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Berkshire is one of the best run organizations in America. Most private equity that uses leverage actually destroys businesses. Just look at what happened to t
by silexia 7y ago
Berkshire is one of the best run organizations in America.
Most private equity that uses leverage actually destroys businesses. Just look at what happened to toys r us for example. That's extremely common.
The problem is that when private equity buys a company, it usually uses lots of loans to do so. Then the most experienced people in the business are removed or deincentivized (the previous owners). Finally, this now poorly run and heavily in debt company struggles to survive and goes bankrupt in the next recession.
You will see this pattern repeated over and over with private equity.
- goatinaboat 7y agoThe problem is that when private equity buys a company, it usually uses lots of loans to do so It can’t be as simple as that because who is making these loans to companies that are about to go bankrupt? Why would they do it?
- Spooky23 7y agoThey self-deal. The loans are used to pay management and other fees from affiliates entities. When the parasite finishes the digestion of the host and it goes bankrupt, they get to write down the losses against the money made on those fees, and the actual losses are distributed amongst the partners in the syndicate.
- coliveira 7y agoCompanies that may go bankrupt are paying higher interest than normal, stable SP500 companies. This is attractive to people who want to get higher returns at the expense of additional risk. In other words, the existence of these loans is a necessity due to the way the market operates.
- mywittyname 7y agoIt's easier to be a creative thief than it is to be a good businessperson.
- toomuchtodo 7y agoStealing this quote. The irony is not lost on me.