasingly taking over services usually reserved for the government. Let’s say that, like most Americans, you drive to work. These roads, bridges and highways are increasingly maintained by Wall Street investors. They either own the road, or manage it on the government’s behalf. When you get to the office, Wall Street firms can also be found in your parking garage, where they collect your cash. Even if you don’t drive to work, private equity can follow you onto trains, too. Some towns without stops complain that they will get the annoyances of train traffic, including noise and delays, without the economic benefits of having a station. Fortress, for its part, says its project is creating jobs and taking cars off the road. Private equity also helps oversee public golf courses in several states … … it builds courthouses … … it invests in private schools down the street … … and in the local newspaper. New Media Investment Group, which operates in 31 states, is associated with Fortress, the firm building the train in Florida. Now that you’ve made it to work, you might be sitting inside a building controlled by Blackstone, a huge private equity firm and one of the largest landlords in the country. Private equity can follow you back home when you pay your monthly mortgage. After the 2008 housing crisis, private equity firms expanded dramatically into the mortgage business, as the nation’s banks struggled. So, welcome home. It’s dinner time. You might think that you paid for your fire department with your taxes. But yours happens to be run by a private-equity-owned company, and you’ll likely receive a bill for their services ... … even if they show up late. The paramedics who treat you for smoke inhalation might show up late, too. Response times for some ambulance companies under private-equity control have worsened. So, relax, drink a glass of water and go to bed. Sweet dreams, tomorrow will be a new day with private equity. </q>
timwaagh 10y ago
I don't think private equity is really to blame. As the government cannot afford to provide services anymore it outsources them. The tax rate stays the same, of course. Governments are getting ever more inefficient at what they do, leading to ever more austerity measures. how to break this spiral i do not know. making a government more efficient is not something that's usually discussed but it is becoming ever more obvious money is leaking at an accelerating pace.
- afsina 10y ago
  Trying to make a Government efficient is a fools errand.
  - ionised 10y ago
    As is trying to make a hedge fund, private equity fund or publicly traded company soicially responsible.
  - otempomores 10y ago
    The london water system changed pe-hands like a hotpotatoe. Getting pe to act responsible is a fools errand. And the zoomed out mosaic from this neo-lib thief socialism looks pretty wastefull too.

132 points by tysone 10y ago

Kinnard 10y ago

The New York Times has made great strides with interactive storytelling.

tostitos1979 10y ago
Not sure if you are being sarcastic or not. I liked it! It dumbs things down for sure and the graphics are very cartoony. The message hits spot on. I see this in the Bay area and in other places with well-paying jobs. The PE firms jumped to scoop up real-estate after the 2008 crisis. In the cases I saw, they upgraded 1500-2000 a month apartments to 3200-3600 a month fancy apartments (this is an example from Mountain View btw). The economist inside me says PE firms helped stabilize the economy and are bringing efficiency but the lil voice inside me says they are the scum of the earth and the reason I'll NEVER be able to afford a house and always be hand-to-mouth. As a rah-rah believer in capitalism, PE firms have changed my view and made me realize of the dangers of uncontrolled pursuit of wealth and profit. </end-rant>
- Kinnard 10y ago
  I doubt they could do what they're doing without a supportive state, there's a lot more than "market dynamics" at play here. Are you an engineer?

nullcipher 10y ago

White text is really hard to read.

ChrisLTD 10y ago
Agreed. I'm surprised they didn't put a darker background behind the text. Otherwise it was an interesting piece.

dpeterson 10y ago

So private companies with the monopoly of force the government has. Again, the private part isn't the problem. It's the privilege government gives them through exclusive deals to pick the electorate's pockets.

ChrisLTD 10y ago
I wouldn’t be surprised to learn that a lot of these deals come from constrained government budgets rather than corruption. The conservative movement has been very effective at keeping taxes and government revenue low since the 1980s.
- dpeterson 10y ago
  Yes, because every problem is easily solved if we only taxed everyone and everything into oblivion. Couldn't have anything to do with the government taking and printing endless streams of cash, wasting it to buy votes, then using their monopoly of force to prevent competition when they hand over the bungled job to private firms.
  - ChrisLTD 10y ago
    There is a middle ground between inadequate taxes and taxing into "oblivion".
    - briandear 10y ago
      Exactly. The Laffer Curve is very good at demonstrating this.
  - ubernostrum 10y ago
    On the local level -- which is where these monopolies are handed out -- it's actually been decades of "cut taxes, then cut taxes, then if it's not working cut taxes, and if you still have budget problems try a tax cut or ten, then cut taxes some more, then try a tax cut, and if you don't have any other ideas, maybe a tax cut will help". Which has predictably resulted in basic services being cut and things that even the hardest ultra-hardcore libertarian wants government to do -- like providing police and courts to enforce contracts and property rights -- having to resort to overpolicing in order to collect money from citations, since that's the only revenue stream the "10 CUT TAXES; 20 GOTO 10" mentality will allow.

dpeterson 10y ago

So private companies with the monopoly of force the government has. Again, the private part isn't the problem. It's the special deals government gives them through exclusive deals to pick the electorates pockets.

roymurdock 10y ago

Interesting way to present information. Very poor framing and discussion of the issue that lacks data or statistics of any sort, even top-line numbers to provide any context for how large the PE industry really is. Utmost importance even for a casual reader to get a sense of the relative size of the industry under discussion and how well PE-managed firms perform on average, not just a few cherry-picked examples that cast the PE industry in a slightly negative light, kind of dancing around the issue without making any argument head on. 50 largest PE firms manage $1.5t in assets. Total global equity market is $48.6t (from Dimensional's 2015 Matrix Book). Total market value of world's financial assets is probably >$200t (including land, commodities, currency, etc.). Here is some data for those who are interested: http://www.pionline.com/article/20150406/PRINT/304069998/big-private-equity-managers-ruling-the-roost http://www.pionline.com/article/20150406/PRINT/304069998/big...

daveloyall 10y ago
Roy, you seem like a good person to reply to https://news.ycombinator.com/item?id=12204481 https://news.ycombinator.com/item?id=12204481.
chmaynard 10y ago
> Interesting way to present information. The NYT manages to foul up the Safari browser's Reader View again. This is getting tedious.
- Noseshine 10y ago
  "Reader view" seems to be meant for text articles. This is more like a graphic novel, little text.
- the_watcher 10y ago
  It's an infographic. It won't look good on a Kindle, either. Reader view isn't meant for every single URL in the world.
  - gojomo 10y ago

daveloyall 10y ago

Hm. I have seen the phrase "private equity" a lot of times. I thought it meant "money that belongs to companies". But after skimming through https://en.wikipedia.org/wiki/Private_equity https://en.wikipedia.org/wiki/Private_equity for ten seconds, I realize that I have no idea what "private equity" is. This is embarrassing, but experience has taught me that I have to push through these situations, where I suddenly realize that my ignorance on some topic is truly profound... I thought all companies above a certain size were publicly traded. ...Wait, do I have some incorrect definition of publicly traded? It means there is stock in the company for sale, right? What percentage (by count) of companies are publicly traded? By volume? If a large company isn't publicly traded, does that make it a private equity company?

joshjkim 10y ago
private equity specifically does mean stock that is not publicly traded. BUT (and I may be wrong here, so apologies if I am!) I think some of the confusion may be that the term "private equity" is more commonly/generally used to describe private equity funds and their investment strategies. In that case, private equity funds are essentially investment funds with a strategy something like this (and I'm trying to be as bland in description here as possible, as private equity fund strategies very often result in some unpopular results - ie. mass layoffs, selling for parts, etc.): purchase a controlling interest in a company (often times financing the purchase with debt acquired by the company they are purchasing), operate the company with a super focus on some sort of efficiency (usually profitability or revenue), and then re-sell the company 3-5 years later at a 2-5X return (ideally, of course sometime that doesn't happen). the reason they are called private equity funds is that in order to get a "controlling interest", PE funds almost always either target (1) smaller private (usually industrial) companies that are operated by their owners (my cousin works at a fund that focuses on oil-services companies that are private but have $100m+ in annual revenue) or (2) public companies that they think are undervalued by the market or poorly run that they can "take private" by purchasing all the stock and then running more efficiently (these are the big sexy PE deals, biggest recent example is: Dell - http://www.forbes.com/sites/connieguglielmo/2013/10/30/you-wont-have-michael-dell-to-kick-around-anymore/#1a00b6494fd2 http://www.forbes.com/sites/connieguglielmo/2013/10/30/you-w...) there's a WHOLE lot of other details that I won't get into on how PE funds work, and about how PE funds are now so massive that they almost act like unregulated banks and have a bunch of strategies other than the one I described above, but that's the traditional fund strategy (at least based on my experience) and I think a good place to start. Another good way to learn would be to learn more about the biggest PE funds themselves: KKR: https://en.wikipedia.org/wiki/Kohlberg_Kravis_Roberts https://en.wikipedia.org/wiki/Kohlberg_Kravis_Roberts TPG: https://en.wikipedia.org/wiki/TPG_Capital https://en.wikipedia.org/wiki/TPG_Capital Silverlake: https://en.wikipedia.org/wiki/Silver_Lake_Partners https://en.wikipedia.org/wiki/Silver_Lake_Partners (work in tech a lot, did the skype deal where they bought from eBay and sold to MS) Another way to learn more might be learning how a leveraged buy out (LBO) works, as this is one of the more traditional PE fund financing strategies for their deals: http://www.investopedia.com/articles/financial-theory/08/leveraged-buyouts.asp http://www.investopedia.com/articles/financial-theory/08/lev... If you really get into it, the book "Barbarians at the Gate" is considered a classic book written by two WSJ journalists about KKR's takeover of RJR Nabisco, the largest PE deal in history ($25b in 1988), I enjoyed it!

Noughmad 10y ago

Once you get through the horrible way of presenting information that goes far beyond of https://xkcd.com/1273/ https://xkcd.com/1273/, there isn't much to the message. Yes, in a country whose citizens distrust the government and firmly believe in the invisible hand, products and services are produced and served by private firms rather than the government. Isn't this what you always wanted?

ProAm 10y ago
Except it's usually the government selling these projects to private firms, so the tax payer gets the worst of both sides of the coin. There are some things that are fundamentally necessary (e. g. roads and highways, water) that should not be sold to private industry as for public interest vs profit should be priority number 1.
- rayiner 10y ago
  Profit serves an important function: it creates incentives to invest and guides investment into areas where demand exists. Our public services in the US are the subject of dramatic underinvestment and also malinvestment (I.e. why your public bus stop every block instead of every 5, why there are three guys standing around for every one guy doing road work). So clearly getting profit out of the equation hasn't worked well.

anonu 10y ago

Isn't this the by-product of the neoliberal mindset we have been promoting in the United States for at least a century now? This isn't a surprise to me and I suspect the article's real intention goes beyond conveying how PE firms actually work - and simply demonizing Wall Street - an industry that comprises a substantial percentage of our workforce.

orthoganol 10y ago
I have no issue with keeping the public up-to-date on what high finance is doing, even if biased towards mistrust. They tanked the economy in 2008 and hurt everyone. I would go as far to say, we should be mistrustful.

james-watson 10y ago

From Wikipedia: "Bloomberg Businessweek has called private equity a rebranding of leveraged-buyout firms after the 1980s. Common investment strategies in private equity include: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital." So this is just a continuation of the Gordon Gekko LBO firms, made possible by the deregulation of Wall St that occurred around that time. No surprise here. The Wall St genie is out of the bottle, and it will continue to wreak havoc until we have another Great Depression.

jbhatab 10y ago

I only see this being a problem if there are no free market forces being allowed. One of the examples was that 'some' of the private equity ambulances and fire trucks arrive late. As long as a better one comes in and replaces them, then what's wrong with that? I have a lot more faith in a greedy money driven investor and company to delivery on the end product than the government. At least they will do everything possible to maximize profits. If they get contracts and have a complete monopoly with no free market though, then this is an issue.

nostrademons 10y ago
Do you actually have a choice which ambulance and fire truck you get when you dial 911? Markets only work in the presence of consumer choice, agency, and evaluation. If there are no consequences for bad service, you will continue to get bad service. Similarly, if the consequences for bad service fall on people who do not have a say in which service is chosen, you will still get bad service.
LA_Banker 10y ago
>At least they will do everything possible to maximize profits. Yes, sometimes this involves slower ambulances or slow internet. This is especially the case when there is no/few alternatives. What are you going to do... not have a water supply? Walk to the hospital mid-heart attack? One need only to look at Comcast/Time Warner Cable data speeds in markets before and after Google Fiber entered the fray. Sometimes, maximizing profits involves maximizing consumer satisfaction. More often, it does not. And it's a phenomenon that isn't unique to the private or public sphere.
st3v3r 10y ago
"At least they will do everything possible to maximize profits" Including cutting corners and reducing service. That is why I do not believe they are a good idea.

mfairbank 10y ago

As a counter-point to the idea that private equity buyouts harm consumers, here is a recent paper documenting the impact of PE transactions in the restaurant industry. [0] Key bits from the abstract: "Analysis of health inspections conducted for over 50,000 stores in Florida shows that food safety and sanitation improve after private equity takeover, especially in areas related to food handling, kitchen maintenance and consumer advising." "Restaurants also reduce employee headcount and lower menu prices. This evidence suggests private equity firms are not simply financial engineers but rather active operators that improve management practices in the firm. Moreover, efficiency gains do not come at the expense of product quality." Unfortunately this does not address the main thrust of the New York Times piece, which focused more on natural monopoly sectors such as water, public transit, and emergency response. It does make intuitive sense that private firms would have less of an incentive to improve operations when buying a monopolistic entity that comes with significant pricing power already baked in. Hopefully good research on these is out there or in the pipeline, as it seems like an in-demand and under-served area of academic inquiry. Disclosure: I worked briefly as an undergrad for one of the paper's authors, on a distinct but similar project. 0: http://people.hbs.edu/asheen/BernsteinSheen_Restaurants_June23.pdf http://people.hbs.edu/asheen/BernsteinSheen_Restaurants_June...

Noseshine 10y ago
Is there any reason an experience from "restaurants" is meaningful in the context of what the article is about? At the very least I see not even an effort from you, as if it's all the same. It seems to me that those are entirely different categories. For example, the restaurant business is highly competitive, people can easily go elsewhere. Regarding the article though, I wonder what the purpose of spending 99% of the budget for the article on visuals rather than the actual article was. That's a really lame piece of pseudo-"journalism". It provides a very weak argument (if any), which is unfortunate given the importance of the topic.
- screature2 10y ago
  I thought the restaurants example demonstrating that PE firms could have a positive impact on a business was actually a good counterpoint to specific points where the article was stating or implying that PE was bad (e.g. that 911 results could be slow and you'd be stuck with a bill, paramedic response times got worse under PE) Your point about restaurant businesses being a different category seems to be engaging only on the point of PE owned businesses are ubiquitous not on sub-text that PE turnarouds could be bad.

trequartista 10y ago

Does anyone have a few examples of the claims being made here? Like what utilities and services are being owned/managed by PE firms?

callmeed 10y ago
Probably some of these: https://en.wikipedia.org/wiki/Investor-owned_utility https://en.wikipedia.org/wiki/Investor-owned_utility

rbcgerard 10y ago

What types of public services (and their quality) are bing provided by private firms vs governments and municipalities is a very relevant conversation, and one we should be having. However, conflating private equity with wall st., and making a distinction between how firms under private equity ownership behave vs. public equity or closely held (no financial sponsor) seems pointless other than to further some other purpose (which i won't speculate about)

LA_Banker 10y ago
>However, conflating private equity with wall st., and making a distinction between how firms under private equity ownership behave vs. public equity or closely held (no financial sponsor) seems pointless other than to further some other purpose (which i won't speculate about). Agreed, and I say this as someone who's generally a fan of the New York Times' journalism. Here they simply seem to be trotting out the "look, it's Wall Street!" trope without offering deeper analysis (at least in this piece). Which is a shame because there are industries where private equity has a laudable record and others where the record is rather checkered. And this notion, of course, oversimplifies "private equity" into one monolithic actor. As though a competent private equity firm which seeks to maximize value through improving quality wouldn't operate a company differently from one which seeks to extract value solely through levered financial engineering. The scrolling art is nice though.

ThePhysicist 10y ago

Paris outsourced its water supply to a private company (Suez) a while back, only to witness exactly what the article describes: Rising prices and sinking quality. The city finally decided to take the water supply back into its own hands and did not renew a 20 year lease to Suez, creating its own water supply company instead, "Eau de Paris". Already in the first year of its operation, the city was able to decrease water prices by 8 %. Here's a short article in English: http://www.futurepolicy.org/food-and-water/remunicipalisation-of-water-services-paris/ http://www.futurepolicy.org/food-and-water/remunicipalisatio... Wikipedia article about water privatization in France: https://en.wikipedia.org/wiki/Water_privatization_in_France https://en.wikipedia.org/wiki/Water_privatization_in_France

nostromo 10y ago
Privatization only works in competitive markets. Privatization of a monopoly is almost always a terrible idea. (For what it's worth, water costs have risen much faster than inflation in the US too, where it's primarily managed by local governments. http://imgur.com/a/SNstZ http://imgur.com/a/SNstZ)
- redblacktree 10y ago
  Well, unless you're the guy the government sells the monopoly to. Then it's a fantastic idea.
rayiner 10y ago
If an industry really is a natural monopoly (water probably is), the best structure is probably a regulated private monopoly. The problem is that if you're privatizing a function because you're incompetent at administration (which is usually the case), you're probably not going to be good at regulating either.
- bdavisx 10y ago
  > the best structure is probably a regulated private monopoly I think that needs to be changed to "well regulated private monopoly". When the monopoly starts to unduly influence the regulators then it's no better than an unregulated one.

anonbanker 10y ago

While this is biased towards the NYT narrative (the last third of the article is their opinion on the situation), the key is to look up what the legal definition of Equity[0]. Start your own private equity firm. Or go one step further: incorporate in Delaware, Indiana, or Nevada (or Better yet, Bermuda, Nevis, or Antigua), and start generating some real income in the game. 0. http://legal-dictionary.thefreedictionary.com/Equity http://legal-dictionary.thefreedictionary.com/Equity

LA_Banker 10y ago
One doesn't exactly "start [their] own private equity firm." Tens of (more often: hundreds of) millions of dollars must be raised and even then, they must bid (or acquire by other means) on companies. Anyone with a net worth above $1mm can become a venture capitalist, given that VCs deal with earlier stage companies which, as a result of their youth, are happy to take small checks for minority investments. Private equity, because it deals with mature companies and (more often than not) involves controlling stakes, requires very, very large checks. And because investors don't like an undiversified portfolio, the PE firm must have the means to write many very, very large checks. This isn't an undertaking that just anyone can do. Of course, if someone has the means to raise hundreds of millions of dollars, has a nose for investing, is experienced in both buy-side mergers & acquisitions as well as the operations of a company in a given domain, then co-sign your advice. Though index funds or an advisor would be much less risky for someone with those means.
- anonbanker 10y ago
  oh come on, Don't pretend it's hard to do; you can start a private equity firm to own your house and car. Sure, it won't have the same muscle as the larger ones, but it isn't impossible. just draft the documents, and agree to underwrite (or get a corporation to underwrite!).
  - LA_Banker 10y ago
    An LBO of a home is called "getting a mortgage." And yet, one's car or home isn't exactly a share-issuing company. You can form a company to own it – but that's not private equity. Are you familiar with what "private equity" is? Note that "private equity" is distinct from "private" "equity."

stuffedBelly 10y ago

This piece reads more like it's trying to rekindle hatred towards Wall Street than educating people what private equity is and how it works. If it's supposed to be investigative journalism then it certainly failed. Maybe try starting with improving accuracy of the terms by not using "private equity" and "Wall Street" interchangeably?

blahi 10y ago
This is the 2nd time I see a NYT article bashing on private equity. The first time it was about ambulances and it was factually incorrect (to put it mildly). https://news.ycombinator.com/item?id=11977710 https://news.ycombinator.com/item?id=11977710 Do not get tripped by the top comment.
- dopamean 10y ago
  Two of the authors are the same. Danielle Ivory & Ben Protess.
alphonse23 10y ago
As soon as I read the article too I wanted to check if the NYT is owned by private equity. According to wikipedia, it's both part publicly traded on the NYSE and privately owned: https://en.wikipedia.org/wiki/The_New_York_Times_Company https://en.wikipedia.org/wiki/The_New_York_Times_Company. I wouldn't know where to find out how much of the company is privately owned and publicly traded, though. But spot on, it's a publicity piece (and you've played your part by clicking). But I think most would see that by the presentation. Was still entertaining though.
- Noseshine 10y ago
  Why is it relevant that the NYT is private or whatever? Is the NYT a basic service formerly provided by government?
  - alphonse23 10y ago

rdtsc 10y ago

Also it is important to realize that a lot of private entities like have money for lobbyists and they use them very well. For example, they might "bribe" an official in charge of budget to cut the budget for schools in a certain area, if the PE happens to own and manage charter schools. School doesn't have money, is struggling. PE lobby firm issues a few press releases pointing out what a failure public schools are. Then another press release about how there is a way out -- go to their schools, and so on. Or if they happen to lease land and run an tolled expressway, they might lobby local government against expanding or improving local roads, because it means a but in the profits for them, and so on. The cheapest and most effective way to profits is to often to do just that -- lobbying and regulatory capture. That is what's scary with privatizing everything.

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Cshelton 10y ago

So much mis-information... I don't know where to begin. And why did they have to go on and call out named PE groups...(Fortress). What does that achieve NYT? What is the goal of this in the first place...? If we want to educate people on what PE really does, let's talk. But this is clearly just targeting the masses with a one sided viewpoint to try and get them to associate 2008 again and raise their pitchforks back up. Accomplishes nothing.

rayiner 10y ago

The article presents horrible examples. Transportation and water are two sectors ripe for disruption by the private sector. Governments around the country are polluting rivers and poisoning children with lead because they refuse to raise water rates on grandma to upgrade their infrastructure. And here in DC, the Metro literally keeps catching on fire. We have a multi-trillion infrastructure spending backlog in these sectors because government operation has been such a disaster.

jgalt212 10y ago

Private Equity was bar none the biggest winner in the financial crisis. They got to buy all sorts of assets super cheap, fund those purchases at interest rates not seen in many years, skirt Reg T[1], and a dodge taxes via the carried interest tax loophole. What's not to love about them. Oh, and let's forget they often secretly double dip on fees. i.e charge their LP's management fees, and their portfolio companies advisory fees (which are often not disclosed to their LPs). Despite all this hating, I'd sooner invest in a PE fund then HF or VC. [1] regular investors can only lever 2:1 in equities, but PE often leverages 10:1 or more.

daveloyall 10y ago

This conversation is a little off the rails, in my opinion. Colors of money, market forces, the political alignment of the NYT... None of these are the most interesting part. The government(s) exists to serve the people, right? To provide safety, predictability in the environment, in our lives. We exchange a little liberty for those benefits and indeed pay taxes, too. Corporations exist to make money. And to protect their owners from liability, I guess? I'm no expert on why corporations exist, and I certainly can't tell you why they should exist. This animated series of tweets from the NYT (it's hardly an article!) tells us that corporations, specifically a subset known as "private equity", now own things that the average person does not expect them to own. For me, the takeaway is: The number of things NOT owned by corporations is decreasing and traditional resistance (by the governments and individuals) is failing or has failed.

jjawssd 10y ago

A bunch of fear-mongering. Little substance.

adgulacti 10y ago

not much of an "article", rather "hey look, we can do this stuff with your browser" effort with financial factoids sprinkled all over.

dredmorbius 10y ago

Another spectacular example of how to put your medium entirely in the way of conveying your message. Stripped of cruft, and I'm writing as someone sympathetic to the message, there's not much there there: <q> This Is Your Life, Brought to You by Private Equity Since the financial crisis, the private equity industry has become hugely influential. Here’s how it plays out in your daily life. By JENNIFER DANIEL, JOSH WILLIAMS, BEN PROTESS and DANIELLE IVORY | A few years ago, that glass of water might have come from your local government. Today, it could be courtesy of a private equity firm. It may taste the same, but there’s a good chance your bill has gone up. Private equity firms are essentially savvy bargain hunters. They make money by buying up businesses they consider to be underperforming, looking to maximize profits and eventually sell them off. These investors have lots of money at their disposal, mainly from rich individuals and pension funds. They also face fewer regulations than banks. Since the 2008 financial crisis, they’ve expanded their horizons and begun shopping for bargains in new places. Their reach is probably all around you, from the clock on your wall to the toilet paper in your bathroom. And now, private equity firms are increasingly taking over services usually reserved for the government. Let’s say that, like most Americans, you drive to work. These roads, bridges and highways are increasingly maintained by Wall Street investors. They either own the road, or manage it on the government’s behalf. When you get to the office, Wall Street firms can also be found in your parking garage, where they collect your cash. Even if you don’t drive to work, private equity can follow you onto trains, too. Some towns without stops complain that they will get the annoyances of train traffic, including noise and delays, without the economic benefits of having a station. Fortress, for its part, says its project is creating jobs and taking cars off the road. Private equity also helps oversee public golf courses in several states … … it builds courthouses … … it invests in private schools down the street … … and in the local newspaper. New Media Investment Group, which operates in 31 states, is associated with Fortress, the firm building the train in Florida. Now that you’ve made it to work, you might be sitting inside a building controlled by Blackstone, a huge private equity firm and one of the largest landlords in the country. Private equity can follow you back home when you pay your monthly mortgage. After the 2008 housing crisis, private equity firms expanded dramatically into the mortgage business, as the nation’s banks struggled. So, welcome home. It’s dinner time. You might think that you paid for your fire department with your taxes. But yours happens to be run by a private-equity-owned company, and you’ll likely receive a bill for their services ... … even if they show up late. The paramedics who treat you for smoke inhalation might show up late, too. Response times for some ambulance companies under private-equity control have worsened. So, relax, drink a glass of water and go to bed. Sweet dreams, tomorrow will be a new day with private equity. </q>

timwaagh 10y ago

I don't think private equity is really to blame. As the government cannot afford to provide services anymore it outsources them. The tax rate stays the same, of course. Governments are getting ever more inefficient at what they do, leading to ever more austerity measures. how to break this spiral i do not know. making a government more efficient is not something that's usually discussed but it is becoming ever more obvious money is leaking at an accelerating pace.

afsina 10y ago
Trying to make a Government efficient is a fools errand.
- ionised 10y ago
  As is trying to make a hedge fund, private equity fund or publicly traded company soicially responsible.
- otempomores 10y ago
  The london water system changed pe-hands like a hotpotatoe. Getting pe to act responsible is a fools errand. And the zoomed out mosaic from this neo-lib thief socialism looks pretty wastefull too.