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The War on Private Equity
 

anaxi's picture
(Orangutan, 318
 
Points)
 on 6/6/12 at 3:00pm
obamape

The book “Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong” by Edward Conrad has created a shit storm in its wake as it seeks to defend the 1% and makes the argument that inequality benefits modern society. The book's main argument is that the rich provide capital and take risks which generally helps society innovate and create jobs.

While the book is not directly associated with any of the presidential campaigns, it has been at the forefront of the war on finance and private equity. It seems to me that it has become very trendy for people to trash private equity while having just learned about what it was a couple months ago.

The book has been brutally attacked by the New York Times and the like. Ed Conner, the author, is best known for his time as a managing director at Bain Capital where he worked with Mitt Romney and the book itself has become synonymous with the evils of private equity and its grip on the balls of American capitalism.

Do you guys feel like the anti-private equity sentiment will stick with the general public? Or are these recent headlines and arguments in the press merely a temporary short term trend which spiraled out of a slow point in the election campaign? If public sentiment really turns against private equity as it has against investment bankers, what effects (if any) would it have on how you relate to your job and how you bring up what you do to others?

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Comments

trailmix8's picture

Bill Clinton, who I like more

AM
 
Points)
 on 6/6/12 at 2:54pm

Bill Clinton, who I like more and more, talked last week about how the Obama admin is not correct in trashing the PE industry and Romney's Bain experience.

http://slatest.slate.com/posts/2012/06/01/bill_cli...
mitt_romney_s_business_record_.html

AstonMartin's picture

I don't think the backlash

ST
 
Points)
 on 6/6/12 at 2:55pm

I don't think the backlash against finance/wall st/PE is temporary at all

21 Lives's picture

This book surely isn't

(Orangutan, 266
 
Points)
 on 6/6/12 at 2:57pm

This book surely isn't helping the case for PE.

I agree with a lot of what he said, such as, there needs to be an incentive (appropriate rewards) for taking risk. I also disagree with a lot of what he said, such as, bank bailouts being good and every financial product being beneficial (AAA rated sub-prime MBS were beneficial to only the ratings agencies and the sellers not to the buyers or the economy). The problem is that he comes across as in-your-face,"i'm rich because I took risks, you didn't take risks so that's your fault." Judging by the comments on that article, this book made things worse.

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Nabooru's picture

My head is spinning with so

(Gorilla, 689
 
Points)
 on 6/6/12 at 3:02pm

My head is spinning with so many sarcastic responses against this BS sentimentality that I can't think of a cohesive response at the moment. I hope I'm not the only one who thinks this, but there's a zeitgeist of liberality floating about in that it's just "cool" to be liberal. So, if you're not politically inclined, you're de facto liberal. The consequence is that the average person will fall to the group and not think with their fucking head. "Someone says PE is bad? Well it must be bad then!" I'm in finance because I like finance. I couldn't give a flying fuck what people think of my job. If someone I knew judged me solely for being in finance, I would laugh so hard I'd probably end up spitting in their face, then tell them to stop being a zombie and actually use their brains instead of eating them.

/end rant

Although I do have to add that certain practices such as what melvvvar mentioned below are questionable, branding the entire thing as bad is just retarded.

Who are you going to believe, me or your lying eyes?

melvvvar's picture

it would be more fair to

(King Kong, 1,693
 
Points)
 on 6/6/12 at 2:58pm

it would be more fair to attack specific PE practices, like scorched earth dividend recap deals that arb the credit quality of healthy firms for quick cash. but that would not intelligble to 99% of the electorate. it's easier to bash rich white guys.

AndyLouis's picture

melvvvar: it would be more

 
Points)
 on 6/6/12 at 3:19pm
melvvvar:

it would be more fair to attack specific PE practices, like scorched earth dividend recap deals that arb the credit quality of healthy firms for quick cash. but that would not intelligble to 99% of the electorate. it's easier to bash rich white guys.

.

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BTbanker's picture

AstonMartin: I don't think

IB
 
Points)
 on 6/6/12 at 3:30pm
AstonMartin:

I don't think the backlash against finance/wall st/PE is temporary at all

I definitely agree, but don't you think we should do something about it? Give those uneducated band wagoners an information session on why they are wrong. There should be a documentary or something called, "Why You Wouldn't Survive Without Wall Street."

"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan

WallStreetOasis.com's picture

melvvvar: it would be more

EN
(Human, 12,033
 
Points)
 on 6/6/12 at 3:39pm
melvvvar:

it would be more fair to attack specific PE practices, like scorched earth dividend recap deals that arb the credit quality of healthy firms for quick cash. but that would not intelligble to 99% of the electorate. it's easier to bash rich white guys.

but how frequent is this really in PE? Isn't this an extreme case that RARELY happens? And doesn't someone have to be on the other end of that trade? What bank is dumb enough to lend the $ to the portfolio company with no strings attached so PE firm can write a huge dividend check (and any PE firm that is in the business of "gutting" firms)?

It sounds like cherry picking the cases that "look" bad, but as a GP to lmited partners, their fiduciary duty is to the LPs, not to the company or the employees (who usually depend on pension funds that are being invested by these "evil PE firms")....

I just don't see it and feel like it's an easy target to point to the small % # of investments that went south after a dividened recap, instead of looking at the incredible returns some of these investments generated for the pension & endowment funds...let alone the thousands of jobs on net some of these investors have created by efficiently allocating capital and growing these businesses at rates that woudl (in many cases) not have been possible without the expertise and equity infusion.

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Johnny Ringo's picture

Plain and simple to why the

HF
 
Points)
 on 6/6/12 at 3:41pm

Plain and simple to why the Book is getting attention: The author. Ed Conrad worked at Bain Capital.

Who is the Bain Capital posterboy? Mitt Romney, Republican Candidate....

Is Anyone Surprise the times ripped this?

Eventus stultorum magister.

TheBigBambino's picture

anaxi: It seems to me that it

VC
(Orangutan, 269
 
Points)
 on 6/6/12 at 3:57pm
anaxi:

It seems to me that it has become very trendy for people to trash private equity while having just learned about what it was a couple months ago

I would argue 95% of the people who 'learned' about PE recently still don't have a clue what it is. This includes students, academics, media and mot people in general.

For example, hearing mainstream reporters say "Romney's time as a venture capitalist at Bain Capital..." just shows that the non-finance guys need to eat lunch with a few more of us before they should have the right to register their 'informed' opinion.

"If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."

UFOinsider's picture

Nabooru: if you're not

O
(Human, 10,300
 
Points)
 on 6/6/12 at 4:11pm
Nabooru:

if you're not politically inclined, you're de facto liberal

You're sure about that? The only reason I worked with the liberals is because the last president was a fucking dunce.

Romney would do well to elevator pitch his way out of the defensive and onto pitching himself as a president. The fact that he's spending all his time defending himself on this one point while the president broadcasts his entire platform is working against him. "As a PE boss, I created many jobs despite what the anti-capitalism crowd says. I want those same benefits for the US public." BOOM DONE. Go on the offensive.

Is it true? I don't fucking know, that's just what I would do in position. He's getting out of a bind he shouldn't be in.

Fact is, he should have (1) seen this coming and (2) dealt with this a long time ago. He's a political amateur, and he should have staffed Karl Rove from day one. How is he going to fare in real time negotiations/conflict?

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

esbanker's picture

ask your common NYT reader to

PE
(Gorilla, 577
 
Points)
 on 6/6/12 at 4:09pm

ask your common NYT reader to define private equity or to name a private equity firm other than Bain Capital and they'll be stumped. unfortunately, many people believe private equity is synonymous with the "corporate raiders" from the 80s. looking at private equity's historical track record, it's easy to debunk the theory that PE firms simply cut headcount (on balance, the number of employees stays roughly the same after 3 years), and in general, PE firms do a relatively good job at making portfolio companies more efficient and productive. even though the tax regime has allowed private equity firms - in particular leveraged buyout firms - to outperform the market, providers of capital would have stopped pouring funds long ago in PE if those firms were not actually creating value. in my opinion, that's just how the market rolls.

Capitalist

Nabooru's picture

UFOinsider: Nabooru: if

(Gorilla, 689
 
Points)
 on 6/6/12 at 4:18pm
UFOinsider:
Nabooru:

if you're not politically inclined, you're de facto liberal

You're sure about that? The only reason I worked with the liberals is because the last president was a fucking dunce.

Just as an example, if you're an average college student with no political leanings, which way would you end up swaying? If everyone around you is touting the liberal horn and somehow it's "cool", chances are you're going to be that way too. I see it in college, community...

Who are you going to believe, me or your lying eyes?

Do what I gotta do's picture

I read an article regarding

(Monkey, 53
 
Points)
 on 6/6/12 at 4:19pm

I read an article regarding this from Term Sheet the other day that said people will gradually - and are starting to - understand better what the fuck PE firms actually do thanks to consistent efforts from PE council and etc, and this Romney and Bain shit show will eventually dissipate.

I wouldn't say 99% of Americans are so fucking stupid that they won't get the point until the end just because of their resentment against the rich.

Though some, blinded by their pointless hatred against the Wall Street, would be stuck with this sentimentality, I think it won't stick to the "general" public down the road (at least not to the majority of the public).

And, now that they know the public is wary of their 'evil' activities, wouldn't this shit show make even "evil" PE shops more geared towards making an actual improvement on portfolio comps, instead of utilizing leverage for their own benefits such as dividends or management fees for GP?

Spalding Get Your Foot Off the Boat's picture

The difference between Conard

 
Points)
 on 6/6/12 at 4:23pm

The difference between Conard and 99.99% of people who criticizes PE is that he has legitimate intellectual honesty. Watch this video and listen to him soundly squash the liberal pundits and their shallow analysis as they regurgigate baseless data they probably read in the NYT

http://www.youtube.com/watch?v=45WX6rJowi0&feature...

UFOinsider's picture

Nabooru: UFOinsider: Nabo

O
(Human, 10,300
 
Points)
 on 6/6/12 at 4:36pm

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

jsarbitrage's picture

I also think much of the

(Chimp, 6
 
Points)
 on 6/6/12 at 5:24pm
Khansian's picture

trailmix8: Bill Clinton, who

O
 
Points)
 on 6/6/12 at 5:25pm
Spalding Get Your Foot Off the Boat's picture

@ Khansian - would you say

 
Points)
 on 6/6/12 at 5:48pm
West Coast rainmaker's picture

This isn't really surprising

ER
(Neanderthal, 2,071
 
Points)
 on 6/6/12 at 6:02pm
cphbravo96's picture

Spalding Get Your Foot Off

PE
 
Points)
 on 6/6/12 at 6:19pm

"The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so."
- Ronald Reagan

entertainmentquant's picture

nice read regarding the

AM
(Chimp, 14
 
Points)
 on 6/6/12 at 8:49pm
TraderDaily's picture

Most people fail to see that

(King Kong, 1,045
 
Points)
 on 6/6/12 at 11:22pm
melvvvar's picture

has cory booker been sent to

(King Kong, 1,693
 
Points)
 on 6/6/12 at 11:25pm
Spalding Get Your Foot Off the Boat's picture

it's probably impossible to

 
Points)
 on 6/6/12 at 11:34pm
Hooked on LEAPS's picture

melvvvar: it would be more

ER
 
Points)
 on 6/11/12 at 10:14pm

You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist. - Friedrich Nietzsche

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