I’m a big fan of Cory Doctorow. Much of his work lately has been writing and speaking about last year’s “word of the year” (from somebody who I don’t recall ATM) - “enshittification”. Private...
I’m a big fan of Cory Doctorow. Much of his work lately has been writing and speaking about last year’s “word of the year” (from somebody who I don’t recall ATM) - “enshittification”.
Private Equity is the fiscal vehicle that delivers enshittification in (IMO) almost every form. Here’s a book rec that does a pretty good job explaining how:
If the chicken suddenly gets skimpy at the chain restaurant you liked, that was private equity. Shrinkflation? Private equity. Otherwise historically great products suddenly have half the lifespan they used to? Private equity.
They are vultures possibly even worse than banks and hedge funds.
It's interesting... much of what you're attributing to PE, I attribute to the Fed and Treasury, at least in the US, financializing the economy and making it deeply sensitive to inflation and rate...
It's interesting... much of what you're attributing to PE, I attribute to the Fed and Treasury, at least in the US, financializing the economy and making it deeply sensitive to inflation and rate increases.
Shrinkflation I think is deeply interesting because there was a blogger from Argentina documenting it there 14 years ago by going to the US and seeing how much bigger our Oreos were, and now we're feeling it in the US. People will say they have noticed shrinkflation in the US over the last 20 years as well, and I'm sure its true, the dollar has lost 63% of its purchasing power over the last 20 years.
I think you might be telling on yourself there a bit. Certain less credible right-leaning media like to blame everything on anything public sector. If the Fed & Treasury do their jobs, nobody ever...
I think you might be telling on yourself there a bit. Certain less credible right-leaning media like to blame everything on anything public sector. If the Fed & Treasury do their jobs, nobody ever knows or talks about it. The Fed’s massive money printing over the last few years is why inflation isn’t WORSE than it is (I also think the rate is cooked to hell to try and minimize the figure- your 65% feel more accurate).
And the people in those roles are usually pretty mission-driven. You don’t go work at the IRS or Treasury department to get rich… For the last 20 years if you wanted to get rich you went into hedge funds or… private equity. PE’s entire business structure is designed to hollow out businesses for money then sell them off for parts. It’s the antithesis of long-term economic stewardship. (A concept we here in the US need to talk about and use way more.) This is how PE perpetuates instability for the sake of keeping C-suites able to say things are rosy for one more quarter.
In some ways it’s the same problem the US Federal Government has- everything is so large, but there are no tools, strategies, plans, or vision designed for anything long-term. It’s all just moves for the next election/quarter/merger/product release/press cycle.
Good lord, now it sounds like I’m advocating for fascism. I’m going to shut up now.
Tbf I think Yellen/Treasury is proving herself to be a pro at threading the economic needle and producing synthetic QE. Her short-end issuance shift in Q3 last year stemmed the LT UST debt spiral...
Tbf I think Yellen/Treasury is proving herself to be a pro at threading the economic needle and producing synthetic QE. Her short-end issuance shift in Q3 last year stemmed the LT UST debt spiral that we started to see with TLT crashing nearly 20%, and pulled the lever to tap RRP to finance T-Bills as other forms of QE have been “sterilized.”
Not trying to cast a blanket blame on public sector, I think Fed and Treasury have very few levers and politics to play with at the moment and it’s a bit of a game of 3D chess to keep things as stable as they are.
My view is that it’s possible to see the Fed and Treasury don’t have many options and also look at what their actions do to an economy sensitive to their decisions. My guess is anyone holding long-duration starts getting chipped away. If you’re short-duration like Berkshire and JPM, you’re getting a nice 5%ish yield. If you’re holding risk-on assets, as always they inflate first, your AUM is running up. Obviously Fed doesnt want to see risk assets ripping (precursor to everything else inflating) and Treasury doesn’t want rates to increase (which is also paradoxically inflationary now with the amount of excess reserves corporations are holding in SD/t-bills). So the lever to pull is to beat duration until the dollar is weakened so that there’s a stronger bid on USTs.
So even though I think we have pros at the wheel, I still think net effect of Fed/Treasury decisions is what lead to shrinkflation, purchasing power having a shorter finite lifespan, etc…
TL;DR The rest of the article argues for why the Norwegian sovereign wealth fund should not invest in private equity.
TL;DR
Last November, the $1.6tn Norwegian sovereign wealth fund asked the government for the umpteenth time if it could be allowed to invest in private equity. That’s a good excuse to explore one of the financial world’s most controversial issues.
The rest of the article argues for why the Norwegian sovereign wealth fund should not invest in private equity.
Got it. I agree with your post above. It's spot on about the 5-7 year timeframe. I've been involved in four recapitalizations in my career and I've seen good and bad with PE. The last firm I...
Got it. I agree with your post above. It's spot on about the 5-7 year timeframe.
I've been involved in four recapitalizations in my career and I've seen good and bad with PE. The last firm I worked with actually provided a lot of free resources, but unfortunately they turned us into a boring company, but profitable. There were good payouts down to the mid-management level. But the soul of the company was gone. I understand the current equity partner there is hell to work with. I'm so glad to be out of there.
I was involved in one IPO many years ago in the dot com boom and bust. That was a lot of smoke and mirrors, and yes, suckers. It's a game that's rigged for the underwriters and market makers. One thing I'll say that's positive about PE is that if you're going from PE firm to PE firm in a recapitalization, all the PE firms have quite smart people who can figure out where the bodies are buried. The public doesn't have this sort of vetting with IPOs.
I’m sure there are (or were) solid PE firms and people. Another comment where if I could tag it exemplary I would. Comments grounded in personal experience always rule IMO. Great stuff.
I’m sure there are (or were) solid PE firms and people. Another comment where if I could tag it exemplary I would. Comments grounded in personal experience always rule IMO. Great stuff.
Thanks. I'll add that something I found interesting with the last PE firm I worked with is that everyone in the firm had skin in the game. As an employee of the PE firm, if you were involved in a...
Thanks. I'll add that something I found interesting with the last PE firm I worked with is that everyone in the firm had skin in the game. As an employee of the PE firm, if you were involved in a particular fund that invested in a company, you actually had to pony up personal funds and have a stake in it. This went for not only the financial people, but also the personnel that were involved in other areas, like technology, and junior level personnel. If the investment tanks, you lose your own money in addition to the fund investors. (PE firms usually have several funds going at once with overlapping timelines, each with a 5-7 year timeframe between launch and divestment of all investments.). I don't know if the employee investment commitment is common with all PE firms. I only know of PE within my industry, so I'm not versed in the PE horror in other areas.
Although I was happy with the financial outcome and got to know some really smart and neat people at the PE firm, the company which I joined early as a startup became just another not-so-innovative company focused on quarterly results. But, on to the next startup, lather, rinse, repeat, and hopefully retire someday.
Yes, but there's a lot more ongoing and costly filings and administration and SEC rules to comply with when you go public. I agree IPOs give a bigger payout, if you can pull it off. It was easy in...
Yes, but there's a lot more ongoing and costly filings and administration and SEC rules to comply with when you go public. I agree IPOs give a bigger payout, if you can pull it off. It was easy in the late 90s and in 2000 prior to the crash to do an IPO, not so much anymore.
I’m a big fan of Cory Doctorow. Much of his work lately has been writing and speaking about last year’s “word of the year” (from somebody who I don’t recall ATM) - “enshittification”.
Private Equity is the fiscal vehicle that delivers enshittification in (IMO) almost every form. Here’s a book rec that does a pretty good job explaining how:
https://www.plunderthebook.com/
If the chicken suddenly gets skimpy at the chain restaurant you liked, that was private equity. Shrinkflation? Private equity. Otherwise historically great products suddenly have half the lifespan they used to? Private equity.
They are vultures possibly even worse than banks and hedge funds.
It's interesting... much of what you're attributing to PE, I attribute to the Fed and Treasury, at least in the US, financializing the economy and making it deeply sensitive to inflation and rate increases.
Shrinkflation I think is deeply interesting because there was a blogger from Argentina documenting it there 14 years ago by going to the US and seeing how much bigger our Oreos were, and now we're feeling it in the US. People will say they have noticed shrinkflation in the US over the last 20 years as well, and I'm sure its true, the dollar has lost 63% of its purchasing power over the last 20 years.
I think you might be telling on yourself there a bit. Certain less credible right-leaning media like to blame everything on anything public sector. If the Fed & Treasury do their jobs, nobody ever knows or talks about it. The Fed’s massive money printing over the last few years is why inflation isn’t WORSE than it is (I also think the rate is cooked to hell to try and minimize the figure- your 65% feel more accurate).
And the people in those roles are usually pretty mission-driven. You don’t go work at the IRS or Treasury department to get rich… For the last 20 years if you wanted to get rich you went into hedge funds or… private equity. PE’s entire business structure is designed to hollow out businesses for money then sell them off for parts. It’s the antithesis of long-term economic stewardship. (A concept we here in the US need to talk about and use way more.) This is how PE perpetuates instability for the sake of keeping C-suites able to say things are rosy for one more quarter.
In some ways it’s the same problem the US Federal Government has- everything is so large, but there are no tools, strategies, plans, or vision designed for anything long-term. It’s all just moves for the next election/quarter/merger/product release/press cycle.
Good lord, now it sounds like I’m advocating for fascism. I’m going to shut up now.
Tbf I think Yellen/Treasury is proving herself to be a pro at threading the economic needle and producing synthetic QE. Her short-end issuance shift in Q3 last year stemmed the LT UST debt spiral that we started to see with TLT crashing nearly 20%, and pulled the lever to tap RRP to finance T-Bills as other forms of QE have been “sterilized.”
Not trying to cast a blanket blame on public sector, I think Fed and Treasury have very few levers and politics to play with at the moment and it’s a bit of a game of 3D chess to keep things as stable as they are.
My view is that it’s possible to see the Fed and Treasury don’t have many options and also look at what their actions do to an economy sensitive to their decisions. My guess is anyone holding long-duration starts getting chipped away. If you’re short-duration like Berkshire and JPM, you’re getting a nice 5%ish yield. If you’re holding risk-on assets, as always they inflate first, your AUM is running up. Obviously Fed doesnt want to see risk assets ripping (precursor to everything else inflating) and Treasury doesn’t want rates to increase (which is also paradoxically inflationary now with the amount of excess reserves corporations are holding in SD/t-bills). So the lever to pull is to beat duration until the dollar is weakened so that there’s a stronger bid on USTs.
So even though I think we have pros at the wheel, I still think net effect of Fed/Treasury decisions is what lead to shrinkflation, purchasing power having a shorter finite lifespan, etc…
TL;DR
The rest of the article argues for why the Norwegian sovereign wealth fund should not invest in private equity.
Mirror, for those hit by the paywall:
https://archive.is/HdLyS
Private equity is where you go when you want to trade in the soul of your company for a big payoff.
Got it. I agree with your post above. It's spot on about the 5-7 year timeframe.
I've been involved in four recapitalizations in my career and I've seen good and bad with PE. The last firm I worked with actually provided a lot of free resources, but unfortunately they turned us into a boring company, but profitable. There were good payouts down to the mid-management level. But the soul of the company was gone. I understand the current equity partner there is hell to work with. I'm so glad to be out of there.
I was involved in one IPO many years ago in the dot com boom and bust. That was a lot of smoke and mirrors, and yes, suckers. It's a game that's rigged for the underwriters and market makers. One thing I'll say that's positive about PE is that if you're going from PE firm to PE firm in a recapitalization, all the PE firms have quite smart people who can figure out where the bodies are buried. The public doesn't have this sort of vetting with IPOs.
I’m sure there are (or were) solid PE firms and people. Another comment where if I could tag it exemplary I would. Comments grounded in personal experience always rule IMO. Great stuff.
Thanks. I'll add that something I found interesting with the last PE firm I worked with is that everyone in the firm had skin in the game. As an employee of the PE firm, if you were involved in a particular fund that invested in a company, you actually had to pony up personal funds and have a stake in it. This went for not only the financial people, but also the personnel that were involved in other areas, like technology, and junior level personnel. If the investment tanks, you lose your own money in addition to the fund investors. (PE firms usually have several funds going at once with overlapping timelines, each with a 5-7 year timeframe between launch and divestment of all investments.). I don't know if the employee investment commitment is common with all PE firms. I only know of PE within my industry, so I'm not versed in the PE horror in other areas.
Although I was happy with the financial outcome and got to know some really smart and neat people at the PE firm, the company which I joined early as a startup became just another not-so-innovative company focused on quarterly results. But, on to the next startup, lather, rinse, repeat, and hopefully retire someday.
Yes, but there's a lot more ongoing and costly filings and administration and SEC rules to comply with when you go public. I agree IPOs give a bigger payout, if you can pull it off. It was easy in the late 90s and in 2000 prior to the crash to do an IPO, not so much anymore.