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Tax-deductible debt as it relates to financial engineering is what is tough to rationalize. For example, the primary function of a PE-fund is to buy ownership o
by ksar 11y ago
Tax-deductible debt as it relates to financial engineering is what is tough to rationalize. For example, the primary function of a PE-fund is to buy ownership of a company by levering it up and then capturing tax shields (US debt subsidy in this article). This is where 99% of the value generated by a fund comes from. In my view, this is more or less a direct transfer of wealth from the taxpayer to the PE-fund.
- theseatoms 11y agoIs this true?
- ksar 11y agoYou could argue that the 'discipline of debt' imposed on the management of PE-bought companies improves operational efficiency - because they need to generate steady cash flow to delever the company. However, these guys lever to the hilt with tonnes of cheap debt for a reason, though it's cheap it still results in huge tax shields.
- jessaustin 11y agoHaving worked at a company in the throes of private equity management, I can affirm that such "improvement" is not a universal phenomenon. PE funds take baths too.
- hessenwolf 11y agoWhat does take a bath mean in this context? I keep hearing it.
- XorNot 11y agoWell when a company fails we also say it's "going under"...
- jessaustin 11y agoTo have very disappointing returns on an investment. Similar to "get soaked", "get cleaned out", etc.
- walterbell 11y agohttp://dealbook.nytimes.com/2013/04/15/the-top-10-private-equity-loopholes/?_r=0 http://dealbook.nytimes.com/2013/04/15/the-top-10-private-eq... This is relevant to technology. Look at PE influence on Microsoft's board and the strategy to deprioritize Windows, Dell going private, and the recent purchase (and possible breakup) of Broadcom. There's probably more.
- deleted 11y ago[deleted]