Friday, July 13, 2012

"It's the 99% of Private Equity that Make the Rest of Us Look Bad"

-overheard at a party.

If borrow-to-dividend is the game, it is very difficult to argue that PE has any redeeming social value.
Probably time to, at minimum, immediately eliminate the carried interest provision, and maybe look at the tax treatment of debt-financed "dividends" as part of a broader overhaul of the code.

Don't never ever confuse leverage with alpha. Or brains.

From Bloomberg:
Wall Street Borrows More for Payouts as IPOs Fall, Moody’s Says
Private-equity firms took most of the $11 billion in dividends that U.S. speculative-grade companies paid in the first six months of the year as Wall Street’s ability to exit investments through initial public offerings plummeted.

Buyout firms owned 28 of the 35 high-yield, high-risk borrowers that made such payments through debt transactions, according to a report published yesterday by Moody’s Investors Service. The two largest deals were a $2.2 billion dividend to Bain Capital LLC and Thomas H. Lee Partners LP from billboard firm Clear Channel Communications Inc. (CCO) and a $1 billion payout to Bain and KKR & Co. from hospital operator HCA Holdings Inc. (HCA)....MORE
From DealBook:
Private Equity Giants Use Size to Lean on Suppliers
A single company purchased more than 50,000 Hewlett-Packard computers last year, buying in bulk to shave millions of dollars off its costs.

But it was not General Electric, Procter & Gamble or another large, multinational conglomerate with the muscle to dictate prices to suppliers. Rather, the big buyer was the Blackstone Group, a private equity firm.

Private equity firms like Blackstone are emerging as a powerful new force in the marketplace. The big investors, which collectively oversee thousands of companies, are using their size and scope to pressure suppliers, set their own prices and exert their influence in a range of industries, including health care, construction and consumer goods....MORE
As profit margins shrink toward zero the stability and resilience of the entire system is degraded.
It's a race to the bottom.