If your business is a supplier to a company taken over by private equity, reduce your exposure to them immediately. Reel in credit lines, shorten terms, heighten surveillance of their accounts, be on guard.
Unfortunately I don't have any glib suggestions on what to do should your trusted hospital get bought out.
From the Wall Street Journal, May 25:
Private-managers now influence the U.S. economy and politics in ways few Americans understand
So many billionaires
The rise of private-fund titans
Changing the calculusPrivate-fund managers are using April’s market mayhem as a political tool in their campaign to pry open a vast new market: your retirement account.
Firms such as Apollo Global Management MMAPOMM and Blackstone MMBXMM are arguing in Washington that when turmoil strikes public markets, Americans would be better off investing in their private-equity and private-credit funds. They contend that the funds provide ballast because their assets rarely trade, so their valuations are more stable during downturns.
Critics say that the firms are turning to the “retail” market because they have tapped out big pension funds—and that private markets are a bad fit for individual savers. Smooth valuations can mask big problems and private-market funds can prevent clients from getting their money out in stressed markets, they say.
What are everyday savers to make of this debate and the firms at the center of it? A clutch of newish books helps explain how the so-called alternative-investment industry has taken over Wall Street and increasingly influences the U.S. economy.
Alternative-investment companies already deploy money for pension systems and the uberwealthy in private equity, private credit, infrastructure, hedge funds and technology venture capital. They control more than $17 trillion in assets, according to Preqin, and are quickly supplanting banks as the preferred source of capital for millions of consumers and tens of thousands of companies.
Still, the average American is only vaguely aware of them.
“The more people don’t know and don’t care and think it’s too esoteric…the more time goes by and the private-equity industry is just getting richer,” Carrie Sun, a former personal assistant to Tiger Global Management co-founder Chase Coleman, said in an interview. Sun describes her overtime on the job in Private Equity.
So many billionairesThe memoir and Hedged Out, a high-finance ethnography by Megan Tobias Neely, explain the new financial order by dissecting the people who run the investment firms. Other books—Sachin Khajuria’s Two and Twenty and Brendan Ballou’s Plunder—do the same by analyzing the companies and the deals they make.Private, or “alternative,” fund managers now bankroll virtually every piece of the U.S. economy and make a lot of money doing it. They collected an estimated $252 billion in fees in 2023 globally, about six times the $41 billion they made in 2013, according to Preqin, a firm that sells data on private funds and that was recently acquired for $3.2 billion.
Fund managers far outnumber tech moguls and bankers on the most recent Forbes list of billionaires. JPMorgan CEO Jamie Dimon sits below about 40 private-equity executives on the list.
Chieftains like Apollo’s Marc Rowan and Blackstone’s Steve Schwarzman also wield increasing political clout. Donald Trump consulted Rowan on the economy and picked hedge-fund manager Scott Bessent for Treasury secretary, a post typically held by bankers.
Fund managers recently deposed top U.S. university leaders and crushed government efforts to regulate their businesses.
“I’ve never seen so many billionaires,” Steven Meier, chief investment officer for New York City’s pension system, said on the sidelines of a private-equity conference in Midtown Manhattan. “These are smart, hardworking people who’ve been in the right place at the right time and, I have to ask as a fiduciary: ‘Maybe we’re paying too much in fees?’”
That question is crucial because alternative investments are now being sold to regular Americans through funds and their 401(k) savings plans. Private-equity fees cost clients about 6 percentage points of investment returns while stock and bond exchange-traded funds charge almost nothing.
The rise of private-fund titans
A typical alternative investment works like this: Partners launch a fund, contributing 5% from their own money and raising the rest from investors, promising to return the capital and profits minus fees in about 10 years. Strategies range from private credit to infrastructure, but private equity still accounts for about one-third of all investment dollars.Fund founders make so much money because they run their companies with absolute power and little regulation, Tobias Neely writes in Hedged Out. The book draws on interviews with 48 hedge-fund workers to chart the evolution of the American financier.
The community bank executive of the mid-20th century morphs into the wheeling and dealing investment banker of the 1980s, then the billionaire private-fund manager of today.
Bankers answer to regulators and internal bureaucracies but fund founders go mostly unchecked, according to Neely. The funds are also less diverse than banks because white male founders hire and promote people who look and act like them, she writes.
This all helps in “legitimating their enormous compensation,” according to the book.
Khajuria, a former private-equity partner at Apollo, sees alternative investing culture differently. The industry is a Darwinian pressure cooker where only the most capable succeed, he says. “These folks are built to win, through design and force of will.”
Still, he agrees that as the investment firms grew bigger, they funneled more money and information—the building blocks of power—to their top executives.
“Not only is immense wealth accumulated in the hands of the few, but these individuals also have profound influence on increasingly broad swaths of the economy,” Khajuria writes.
Changing the calculus
Private-equity funds purchase businesses using a mix of their own money and debt. If all goes to plan, the funds cut costs, boost revenues and sell the companies for double their money. If not, the debt can crush the acquired companies, causing layoffs and even bankruptcies....
....MUCH MORE
