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Saw a discussion on threads recently about private equity buying things like Red Lobster and ruining it, and there was some general head scratching over the gen

by zzzeek 2y ago

Saw a discussion on threads recently about private equity buying things like Red Lobster and ruining it, and there was some general head scratching over the general theme of, why is "private equity took over XYZ and ruined it!" such a theme right now, whereas it was not a few decades ago? Less aware folks felt this was some new thing that could somehow be regulated. How do you regulate private ownership of things? Even this article talked about "regulation". Nobody is more pro-regulation than me but in this case what are we regulating exactly?

infotainment 2y ago
Well that's the question isn't it -- clearly, many people feel that the thing that private equity does is bad, but how do you quantify that thing well enough to ban it? The most broad brush would be a complete and total ban on mergers and acquisitions, an idea that I find mildly interesting but I suspect would fail in practice. Perhaps M&A could be restricted somehow, with particular criteria disqualifying one from being able to accquire?
- hamster77 2y ago
  Simple- expand anti-trust law. Private equity just recreated the trusts of old by using investment funds as the vehicle.
baryphonic 2y ago
I tend to be anti-regulation unless the benefits of the regulation can be justified above and beyond laissez-faire, which in practice makes me quite anti-regulatory with some notable exceptions like the FAA. I think the root of this problem is that private equity managers often have no skin in the game and tend to fail upward. It would be one thing if a private equity manager had a record of taking a company private, streamlining it and making it sustainable for decades to come. Even with the human cost of that, it's preferable to a company going prompt bankrupt. But too many managers seem to take these things private and then run them straight into the ground. Toys'R'Us, for instance, or Red Lobster as quoted in the article. In the latter's case, the management tried boneheaded promotions like "unlimited shrimp," which would be a bad idea even in a zero interest rate world. I'd propose instead some sort of mandatory filing on the part of private equity managers that is publicly accessible and searchable and shows the track record of a private equity manager, with links to all of the other managers they've worked with. Then, when a PE investor proposes to take a company private, they're required by the SEC to demonstrate that their management isn't tainted by a chain of incompetence. Who knows if that would work, but it might increase the skin in the game somewhat. The status quo seems to be HBS grads performing with mediocrity at best and having no real accountability.
chucksta 2y ago
It was, its been an issue since the 70's, it used to be called corporate raiding. https://en.wikipedia.org/wiki/Private_equity_in_the_1980s https://en.wikipedia.org/wiki/Private_equity_in_the_1980s

by zzzeek 2y ago

infotainment 2y ago

Well that's the question isn't it -- clearly, many people feel that the thing that private equity does is bad, but how do you quantify that thing well enough to ban it? The most broad brush would be a complete and total ban on mergers and acquisitions, an idea that I find mildly interesting but I suspect would fail in practice. Perhaps M&A could be restricted somehow, with particular criteria disqualifying one from being able to accquire?

hamster77 2y ago
Simple- expand anti-trust law. Private equity just recreated the trusts of old by using investment funds as the vehicle.

baryphonic 2y ago

I tend to be anti-regulation unless the benefits of the regulation can be justified above and beyond laissez-faire, which in practice makes me quite anti-regulatory with some notable exceptions like the FAA. I think the root of this problem is that private equity managers often have no skin in the game and tend to fail upward. It would be one thing if a private equity manager had a record of taking a company private, streamlining it and making it sustainable for decades to come. Even with the human cost of that, it's preferable to a company going prompt bankrupt. But too many managers seem to take these things private and then run them straight into the ground. Toys'R'Us, for instance, or Red Lobster as quoted in the article. In the latter's case, the management tried boneheaded promotions like "unlimited shrimp," which would be a bad idea even in a zero interest rate world. I'd propose instead some sort of mandatory filing on the part of private equity managers that is publicly accessible and searchable and shows the track record of a private equity manager, with links to all of the other managers they've worked with. Then, when a PE investor proposes to take a company private, they're required by the SEC to demonstrate that their management isn't tainted by a chain of incompetence. Who knows if that would work, but it might increase the skin in the game somewhat. The status quo seems to be HBS grads performing with mediocrity at best and having no real accountability.

chucksta 2y ago

It was, its been an issue since the 70's, it used to be called corporate raiding. https://en.wikipedia.org/wiki/Private_equity_in_the_1980s https://en.wikipedia.org/wiki/Private_equity_in_the_1980s