Treat Private Equity as normal Companies

The surge in "pass-the-parcel" deals among private equity firms illustrates that a large portion of any profits created by their activity ends up in the shape of fees in the pockets of promoters, insiders or (accounting, tax, legal and banking) advisers. The claim to be primarily driven by the desire to build businesses for the long-term is negated by the urge to crystallise fees. More often than not these fees are more the result of lucky timing. Hapless private shareholders have been induced to sell their holdings to private equity businesses at the wrong time, i.e. too cheaply. Weak takeover regulations make it very difficult for institutions and retail investors alike to keep their eye on the long-term and as a consequence usually end up the losing side when facing a deadly combination of a determined bidder - often in cahoots with incumbent management that is promised lucrative employment after the takeover is completed. To add insult to injury the same investors are later privileged to buy the same assets from the speculative funds at a higher price. Does anybody wonder why the returns from equity investment have been so mediocre in the past 10 years? If anyone would try to drive a nail through the heart of shareholder democracy he could not do much better than the private equity oligarchs and their acolytes in government, academia and the media. 'Let them eat cake' Marie Antoinette famously remarked. Little did she know about the million dollar parties that private equity moguls hold at the great unwashed public's expense.
30/12/2010