"Private equity" refers to the entity in any privately owned business that is NOT traded on a stock market. Your neighborhood pizza establishment, if it is not part of a chain but is simply the result and destination for some local family's sweat, is a bearer of private equity. How much? That can at best be guesstimated, until such time as they try to sell it. The guesstimation would depend on similar businesses that have been sold recently in similar places. More specifically, "private equity" can refer to a private equity investment fund, like Mitt Romney's Bain Capital. This is a fund that focuses chiefly on operating businesses that are not exchange traded. A PE fund might buy the pizza place we have in mind. Ma and Pa might be thrilled by this, and take off to Florida for a well-earned and now well-financed retirement. Then Bain or a similar operation, might bring in new management, improve the profit margins, and then start shopping it around to the...
Posts
I had high hopes for Glenn Youngkin as long ago as ... well, his victory in the primary election against the other (more Trumpian) Republicans in the field. He, like Mitt Romney before him, comes from the world of private equity, and the masterminds of that world are much-maligned, their work does have a disruptive effect that draws enmity. But they do much more good than harm -- amidst those disruptions there is a lot of productive innovation and the displacement of settled inefficiencies. Like Romney's Bain, Youngkin's Carlyle is the object of lurid stories about how it throws people out of work. There is some truth to it. And I feel sympathy, drawn from personal experience, for anyone who has been laid off. During the 2012 campaign, Romney made himself seem utterly unsympathetic toward those experiencing the downside of Bain-stoked disruption. He notoriously said "I like being able to fire people." He was trying to make a point about healthcare policy but this, com...
Harvard University recently issued its annual report. Here is a link: https://finance.harvard.edu/files/fad/files/fy19_harvard_financial_report.pdf Finance nerds will be especially interested in the report on Harvard's famous endowment, a landmark example of institutional investing with an unlimited time horizon. The university gets revenue from a number of sources: research oriented subsidies, gifts, tuition ... but distributions from the endowment accounted for roughly one third of the income in the fiscal year that ending on June 30, 2019. The report of that endowment consists of pages 12-17. You can learn there that the balance sheet consists of 46% equity. That is a rather high percentage (it is broken down almost evenly between public and private equity). Another 33% consists of hedge funds. Harvard has gotten only a mediocre performance out of its hedge fund allocation, less than it has gotten out of public equity and far less than it h...
Reuters recently ran a story that begins this way: "Riverstone Holdings LLC, a private equity firm that focuses on energy and power sectors, said it would sell U.S.-based oil and gas explorer Rock Oil Holdings LLC to SM Energy Co ( SM.N ) for $980 million in cash." Surely that sounds boring to most of you, dear readers. One point that may make the lede interesting, for observers of the news media, is the choice whereby the story was made to be about Riverstone Holdings, the PE firm. The other two firms are direct and indirect object, "to sell" is the predicate. Riverstone is the subject. [By the way, "lede" is standard journo jargon for "lead paragraph," as distinct from "lead story" for which the standard spelling is retained.] Was there an alternative? Of course there was! More than one, surely, but the one that comes immediately to my mind would read, "SM Energy Co is purchasing Rock Oil Holdings LLC from ...."...
I enjoy the television show SHARK TANK and for my birthday's blog post I'll indulge myself in a simple comment thereon. The rules of the 'tank' provide that the entrepreneurs must get at least the amount of cash they ask for. When they come in and make their pitch, they may ask for, say, $100,000. If they do, then they may accept an offer from one of the sharks for that amount, or (if they're fortunate enough that the sharks end up bidding against one another) for more than that. But they cannot lower their offer to, say, $75,000. They either get their $100,000 or they leave empty handed. This may seem unrealistic. Why can the entrepreneurs not adjust to unexpected skepticism by lowering their own expectations on the fly? In a sense, though, they can: and the way in which they can do so is by lowering their implicit company valuation. When an entrepreneur walks into the "tank" to make his pitch, he might indeed ask for $100,000. But he'll al...
Jason Kelly, in a recent book about the private equity industry, tells a story about a visit he made to Zuccotti Park in lower Manhattan in November 2011. As you may remember, the “Occupy Wall Street” folks had taken over the park two months before and were seeking to focus public anger about “Wall Street,” both as a literal and as a metaphorical term. When people think of “Wall Street” they think first of the big investment banks, the folks who received their much-discussed bail-outs in the fall of 2008. They don’t necessarily think of private equity: of Bain Capital, or Carlyle, or even Blackstone. But at least some portions of the Occupy movement wanted to change this. As Kelly was walking around the park he saw as sign that said, “No Bulls, No Bears, just Pigs.” That was catchy: it played upon well-known animal metaphors for Wall Street optimists and pessimists respectively. But he also saw a sign that was a good deal less catchy. It was made up of ora...