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GP is repeating the PE as corporate raiders story, but leaving out that these are often struggling, mismanaged companies, and that those loans have a sophistica
by dehrmann 2y ago
GP is repeating the PE as corporate raiders story, but leaving out that these are often struggling, mismanaged companies, and that those loans have a sophisticated counterparty. The lenders might eat the losses, but after a few rounds, they'll demand higher interest rates once they see PE's turnaround track record. This is actually an example of where markets work; it's just ugly to see a beloved band go out like this.
- variaga 2y agoI'm aware that some private equity actually does plan to make money by applying good management to a fundamentally sound company which is currently struggling (or "cheap") because of fixable mismanagement. Warren Buffet got rich by doing this repeatedly. But that's not what happened to Toys'R'Us. "Raider" PE doesn't care about the high interest rates because they don't intend to pay them for long enough to matter, and - as mentioned in other replies - usually the sophisticated counterparty to the loans has identified a less-sophisticated other counterparty to sell the loans to and sees this as a risk-free deal that nets them origination fees. Suckers exist. Banks make it their job to find them.
- jordanb 2y ago> Warren Buffet got rich by doing this repeatedly. Warren Buffet would insist that he's not in private equity because Berkshire's stock is publicly traded and there's no lockup. He has publicly stated that he thinks being a PE LP is financial malpractice.
- dh2022 2y agoWarren Buffet is interested only in solid businesses, not in buying distressed assets in a fire-sale. One of his maxims: "is better to buy a wonderful business at a fair price, then to buy a fair business at a wonderful price"
- scarface_74 2y agoHe bought a bunch of newspapers when he knew they were on the decline and extracted money from them. He sold them all in 2020.