The Private Equity Illusion
PE firms routinely suck companies dry for the benefits of the rich and powerful
Blackstone CEO Steve Schwarzman made almost a billion dollars last year. In 2022, he made even more than that. To consistently make this kind of money, he must be producing something of great value right? Not really.
A lot of my work clients (institutional investors) invest significant sums of money in private equity (PE). So I spend a decent amount of time talking with them about the risk and opportunities inherent in the space. A previous firm I worked at was also acquired by a PE firm, so I saw firsthand the leverage, cost cutting, and profiteering that happens afterwards with little regard for the needs of the people doing the actual work.
How PE firms really make money
PE firms make money by taking public companies private. Theoretically, they then improve these companies by making them more efficient and productive, ultimately reaping their just rewards for these improvements when they either take the company public again or sell it to the highest bidder.
In reality, PE firms target cash-rich companies with little debt because these companies have a high capacity to borrow. This borrowing capacity is then used to finance a big portion of…
