Category Archives: Private equity

Eileen Appelbaum and Rosemary Batt: Can Private Equity Be Reformed?

Yves here. This is the third part of an interview by Andrew Dittmer with the authors of an important new book on private equity, Private Equity at Work (see Part 1, Part 2, and Part 3).

This final post focuses on the question of whether private equity can be reformed. Even though there is a long list of possible curbs and fixes, Appelbaum and Batt single out the critical ones that they believe will have the most impact.

Eileen Appelbaum and Rosemary Batt: How Academics Cook Their Studies to Flatter Private Equity

Yves here. This is the third part of an interview by Andrew Dittmer with the authors of an important new book on private equity, Private Equity at Work (see Part 1 and Part 2).

Here, Appelbaum and Batt discuss some important, widely publicized academic studies in which the results were skewed so as to favor the private equity industry.

Transparency Hypocrite BlackRock Doesn’t Believe in Giving Out Info But Likes to Take It

Reader Adrien pointed out an article from the Financial Times from last month, in which the world’s largest fund manager, BlackRock, stood up for the widespread practice in the UK of fund managers insisting that investors, including public pension funds, sign confidentiality agreements. This goes well beyond the objectionable practice in the US, where managers of exotic-seeming strategies like private equity, hedge funds, and infrastructure funds have managed to shroud their activities in secrecy. In the UK, even plain-vanilla fund management strategies, like stock and bond funds, are also subject to this information lockdown.

But as we’ll demonstrate, BlackRock does not walk its talk.

Eileen Appelbaum and Rosemary Batt Explain Private Equity Tricks That Put Companies at Risk

Yves here. This is the second part of an interview by Andrew Dittmer with the authors of an important new book on private equity, Private Equity at Work (see here for Part 1).

In this segment, Eileen Appelbaum and Rosemary Batt describe some of the ways that private equity firms make the companies they buy more vulnerable to bankruptcy, yet get away with it.

Andrew Dittmer: Eileen Appelbaum and Rosemary Batt on How Private Equity Really Works

Yves here. Naked Capitalism contributor Andrew Dittmer, perhaps best known for his series on libertarianism (see Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, and his responses to reader comments) has returned from his overlong hiatus to interview the authors of the highly respected new book, Private Equity at Work.

Eileen Appelbaum and Rosemary Batt have produced a comprehensive, meticulously researched, scrupulously fairminded, and therefore even more devastating assessment of how the private equity industry operates, including its deal and tax structuring methods, its impact on employment, and whether its returns are all they are purported to be. Their work was reviewed in the New York Review of Books; we also discussed it in this post.

Earlier this year, Andrew spoke with Appelbaum and Batt, and the first part of their discussion covers the problematic relationship between private equity funds (general partners) and their investors (limited partners) and how private equity affects other businesses.

Big Investors Rebelling Against Private Equity Fees

In a remarkable and long-overdue change in attitude, institutional investors are starting to tell private equity titans that they think they don’t earn their outsized pay. And that’s before you get to all the grifting they’ve been exposed to be doing on top of that.

The Wall Street Journal described a confrontation at a conference in Paris, with a pension fund manager responsible overseeing private equity investments calling out the unjustifiable level of private equity fees.

Private Equity Firms Start ‘Fessing Up to Cheating

The Wall Street Journal describes how some private equity firms are attempting to clean up their act by admitting to dubious practices in revised regulatory filings with the SEC.

There’s a wee problem with this approach. Securities law is not like the Catholic Church, where confession and a promise not to sin again buys you redemption.

Private Equity Titan Blackstone Admits New Normal of Lousy Returns, Proposes Changes to Preserve Its Profits

Private equity continues to make headlines, and not in a good way, despite industry efforts to spin otherwise. The latest shoe to drop is that private equity firms are trying to rewrite some well-established fund terms to allow them to continue to rake in egregious profits even as the returns of most funds have underperformed the stock market.

Exposing More Super Secret Private Equity Limited Partnership Agreements

Private equity fund managers keep insisting that private equity limited partnership agreements need to remain confidential or their businesses will suffer irreparable harm. We’ve already shown that claim to be ludicrous.

We published a dozen of these supposedly sacrosanct documents at the end of May. They had been accidentally made public by the Pennsylvania Treasury, but no one seemed to have noticed. They included funds of major industry players such as KKR, TPG, and Cerberus. Yet miraculously, they sky has not fallen in on their businesses as a result of the release of this information. We have obtained ten more limited partnership agreements from a source authorized to receive them who is not bound by a confidentiality agreement. These include limited partnership agreements from Blackstone, Oak Hill, and New Mountain, as well as smaller players. You can see all these limited partnership agreements here.

Private Equity Now Looking to Even Bigger Chumps, Namely 401 (k)s and Retail

One of the reasons that private equity has managed to flourish is that its biggest investor group is what is traditionally referred to as dumb money: public pension funds, which account for 25% of industry assets. Readers may recall that even CalPERS, widely considered to be the savviest public pension fund, recently had a public board meeting where the questions asked of prospective gatekeepers, the pension fund consultants, were, with one exception, softballs. And that question was the only one to address the SEC’s revelation that private equity firms have been engaging in large scale fee-skimming and other forms of grifting. And remember, the SEC also stated that the investors in these funds, known in industry nomenclature as limited partners, have done a crappy job of negotiating their agreements.

But in predictable fashion, as one group of marks, um, sales targets, starts to dry up, private equity funds, aka general partners, are hunting for new ones. And having gone very systematically after every conceivable large pot of money, the only place left for them to go is down market, in terms of size and sophistication.

State Street, Governor Elect Rauner Both Implicated in Pay-to-Play Scandals

The more rocks you turn over in public pension land, the more creepy crawlies you find. No wonder private equity has such a secrecy fetish. The most obvious, and most offensive to the public, are so-called pay-to-play scandals, in which public officials who are in a position to influence how funds are invested, take campaign funding from individuals or firms who are currently managing government funds or in short order get a mandate.

SEC Commissioners Kara Stein, Luis Aguilar Hit Bank of America Where it Hurts, in a Revenue Stream

SEC Commissioners Kara Stein and Luis Aguilar have found a weapon that looks to have financial firms more worried than being whacked with one-time fines. They are threatening to hit Bank of America in an ongoing revenue stream.

By way of background, Kara Stein, who joined the SEC in last August, has gone to war with SEC chairman Mary Jo White over lax enforcement and other types of overly-financial-firm-friendly conduct. It’s virtually unheard of for a commissioner to cross swords with a chairman from the same party.

Stein and her fellow Democratic party commissioner Luis Aguilar have joined forces to stymie a Bank of America settlement they saw as too generous by virtue of waving certain sanctions that would otherwise automatically kick in.

Private Equity Kingpin KKR Threatens Iowa Pension Fund Over FOIA Request

A new story on private equity secrecy by Mark Maremont at the Wall Street Journal started out with a bombshell, that of private equity industry kingpin KKR muscling a public pension fund to deny information requests about its practices:

More Private Equity Fibbing: Marketing Materials Often Exaggerate Returns

I’m a little slow to write this up because private equity abuses are so pervasive as to fall in the “dog bites man” category. But that doesn’t mean that the public at large, or worse, intellectually captured, credulous investors understand that.

One of the latest abuses to come to light is private equity firms effectively lying about their returns in past funds when dialing for dollars for prospective funds. The overview from Reuters, which broke the story last week: