Hacker News
Private Equity Is Stuck with 33,575 Unsold Businesses
ynac
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yndoendo
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1) Ship customer service overseas to save money.
2) Ship manufacturing overseas to save money.
3) Ship assembly over seas to save money.
4) Fire all institutional knowledge employees, because they have the highest salaries, and hire others a lower cost.
5) Ship jobs to poor states when they cannot be shipped oversea.
6) Raise the price of the product / solution.
7) Support politicians to promote false ideas such as "immigrants are taking your jobs", "tax cuts benefit everyone", "businesses are too big to fail", "deregulation will fix everything" ...
They want to make X in Y years. They don't care about people, the community, nor the environment. They only care about themselves and their bank accounts.
This is why I stopped buying from companies that I know have been bought by PE.
airport_barfly
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It amazes me that the same people running our economy into the ground will shamelessly act like victims of market conditions.
duxup
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Gotta wonder how that is going to play out…
carlosjobim
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ceejayoz
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Otherwise, this comment is similarly void of useful info.
carlosjobim
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2. "Stuck with unsold business" - You can only sell for the price that somebody wants to buy for. There is no such thing as a guaranteed return on investment, especially not for this type of investment. Just sitting on it doesn't magically make value go up. So the entire idea of the journalist is dumb from beginning to end.
3. "Fulfill their value promise" - If you believe anybody who promises you a certain return on your high risk investment, then I have a bridge to sell you.
4. Everybody who has invested any money into any type of investment is also "stuck" waiting for somebody to buy it for a higher price if they don't want to sell for the price offered right now. So the article is completely meaningless. They are "stuck" by their own decisions.
ceejayoz
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Surely a particular form of investment typically attracts a particular form of investor?
> You can only sell for the price that somebody wants to buy for.
And if you don't want to sell for that price, because you'd lose money on the deal, you are kinda stuck, yes?
> If you believe anybody who promises you a certain return on your high risk investment, then I have a bridge to sell you.
I think you're doing the "false perspective of what … a word means" thing here yourself.
> Everybody who has invested any money into any type of investment is also "stuck" waiting for somebody to buy it for a higher price if they don't want to sell for the price offered right now.
Sure, but there's stuck in a puddle, and stuck at the bottom of the Challenger Deep.
The 2008-2009 financial crisis happened because a bunch of investors got very stuck with assets that were suddenly not worth much.
carlosjobim
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The term is so broad that you cannot say that for private equity.
> And if you don't want to sell for that price, because you'd lose money on the deal, you are kinda stuck, yes?
Yes, just like my uncle is stuck in his car because he doesn't want to get out of it.
Only a person who reasons like a fool (like this journalist) would consider themself to be "stuck" with an investment which they cannot make a profit on and have to wait and pray. Sure, many people think like that, but a seasoned or professional investor who thinks like that has to be instantly fired and probably tarred and feathered by whoever has trusted their money with him.
The correct way: Instead of demanding that God forces somebody to pay you an amount that nobody wants to pay for your investment, you have to accept your losses so that you can get your money out and invest it into something better.
The journalist takes this:
"As of June 30, private equity firms had 33,575 unsold companies in their portfolios, according to PitchBook, an industry data firm. "
And turns it into this:
"Private Equity Is Stuck with 33,575 Unsold Businesses"
When the true meaning is that those private equity firms are invested into that number of companies. They will always be invested in companies which they haven't sold yet. Otherwise they wouldn't exist. Every pension fund in the world is invested into hundreds or thousands of "unsold businesses" as long as they are invested. The purpose of private equity firms is to invest in businesses. Otherwise they have no investments.
ceejayoz
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You called these "high risk investments". That tells you at least some broad information about the sort of investors who are attracted to it. Claiming otherwise makes you appear as ignorant as you're asserting the journalist is.
> Yes, just like my uncle is stuck in his car because he doesn't want to get out of it.
I think it's more akin to deciding if you stay in or get out of a car engulfed by floodwaters; it depends on a number of things, with neither option being ideal. Maybe the flood will be short? How good of a swimmer am I? What are other people doing? Is it still raining? Is there a rescue helicopter coming? How fast is the water? How deep?
There's a downside to getting out of the car right now, in other words, that must be considered.
> Only a person who reasons like a fool (like this journalist) would consider themself to be "stuck" with an investment which they cannot make a profit on and have to wait and pray.
Plenty of investors have to wrestle with deciding if an investment will recover or continue to plummet.
The article even directly addresses this:
"Many in the industry predict that private equity firms will eventually be forced to sell and give cash back to investors, even if it means accepting a lower price."
> When the true meaning is that those private equity firms are invested into that number of companies. They will always be invested in companies which they haven't sold yet.
Which is why the journalist noted said number is more than twice as many as a decade ago and quotes PE firms saying stuff like "exits were being 'prudently delayed'".
Your objections here feel very much like "the finance journalist left assumed some basic knowledge and reading comprehension skills anyone reading a finance article should already possess". They aren't writing for Wikipedia.
carlosjobim
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All investors should constantly be in consideration of if their investment is appreciating or depreciating in value and wrestle with that. Past value should in general not be a factor - unless the investor is a fool. Only future value is of interest.
There are only two outcomes: Price goes up or price goes down.
If you believe that the price will go up, you should invest more, no matter if you already have a profit or a loss.
If you believe that the price will go down, you should sell, no matter if you already have a profit or a loss.
What price you bought in at has no relevance. And this is the core of the matter that the journalist doesn't seem to understand. Fluctuations aside - which shouldn't be a big factor for unlisted companies.
If I'm an investor and the manager of the PE firm gives me a loss of 50% instead of a 20% loss because he was waiting for "recovery" until it was too late - then I'm going to tar and feather him, together with all the other investors.
> Your objections here feel very much like "the finance journalist left assumed some basic knowledge and reading comprehension skills anyone reading a finance article should already possess". They aren't writing for Wikipedia.
No, but they are writing an article without any flesh on the bones, and twisting it into some kind of drama. Private equity firms are (allegedly) invested into more companies than they were a decade ago. Good! Not a big deal if the investors loose some money, they knew the risks if they weren't fools. Good that companies get investments. If they didn't want or need investments they wouldn't sell shares to private equity.
ceejayoz
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And if you don't know which is going to occur, you may feel stuck. Indecisive, anxious, conflicted, call it whatever you like.
> Only future value is of interest.
Which is why sometimes the PE firms don't sell, as noted in the article. They think there's a chance the future value will be higher. They may be wrong, but right now they have to make an educated guess.
> If I'm an investor and the manager of the PE firm gives me a loss of 50% instead of a 20% loss because he was waiting for "recovery" until it was too late - then I'm going to tar and feather him, together with all the other investors.
Sure, and if it recovers and goes to the moon next month, you'll yell at him for being a chicken and losing you a bunch of money.
> No, but they are writing an article without any flesh on the bones, and twisting it into some kind of drama.
Physician, heal thyself.
carlosjobim
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Yes, but then they are just as "stuck" with their investments as my uncle is stuck in his car because he hasn't decided if he wants to get out of it or not. Hardly worthy of a newspaper article.
It would be different if it was about assets where market movements or lack of market movements are important to the general public, such as housing, energy, big employers, etc.
> Sure, and if it recovers and goes to the moon next month, you'll yell at him for being a chicken and losing you a bunch of money.
He should of course sell at -20%, and then buy again at the bottom, if he doesn't want to get yelled at. Or sit with his diamond hands until it goes to the moon, and not run to the New York Times crying about being stuck.
ceejayoz
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One person stuck isn't much of an article, sure.
Thousands stuck might indicate something that has economic consequences worth making the news.
> It would be different if it was about assets where market movements or lack of market movements are important to the general public, such as housing, energy, big employers, etc.
I promise you, the PE ecosystem impacts the general public. Nearly every dentist, plumber, electrician, and vet in my area is PE owned these days. That's a lot of eggs in a basket.
> He should of course sell at -20%, and then buy again at the bottom, if he doesn't want to get yelled at.
What, with his time machine?
You're criticizing a journalist for not knowing enough about finance and saying the fix is perfectly timing the market?!
carlosjobim
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> One person stuck isn't much of an article, sure.
Neither are 10 000 people being "stuck" because they can't decide to get out of the car or not. Or stuck in front of the fridge deciding what they want. If they want to get unstuck, it's up to them.
> I promise you, the PE ecosystem impacts the general public. Nearly every dentist, plumber, electrician, and vet in my area is PE owned these days. That's a lot of eggs in a basket.
Yes, because "private equity" is an extremely broad term. I wouldn't expect your local dentist or plumber to be listed on the stock exchange.
What exactly is the problem for me or anybody else reading the article that some PE investors weren't able to get the return they had hoped for on their investments? Should I feel sorry for them? Should I send them part of my paycheck to ease their wounds?
ceejayoz
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A widespread contagion in the industry would wipe out significant parts of the service sector, which we humans rely upon.
> Should I feel sorry for them? Should I send them part of my paycheck to ease their wounds?
The PE firms? Absolutely not. Fuck them.
But as with the CDO mess, the damage won't stay with the Bain Capital types. They'll all be fine; it's the consumer who gets fucked.
As the article notes, that includes things like pension funds. Your 401k, probably, too.
What we should do is prevent this wealth transfer from the poorest to the richest shit from continuing to happen over and over again.