PRIVATE EQUITY :: Investors Desperate To Boost Returns

Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity.
The Returns Are Spectacular. But There Are Catches

• Returns can be gamed

• The value of private investments is hard to measure

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Here are excerpts from Bloomberg Business Week

Everything Is Private Equity Now

Spurred by cheap loans and investors desperate to boost returns, buyout firms roam every corner of the corporate world

‎October‎ ‎3‎, ‎2019‎ ‎1‎:‎00‎ ‎AM Corrected ‎October‎ ‎8‎, ‎2019‎ ‎1‎:‎10‎ ‎PM

Private equity managers won the financial crisis. A decade since the world economy almost came apart, big banks are more heavily regulated and scrutinized. Hedge funds, which live on the volatility central banks have worked so hard to quash, have mostly lost their flair.

But the firms once known as leveraged buyout shops are thriving.

There are now 8,000-plus PE-backed companies, almost double the number of their publicly listed counterparts

Almost everything that’s happened since 2008 has tilted in their favor.

• Low interest rates to finance deals? Check.
• A friendly political climate? Check.
• A long line of clients? Check.

The PE industry, which runs funds that can invest outside public markets, has trillions of dollars in assets under management. In a world where bonds are paying next to nothing—and some have negative yields—many big investors are desperate for the higher returns PE managers seem to be able to squeeze from the markets.

The business has made billionaires out of many of its founders. Funds have snapped up businesses from pet stores to doctors’ practices to newspapers.

PE firms may also be deep into real estate, loans to businesses, and startup investments—but the heart of their craft is using debt to acquire companies and sell them later. . .

> In the best cases, PE managers can nurture failing or underperforming companies and set them up for faster growth, creating outsize returns for investors that include pension funds and universities.

> One of PE’s superpowers is that it’s hard for outsiders to see and understand the industry, so we set out to shed light on some of the ways it’s changing finance and the economy itself. —Jason Kelly

The Magic Formula Is Leverage ... and Fees

PE invests in a range of different assets, but the core of the business is the leveraged buyout

The Returns Are Spectacular. But There Are Catches

For investors the draw of private equity is simple: Over the 25 years ended in March, PE funds returned more than 13% annualized, compared with about 9% for an equivalent investment in the S&P 500, according to an index created by investment firm Cambridge Associates LLC 

• Returns can be gamed

• The value of private investments is hard to measure

• The best returns might be in the rearview mirror

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PRIVATE EQUITY TITANS QUIETLY DISCOVER HOW TO GET RICHER

Published on Oct 29, 2019

Views: 2,180+

Oct.29 -- Vista Equity Partners' Robert Smith is one of the world’s richest people with a $6 billion fortune. He sold about 30% of the company he founded. His first deal with Dyal Capital Partners in 2015 helped popularize sales of minority stakes, upending the conventional wisdom that only weaker businesses would sell a piece of themselves. Bloomberg's Tom Metcalf and Lisa Abramowicz discuss this trend.

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The following extracted information is taken from Forbes 30 Oct 2019

Private Equity Firms Have Caused Painful Job Losses And More Are Coming

Mayra Rodriguez Valladares Senior Contributor

"The American Investment Council (AIC), a private equity lobby, recently partnered with Ernst and Young to write a report that describes private equity’s contributions to the U.S. economy. 
 One main finding of the report is that “The US private equity sector provides employment and earnings for millions of workers. Overall, in 2018, the US private equity sector directly employed 8.8 million workers earning $600 billion in wages and benefits. The average US private equity sector worker earned approximately $71,000 in wages and benefits in 2018. For a full-time worker this is approximately $36 per hour.”
Just in that one finding, there are quantitative and qualitative shortcomings. Private-equity backed companies buy out companies with existing employees.
Private equity companies are not job creators.  
In fact, private equity firms cause significant unemployment
. . . economists at Harvard University and the University of Chicago found that when private equity take over companies, employment in the private-equity backed  companies decreases by over 4%  in the first two years following the buyout. The research piece “The Economic Effects of Private Equity” also described that when private equity firms buy out large publicly traded companies with numerous employees, job losses are far worse, about a 13% decrease in jobs in the first two years. Eileen Applebaum, Co-Director of the Center for Economic and Policy Research rightly points out that “If you are a worker at a company that has been acquired by a private equity firm, these are the numbers that matter to you – the probability that you or some of your colleagues will lose their jobs.” . .

The table lists select ratings actions on the debt of an LBO-backed company by either Moody's Investors Service or Standard & Poor's since January 1, 2019

Private-Equity Backed Distressed Rated Companies

Source: Standard & Poor's, Moody's Investors Service and Buyouts; ratings are current as of Oct. 7, 2019