NakedCapitalism.com: "Private Equity: A Government Sponsered Enterprise"

[Fergasun]

Private Equity: A Government Sponsored Enterprise

By Nanea, a private equity insider, and Yves Smith

Naked Capitalism is running a series on Private Equity funds and funding. The author posted the first article yesterday. I found it informative, but it is long.

Private equity practitioners, including most famously Mitt Romney, often depict their sector as the epitome of private enterprise. These claims are false. Private equity firms not only depend directly and substantially on government support, they have also actively cultivated links to the state.

Some readers may know that private equity relies heavily on tax subsidies. Private equity firms engage in debt-leveraged buyouts of public and private companies, and the interest charges on this debt are tax deductible. But most members of the public do not know that close to half the investment capital in private equity funds is contributed directly by government entities. In this respect, private equity is little different than companies like Fannie, Freddie, and Solyndra that are regularly criticized in the media as recipients of government subsidies.

Their decisions to invest government funds in private equity reflect assumptions by government officials that have gone unchallenged and, we contend, are quite likely incorrect. Moreover, virtually all of the important details of the private equity investments made by these state investors are kept secret at the insistence of PE firms, in striking contrast to every other type of government contract.

...

The public should be concerned about so much capital winding up in the hands of so few players, particularly when they have gone to extreme lengths to bar public inspection and oversight. And, as we peel the layers back over the course of this series, we will show how many other widespread industry practices, like “transaction fees” do not stand up to scrutiny.

Still waiting for part 2, but this will be a great series to read through.

[D'Pablo]

Have you checked out Stiglitz's recent book about the rent seeking activities (although its title is dedicated to the inequality of wealth) of private equity firms, etc...? It's a pretty great read. He did a podcast at the London School of Economics that was pretty informative, too-

http://www2.lse.ac.uk/newsAndMedia/videoAndAudio/channels/publicLecturesAndEvents/player.aspx?id=1531

[SkinsHokieFan]

Private equity is a company ruining cancer

[mcsluggo]

Private Equity: A Government Sponsored Enterprise

By Nanea, a private equity insider, and Yves Smith

Naked Capitalism is running a series on Private Equity funds and funding. The author posted the first article yesterday. I found it informative, but it is long....Still waiting for part 2, but this will be a great series to read through.

"""Some readers may know that private equity relies heavily on tax subsidies. Private equity firms engage in debt-leveraged buyouts of public and private companies, and the interest charges on this debt are tax deductible. But most members of the public do not know that close to half the investment capital in private equity funds is contributed directly by government entities. In this respect, private equity is little different than companies like Fannie, Freddie, and Solyndra that are regularly criticized in the media as recipients of government subsidies."""

i am pretty certain that what THIS means is that a good portion of the invested capital in private equitiy funfs is LP shares bought by large pention funds like Calpers etc... it is kinda hard to call these subsidies to the private equity world...rather it is state investors capitalizing on the moronic rules system that has set up for PE to exploit.

(the "state" in these cases is not "the state" at all.. just large institutional investors).

but yeah, the uneven playing field that has been set up for PE corporate pirates is still a joke.