Private equity firms have been called "locusts" by the German chancellor Angela Merkel but proponents argue that private equity investors make companies more efficient, create economic growth and provide good economic returns to investors.
Private equity leads to higher default rates and more bankruptcies and worse outcomes for customers and workers
Private equity is a misnomer and should properly be called leveraged buyouts. Leveraged buyouts, by definition, increase borrowing and raise the probability of bankruptcy.
Private equity is a debt driven model
Private equity is debt-driven and leads to defaults. It should properly be referred to as Leveraged Buyouts (LBO) due to high debt.
Defaults for private equity (leveraged buyouts) can be 10x higher than for non-LBO firms
You do not need an MBA from Wharton to know that loading up companies with debt will lead to bankruptcy. Research shows that private equity funds acquire healthy firms and increase their probability of defaultby a factor of 10. They are the antithesis of conservative management.
Customer care deteriorates when private equity buys companies
In a major stomach-churning investigation titled, “Overdoses, bedsores, broken bones: What happened when a private-equity firm sought to care for society’s most vulnerable,” theWashington Post chronicled the horrific practices that preceded the bankruptcy of ManorCare. In 2007, the Carlyle Group, a pirate equity group, bought ManorCare nursing homes for $6.1 billion and $4.8 billion of that was financed with debt.
Studies have shown that private equity leads to higher defaults, its claims to increase productivity are a sham, and it causes higher rates of job losses and firings in target companies as well as lower wages. (Unsurprisingly, industry-funded studies are much more sanguine.) But perhaps the most damning indictment of the private equity model is that their returns are overstated and their performance simply not as good as they lead investors to believe.
Private equity leads to more economic growth and imporovements in efficiency
Private equity leads to superior corporate management and greater efficiency. Companies that are owned by private equity firms grow and help the economy.
Private equity may help investors in its funds, but at the expense of workers, customers and the economy
Private equity may be a good investment for those investing in the private equity funds, but it is bad for customers, suppliers and the economy at large.
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This page was last edited on Thursday, 27 Feb 2020 at 12:27 UTC
