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How does PE survive? If these companies become instruments and now forced into bankruptcy, the PE must write off the bankruptcy (some economic advantage must ex
by dpflan 3y ago
How does PE survive? If these companies become instruments and now forced into bankruptcy, the PE must write off the bankruptcy (some economic advantage must exist for this path). But then the PE has to move on and find another company to possess, right? I wish we had Instant’s financials, they did seem to be selling well, so their value was based on expected sales/profit in perpetuity…bankruptcy stops that because bankruptcy has a cap, right?
I need help understanding how PE continues to exist, beyond the assumption that they got money out of the deal and will move on to another one…
- dpflan 3y agoA basic HN Search yields some interesting top articles: https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=%22private%20equity%22&sort=byPopularity&type=story https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu... The Atlantic: When Private Equity Firms Bankrupt Their Own Companies https://www.theatlantic.com/ideas/archive/2023/05/private-equity-firms-bankruptcies-plunder-book/673896/ https://www.theatlantic.com/ideas/archive/2023/05/private-eq... > Interesting, "pension laundering" is a tactic that seems quite abusive.
- robd003 3y agoPensions should be outlawed. If employees want retirement savings they should be given money for 401k plans, not outdated and inefficient defined benefit plans.
- Tuna-Fish 3y agoMore importantly, company-ran pension plans should be outlawed because they are a morass of perverse incentives and opportunities for quasi-legal theft. To put it simply, it is often the incentive of the people who make decisions about the pensions to mismanage them.
- jrockway 3y agoI suppose pensions take advantage of the time value of money; funding someone's 401k means you can't use the money to expand your business, but if you just pay them what they would have made 30 years later, you already expanded and that money is easy to come by because you're making so much now. But, it's difficult to enforce. The expansion plans could be "yacht for the CEO plans", and when retirement time comes, "oh sorry we don't have any money :(" is the likely excuse. So it doesn't seem to work anymore in practice; being optimistic about doing better than average long-term is not a viable financial strategy.
- AlexandrB 3y agoWhat's inefficient about pensions? Pension funds can also participate in a wider variety of investments than individual 401k holders. Employer funded 401ks (at least in Canada) are also a free payday for fund managers since they can charge a premium over "normal" funds and the investor is a captive audience since they can't move their investments elsewhere until they change jobs.
- marricks 3y agoSounds like 401ks are very efficient for fund managers. Maybe that’s what they meant?
- fomine3 3y agoI disagree. Pension is an insurance for accidental long life. Unless pension, everyone must hoard their property enough to live until about 90-100yo. It's a big waste for society.
- noknownsender 3y agoThat just puts workers' retirement funds on the open market, to be abused by any friend of their fund manager.
- Zigurd 3y agoPE continues to exist by gaming the system: As others on this thread have speculated, driving a company into bankruptcy can shed pension obligations and enable breaking other contracts, leases, etc. Hence the paradox of everyone having these seemingly very popular products while the company is "bankrupt." Bankruptcy is not a loss for PE, yet, anyway. Which is why there is a perverse incentive to "go bankrupt" in large measure due to LBO loans, while there is plenty of brand equity and other assets to propel future sales.
- govg 3y agoPE exists because the cases you hear about are the failures. It would be like looking at the products of Google that never made money and then wondering how Google runs, you're not looking at the full picture. For every failure story like this, there are numerous other firms where PE has come up, removed a bunch of inefficiencies, driven up profits, and then moved on. It is just a more involved form of VC investing, and in that world failures are even more common.
- dpflan 3y agoSure, PE is bigger than this. But isn’t the issue people are having is that this “failure” isn’t a failure (PE gains something)…it’s part of doing business as a PE firm?
- jacobr1 3y agoOne of many different models for PE firms. Yes it is a tactic used by some firms, but not all. There really are a variety of PE approaches. This article lists some of them: https://www.skynova.com/learn/business/the-9-types-of-private-equity-simply-explained https://www.skynova.com/learn/business/the-9-types-of-privat... The shady tactics end more commonly as part of the LBO or Distressed style firms.
- dpflan 3y agoThanks for the article.
- lmm 3y agoPE is the Ticketmaster of finance. They charge a bunch of fees, take a bunch of money, take all of the heat, and quietly funnel the money back to the founder/early investors/etc. who sold out but don't want you to know.
- gruez 3y ago>and quietly funnel the money back to the founder/early investors/etc. who sold out but don't want you to know. I don't understand this attitude. If you're in the arts I can understand why you don't want to be a "sellout", but founders/investors? Isn't the point literally to sell out?
- deleted 3y ago[deleted]
- drewm1980 3y agoSome founders are legitimately in it for the long haul and treat working for the company they founded as their career. I don't know how common they are, but I was lucky to work for one for about a decade.
- jhugo 3y ago“Quietly funnel the money back”? Ticketmaster makes no secret of being a for-profit enterprise…
- lmm 3y agoThe fact that they own and operate a lot of sites that present themselves as part of the secondary market, and sell first-release tickets there, is not widely publicised; nor is the fact that many of the bullshit fees they attach to ticket sales are actually at the artist's request and paid to them.
- notabee 3y agoHow does slash and burn agriculture work? Similar question.
- throw0101b 3y ago> How does PE survive? Why do active investment funds survive (when the evidence for passive indexes is so overwhelming)? Because people think they can make money.
- femto113 3y agoPE already got theirs, through the magic of a "leveraged dividend". There's really no bigger scam going these days. From the S&P rating note a couple years ago: "U.S.-based Instant Brands Holdings Inc. (formerly known as Corelle Brands Holdings Inc.) is issuing a new $450 million first-lien term loan. The company will use the proceeds, along with $100 million in cash, to refinance its existing $200 million term loan due 2024, $100 million seller notes, and fund a $245 million dividend to shareholders." If you subtract out the refinanced debt the new owners walked away with $100M in company cash and another $150M in borrowed money.
- gen220 3y ago"Private Equity" is a bit too broad of a term to have a single explanation (i.e. there are a few different categories of PE strategy). In its purest form resembling instance, PE is a decomposer. It takes a business that isn't particularly healthy (due to mismanagement, sector headwinds, etc.), and efficiently disintegrates it into raw material (various forms of capital, essentially) for eventual re-allocation elsewhere. It profits and reproduces as a side-effect of playing its role in the recycle of raw material. It's sad because a company that played a meaningful role for people and other companies is dying and being sold for parts, but it's the cycle of life – not every company is meant to endure indefinitely.
- VerminOctopus1 3y agoI don’t know why you’re trying to naturalize private equity behaviour. It’s not some immutable law of nature, it’s a shitty consequence of our current set of laws and economic system. Our society could be better.
- gen220 3y agoI mean, yeah, death is a shitty consequence of life. The executives and boards who sell to these kinds of private equity companies know exactly what they’re signing up for. It’s a parasitic relationship, it isn’t dignified, but it’s less wasteful in some global market sense than self-immolation (i.e. ceasing operations).
- wjcroft 3y agoMany of the brands involved existed for DECADES: Pyrex, CorningWare, Corelle, with fervent users of this durable, long lasting cookware, dinnerware.