1/14/2012
The Oracle of Omaha has never retreated from his long standing revulsion at the Leveraged Buyout Crowd who tried to camouflage their profession by calling themselves The Private Equity Crowd. He and his curmudgeon partner Charlie Munger also show their disdain for Mitt Romney’s wheeling and dealing at Bain Capital . by calling the Private Equity Crowd The Two and Twenty Crowd for the obscene 2% management fees and 20% carried interest The Private Equity Crowd demand for their services.( A recent report said Bain even charged a 30% carried interest fee, which brings PE to a new level of high class greed, if there is such a thing) Carried interest sounds a harmless concept, as if the borrower was somehow a charity case– as in being ” carried.” Sounds almost philanthropic.
Just recently Buffett told Time Magazine that “ I don’t like what private equity firms do in terms of taking every dime they can and leveraging (companies) up so that they really aren’t equipped, in some cases, for the future.”
More generally Buffett always includes a pungent blast at The Private Equity Crowd in his letters to shareholder. Just last year Buffett stuck it to the Private Equity Crowd for changing their “moniker” from “leveraged-buyout operators” to “private equity,” which you may notice no longer has the attribute “leverage” in its name. He has always sworn never to buy a company from the PE Crowd– as it doesn’t have the long-standing management-owner nucleus long associated with it.
Calling this “Orwellian”: Buffett wrote that “private equity” is a “name that turns facts upside-down: A purchase of a business by these firms almost invariably results in dramatic reductions in the equity portion of the acquiree’s capital structure compared to that previously existing.”
In other words its “Orwellian” because in point of fact there is less private equity and more dangerous debt piled on them. ” A number of these acquirees are now in mortal danger because of the debt piled on them by their private-equity buyers,” Buffett wrote.
“ It’s a lopsided system whereby 2% of your principal is paid each year to the manager(ie Bain Capital) even if he accomplishes nothing– or, for that matter, loses you a bundle– and additionally 20% of your profit is paid to him if he succeeds.”
Now, The Private Equity Crowd– as personified by Mitt Romney’s quest for the White House, has become the vivid and telling controversy over the future of finance Capitalism. It is an issue closely related to the income disparity between rich and poor, between the 1% on Wall Street and the 99% on Main Street.
Romney is being attacked by his rivals in the Republican party and will be assaulted by the notion of his greed during the days he ran Bain during the general campaign, should he, as seems likely, win the nomination.. That’s why such highly respected and influential pundits as David Brooks of the New York Times, Mark Shields, a syndicated columnist on PBS and Peggy Noonan in the Wall Street Journal are calling on Bain to articulate his views on the unfair ramifications of finance today and relate it to what Romney promises to do once he’s in the White House– profuse claims of creating new jobs in the economy. Trust me, his Private Equity Model isn’t going to create any new jobs. In the first instance, it’s going to reduce them.
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1 comment:
Boy oh boy lets give warren a pat on the back for calling private equity what it really is. Private equity is nothing more than a blood sucking way to drain the life and vitality out of a company in order to make a fast buck. Buy a company using lots of leverage. Along with some dirty little tricks like buying quietly a majority stake in a company behind everyones back without making a tender offer along with and including buying the shares at a big discount to what they are actually worth on the open market without declaring your intentions' to deceive investors. Than declare that your taking the company private and offer as little as possible for the remaining shares which are worth twice as much money as your offering for them and than say your saving the company what a bad bad joke. These private equity firms will do anything to come out ahead on the bottom line sell all the real estate a company owns' sell or loan out patients and copyrights' pit one state against another threatening to move a division of their company to another state for another if they do not receive a subsidy or some generous tax breaks. Sell off divisions of the company that are undervalued. Fire as many workers as you possibly can along with cutting the wages and benifits of the remaining employees to increase the bottom line. Squeeze price concessions from loyal vendors that are heavely dependent on a large part of their sales to your company. Tell your union memembers its take drastic cuts in wages and benifits or else risk having your plant shut down. And finally when you bring your company public again hire that so ethical investment banking firm goldman sachs to overhype the value of your public offering to increase the amount of money you will receive when the company becomes a public company again and at that point you bail out of the stock leaving a company torn into pieces from what it originally was.
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