That genre of business getting kudos is a sham. Take a perfectly fine business operating at a profit, promise a higher profit margin, do a leveraged buyout. Load it with debt, pay back your own investment through management fees and dividends, sell. One variation is to engineer a bankruptcy, thereby assuring the labor contracts and the pensions of the employees are negated. Pensions are dumped into PBGC [taxpayers], restructure and sell.
Private equity only enriches the private equity partners. Analysis-of-Private-Equity-Business Look at who is tauting the benefits of PE model. Outside of finance the same tactic would be arson. Burn down the business to claim insurance [PBGC is insurance, same as FDIC]. The premiums of PBGC are not high enough, and bankruptcy courts don't pursue the fraudulent conveyance nature of PE bankruptcies enough. The courts are packed now with the progeny of the Powell doctrine.
Michael Gross, a founding partner of the private equity firm Apollo Management LP who is now at a hedge fund, recently asked a group of business students at Northwestern University this question: In three years’ time, what might the private equity and airline industries have in common? His answer: From day one, neither will have ever made a return for its investors.
It’s hard to imagine another industry that has suffered quite the unmasking that private equity has. Hedge funds underwent a calamity, but their basic business of buying and selling stock still works in a leaner world. The business of providing investment advice and making trades—the meat and potatoes of investment banking—will exist even if no independent investment bank does.
But private equity firms are another matter. Once, they purported to be in the business of buying troubled companies and turning them around. They contended that they could manage the companies better away from the public glare of shareholders. That pretense was dropped during the boom earlier this decade. When private equity shops took over companies like the Texas utility TXU Corp. or the casino operator Harrah’s Entertainment Inc., which was bought by Apollo, it was clear that these were thriving enterprises, not troubled at all. The private equity firms were simply engaged in “financial engineering,” a then-admiring euphemism for a simple conceit: loading up fine companies with massive amounts of debt in the hopes of flipping them to new owners at some point down the road.
"Oh we're investing teachers' and firefighters' pensions". If the teachers and firefighters knew what was being done with their pensions, I think they would reject that investment. They could do so, still.