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That’s a strange cartoony impression that people here have but not generally what they do, even in the case of LBOs which I assume is what you’re referencing bu

That’s a strange cartoony impression that people here have but not generally what they do, even in the case of LBOs which I assume is what you’re referencing but only a small part of what PE firms do. They generally buy businesses that are managed poorly, manage them well, and fix them. And when they part one out like you are referencing, it’s usually a bad business. While what Eddie Lampert did to Sears/K-Mart was criminal, or at least should be, they were not a good business and hadn’t been in a very long time. A good business is rarely worth more parted out than whole. It’s most often good business for the “raided” too because they are failing and the alternative is bankruptcy. A company that survives after laying off 25% of its staff still employs more people than one that dies entirely. This is why they prefer companies with high revenue and low profits. That’s nearly always the sign of a business that has been mismanaged and can be fixed. I have come to the conclusion that people in tech are as largely ignorant of finance as people in finance are of tech.

deleted 2y ago
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to11mtm 2y ago
Okay, fun question... (Honestly not sure where I sit on this...) I've always been very skeptical of the sale/spinoff of various divisions of automakers in the 80s/90s. To me it always felt like they were looking for a short term profit vs the general 'steady pace' of government contracts and the like, I also can't help to feel amazed nobody even showed a good second option for the next gen mail carrier... but again, I feel like it's because everyone sold the farm already.
- mattmaroon 2y ago
  I think it’s a mixed bag. There’s obvious efficiency in having a small number of companies make parts and sell them to the many auto makers. There are obvious downsides to outsourcing too. I think Tesla is a good illustration. They make a lot of parts other auto makers outsource, and they also have a whole lot of quality control issues. I am sure I suffer from observational bias here, as my GF has a model Y and I notice all the parts that fail that never would on any other car (like vent fans, door handles, etc.) but the upside exists in some engineering document or p&l I don’t see.
arrosenberg 2y ago
> I have come to the conclusion that people in tech are as largely ignorant of finance as people in finance are of tech. Well I'm you can certainly speak for yourself, but that doesn't mean the rest of us are, so maybe keep your opinions to yourself. I was responding to the premise that people hate on PE because of negativity bias - there is a negativity bias toward Private Equity, and it is entirely on the fault of the industry for their mendacity and lack of empathy. The fact is, there are more than enough examples of this bad behavior (recently, Chuck E Cheese and Toys'R'Us come to mind). There are also plenty of examples of PE "improving management" by crushing labor, degradation of product quality and screwing customers, so that is is the reputation for the entire industry. I'm not even specifically criticizing the industry - they have a role to play in the economy. What I am saying is don't go crying about the public perception - if they want the big money, they get to own that reputation and be the bad guy. No one likes a parasite.
- mattmaroon 2y ago
  That’s logically equivalent to saying average black people get a bad reputation because of the few who are criminals. It may be true but there’s nothing they can do about it and the fault really lies with the person who lumps them all together. PE is a giant thing. There is a lot of it. The ones who don’t run companies out of business have no control over the ones who do. You’re using “they” to refer to thousands of people as if they’re a monolith. And I don’t disagree that the bias you mention is accurate, I was pointing out that it’s because the people who think that way simply don’t understand finance. And judging by the comments here every time it comes up, the bias you mention is very popular. Keeping opinions to ourselves would make these comments sections pretty sparse. Why is mine not ok but yours is? I was largely agreeing with you and expounding anyway.
  - arrosenberg 2y ago
    You think it's valuable to call people ignorant and to compare negative bias against PE funds (of all things!) to racism? I think the comments section would be better without that. Maybe I should keep that to myself, I don't know. You can certainly keep spouting them off, but I'm going to point out how absurd those types of comments are. > You’re using “they” to refer to thousands of people as if they’re a monolith. This is the same thing the cops whine about. The PE industry has a ton of money - if 90% of them are good actors, they could easily organize and lobby for rules to stop the bad actors. That they don't tells me that the incumbents like the rules where they get to do whatever they want. > I was pointing out that it’s because the people who think that way simply don’t understand finance I think you are wrong. They understand the impacts that financiers have had on themselves, their families and their communities. There is a reason private equity (and its' older equivalents) have been loathed by common people for over a hundred years in this country :)
fragmede 2y ago
it's like saying drugs are bad. there are definite harms done by cocaine, but penicillin has saved the world. PE'a easy to hate because, as a group, there are hateful things that happen. we don't have any mechanism for not letting the group be represented by an outlier individual.
- johnnyanmac 2y ago
  Drugs are a perfect example. They are a controlled market because the common person lacks the knowledge to safely use these by themselves. Good or bad. PE's, meawhile, don't really have that control. They are shooting all the hell up and we don't know if they are self destructively OD'ing or are curing cancer. Most high profile results are sadly the former. There's simply less financial incentives these days to invest in "saving" a company if you don't emotionally invest in it.
  - mattmaroon 2y ago
    The control (assuming we are talking about LBO specifically) is that they have to borrow the money from someone, and those someones are giant banks who also like money and aren’t stupid.
    - johnnyanmac 2y ago
      not stupid but not infallible either, 2008 should have taught us that. Even money managers themselves are gambling at the end of the day. They know they will be saved on the off chance they lose (and likely take a part of the economy with them for a while)
      - mattmaroon 2y ago
        Sure, everyone loses some of the time. LBOs totally have borrowed a bunch of money, sold something for parts, cashed out, and left the banks or the public markets or a future buyer or whoever else holding the bag. It has happened. It is not, however, the business model, as many here seem to think, because the people on the other end aren’t THAT stupid. There isn’t that much dumb money. The business model is buy a company that’s in serious need of improvement, fix it, then sell it/take it public. That’s why they prefer companies with high revenue and losses. Or sometimes, if they think an industry is just poised for strong growth, they just buy and hold. I suspect that’s what’s going on with all the veterinary office purchases we discussed recently. I really don’t know where Squarespace falls. They’re allegedly keeping management in place which would make me guess they just think it’s poised for strong growth but I really just don’t know.

deleted 2y ago

[deleted]

to11mtm 2y ago

Okay, fun question... (Honestly not sure where I sit on this...) I've always been very skeptical of the sale/spinoff of various divisions of automakers in the 80s/90s. To me it always felt like they were looking for a short term profit vs the general 'steady pace' of government contracts and the like, I also can't help to feel amazed nobody even showed a good second option for the next gen mail carrier... but again, I feel like it's because everyone sold the farm already.

mattmaroon 2y ago
I think it’s a mixed bag. There’s obvious efficiency in having a small number of companies make parts and sell them to the many auto makers. There are obvious downsides to outsourcing too. I think Tesla is a good illustration. They make a lot of parts other auto makers outsource, and they also have a whole lot of quality control issues. I am sure I suffer from observational bias here, as my GF has a model Y and I notice all the parts that fail that never would on any other car (like vent fans, door handles, etc.) but the upside exists in some engineering document or p&l I don’t see.

arrosenberg 2y ago

> I have come to the conclusion that people in tech are as largely ignorant of finance as people in finance are of tech. Well I'm you can certainly speak for yourself, but that doesn't mean the rest of us are, so maybe keep your opinions to yourself. I was responding to the premise that people hate on PE because of negativity bias - there is a negativity bias toward Private Equity, and it is entirely on the fault of the industry for their mendacity and lack of empathy. The fact is, there are more than enough examples of this bad behavior (recently, Chuck E Cheese and Toys'R'Us come to mind). There are also plenty of examples of PE "improving management" by crushing labor, degradation of product quality and screwing customers, so that is is the reputation for the entire industry. I'm not even specifically criticizing the industry - they have a role to play in the economy. What I am saying is don't go crying about the public perception - if they want the big money, they get to own that reputation and be the bad guy. No one likes a parasite.

mattmaroon 2y ago
That’s logically equivalent to saying average black people get a bad reputation because of the few who are criminals. It may be true but there’s nothing they can do about it and the fault really lies with the person who lumps them all together. PE is a giant thing. There is a lot of it. The ones who don’t run companies out of business have no control over the ones who do. You’re using “they” to refer to thousands of people as if they’re a monolith. And I don’t disagree that the bias you mention is accurate, I was pointing out that it’s because the people who think that way simply don’t understand finance. And judging by the comments here every time it comes up, the bias you mention is very popular. Keeping opinions to ourselves would make these comments sections pretty sparse. Why is mine not ok but yours is? I was largely agreeing with you and expounding anyway.
- arrosenberg 2y ago
  You think it's valuable to call people ignorant and to compare negative bias against PE funds (of all things!) to racism? I think the comments section would be better without that. Maybe I should keep that to myself, I don't know. You can certainly keep spouting them off, but I'm going to point out how absurd those types of comments are. > You’re using “they” to refer to thousands of people as if they’re a monolith. This is the same thing the cops whine about. The PE industry has a ton of money - if 90% of them are good actors, they could easily organize and lobby for rules to stop the bad actors. That they don't tells me that the incumbents like the rules where they get to do whatever they want. > I was pointing out that it’s because the people who think that way simply don’t understand finance I think you are wrong. They understand the impacts that financiers have had on themselves, their families and their communities. There is a reason private equity (and its' older equivalents) have been loathed by common people for over a hundred years in this country :)

fragmede 2y ago

it's like saying drugs are bad. there are definite harms done by cocaine, but penicillin has saved the world. PE'a easy to hate because, as a group, there are hateful things that happen. we don't have any mechanism for not letting the group be represented by an outlier individual.

johnnyanmac 2y ago
Drugs are a perfect example. They are a controlled market because the common person lacks the knowledge to safely use these by themselves. Good or bad. PE's, meawhile, don't really have that control. They are shooting all the hell up and we don't know if they are self destructively OD'ing or are curing cancer. Most high profile results are sadly the former. There's simply less financial incentives these days to invest in "saving" a company if you don't emotionally invest in it.
- mattmaroon 2y ago
  The control (assuming we are talking about LBO specifically) is that they have to borrow the money from someone, and those someones are giant banks who also like money and aren’t stupid.
  - johnnyanmac 2y ago
    not stupid but not infallible either, 2008 should have taught us that. Even money managers themselves are gambling at the end of the day. They know they will be saved on the off chance they lose (and likely take a part of the economy with them for a while)
    - mattmaroon 2y ago
      Sure, everyone loses some of the time. LBOs totally have borrowed a bunch of money, sold something for parts, cashed out, and left the banks or the public markets or a future buyer or whoever else holding the bag. It has happened. It is not, however, the business model, as many here seem to think, because the people on the other end aren’t THAT stupid. There isn’t that much dumb money. The business model is buy a company that’s in serious need of improvement, fix it, then sell it/take it public. That’s why they prefer companies with high revenue and losses. Or sometimes, if they think an industry is just poised for strong growth, they just buy and hold. I suspect that’s what’s going on with all the veterinary office purchases we discussed recently. I really don’t know where Squarespace falls. They’re allegedly keeping management in place which would make me guess they just think it’s poised for strong growth but I really just don’t know.