
This Is Your Life, Brought to You by Private Equity - tysone
http://www.nytimes.com/interactive/2016/08/02/business/dealbook/this-is-your-life-private-equity.html
======
roymurdock
Interesting way to present information. Very poor framing and discussion of
the issue that lacks data or statistics of any sort, even top-line numbers to
provide any context for how large the PE industry really is.

Utmost importance even for a casual reader to get a sense of the relative size
of the industry under discussion and how well PE-managed firms perform on
average, not just a few cherry-picked examples that cast the PE industry in a
slightly negative light, kind of dancing around the issue without making any
argument head on.

50 largest PE firms manage $1.5t in assets. Total global equity market is
$48.6t (from Dimensional's 2015 Matrix Book). Total market value of world's
financial assets is probably >$200t (including land, commodities, currency,
etc.).

Here is some data for those who are interested:

[http://www.pionline.com/article/20150406/PRINT/304069998/big...](http://www.pionline.com/article/20150406/PRINT/304069998/big-
private-equity-managers-ruling-the-roost)

~~~
chmaynard
> Interesting way to present information.

The NYT manages to foul up the Safari browser's Reader View again. This is
getting tedious.

~~~
the_watcher
It's an infographic. It won't look good on a Kindle, either. Reader view isn't
meant for every single URL in the world.

~~~
gojomo
Since the graphics just provide abstract depictions, with no 'info' in them,
it's overly generous to call them 'infographics'.

They seem mainly a way to make the otherwise vague, elementary-school-level
writing more visually-interesting.

------
stuffedBelly
This piece reads more like it's trying to rekindle hatred towards Wall Street
than educating people what private equity is and how it works. If it's
supposed to be investigative journalism then it certainly failed. Maybe try
starting with improving accuracy of the terms by not using "private equity"
and "Wall Street" interchangeably?

~~~
alphonse23
As soon as I read the article too I wanted to check if the NYT is owned by
private equity. According to wikipedia, it's both part publicly traded on the
NYSE and privately owned:
[https://en.wikipedia.org/wiki/The_New_York_Times_Company](https://en.wikipedia.org/wiki/The_New_York_Times_Company).
I wouldn't know where to find out how much of the company is privately owned
and publicly traded, though. But spot on, it's a publicity piece (and you've
played your part by clicking). But I think most would see that by the
presentation. Was still entertaining though.

~~~
jeffreyrogers
Being privately owned isn't the same thing as being owned by private equity.
And looking at the NYT it has Class A and Class B shares, where only the Class
B shares are privately owned. The usual reason for dividing the shares into
different classes is to give the owners of one class rights that the other
class doesn't have. I'm not sure what, if any, differences there are between
the NYT's Class A and Class B shares.

~~~
alphonse23
I'll admit, I don't know what the specific legal definition of private equity
is. According to wikipedia:
[https://en.wikipedia.org/wiki/Private_equity](https://en.wikipedia.org/wiki/Private_equity)
"In finance, private equity is an asset class consisting of equity securities
and debt in operating companies that are not publicly traded on a stock
exchange." There are probably more legal specifics that would further divide
private equity from just anything that's not publicly traded. But, you're on
the right track, if in fact the private Class B shares override the rights of
Class A shares (significantly), then the NYT's could be seen as just another
shady entity in our lives that's controlled by private equity, as the link
tries to illuminate.

~~~
rcar
The article is using the term "private equity" to refer to private equity
firms, so the more relevant wiki article is
[https://en.wikipedia.org/wiki/Private_equity_firm](https://en.wikipedia.org/wiki/Private_equity_firm)

------
ThePhysicist
Paris outsourced its water supply to a private company (Suez) a while back,
only to witness exactly what the article describes: Rising prices and sinking
quality. The city finally decided to take the water supply back into its own
hands and did not renew a 20 year lease to Suez, creating its own water supply
company instead, "Eau de Paris". Already in the first year of its operation,
the city was able to decrease water prices by 8 %.

Here's a short article in English:

[http://www.futurepolicy.org/food-and-
water/remunicipalisatio...](http://www.futurepolicy.org/food-and-
water/remunicipalisation-of-water-services-paris/)

Wikipedia article about water privatization in France:

[https://en.wikipedia.org/wiki/Water_privatization_in_France](https://en.wikipedia.org/wiki/Water_privatization_in_France)

~~~
rayiner
If an industry really is a natural monopoly (water probably is), the best
structure is probably a regulated private monopoly. The problem is that if
you're privatizing a function because you're incompetent at administration
(which is usually the case), you're probably not going to be good at
regulating either.

~~~
tomp
I another very good idea is to have multiple private suppliers, along with
publicly owned (but potentially privately managed) infrastructure. At least
that's how electricity works in the EU.

------
mfairbank
As a counter-point to the idea that private equity buyouts harm consumers,
here is a recent paper documenting the impact of PE transactions in the
restaurant industry. [0]

Key bits from the abstract:

"Analysis of health inspections conducted for over 50,000 stores in Florida
shows that food safety and sanitation improve after private equity takeover,
especially in areas related to food handling, kitchen maintenance and consumer
advising."

"Restaurants also reduce employee headcount and lower menu prices. This
evidence suggests private equity firms are not simply financial engineers but
rather active operators that improve management practices in the firm.
Moreover, efficiency gains do not come at the expense of product quality."

Unfortunately this does not address the main thrust of the New York Times
piece, which focused more on natural monopoly sectors such as water, public
transit, and emergency response. It does make intuitive sense that private
firms would have less of an incentive to improve operations when buying a
monopolistic entity that comes with significant pricing power already baked
in. Hopefully good research on these is out there or in the pipeline, as it
seems like an in-demand and under-served area of academic inquiry.

Disclosure: I worked briefly as an undergrad for one of the paper's authors,
on a distinct but similar project.

0:
[http://people.hbs.edu/asheen/BernsteinSheen_Restaurants_June...](http://people.hbs.edu/asheen/BernsteinSheen_Restaurants_June23.pdf)

~~~
Noseshine
Is there any reason an experience from "restaurants" is meaningful in the
context of what the article is about? At the very least I see not even an
effort from you, as if it's all the same. It seems to me that those are
entirely different categories. For example, the restaurant business is highly
competitive, people can easily go elsewhere.

Regarding the article though, I wonder what the purpose of spending 99% of the
budget for the article on visuals rather than the actual article was. That's a
really lame piece of pseudo-"journalism". It provides a very weak argument (if
any), which is unfortunate given the importance of the topic.

~~~
screature2
I thought the restaurants example demonstrating that PE firms could have a
positive impact on a business was actually a good counterpoint to specific
points where the article was stating or implying that PE was bad (e.g. that
911 results could be slow and you'd be stuck with a bill, paramedic response
times got worse under PE)

Your point about restaurant businesses being a different category seems to be
engaging only on the point of PE owned businesses are ubiquitous not on sub-
text that PE turnarouds could be bad.

~~~
Noseshine
I don't understand your reply. If the businesses are in a completely different
realm, how is it of any use to know that it works fine for _restaurants_? How
can that possibly serve as an argument for completely different businesses
(when it's not even clear they should be businesses, but no need to argue
about that). Where is the argument "something like this works in a completely
different context" a valid argument?

~~~
1anh2kqowg
The article describes how PE works badly in a limited set on industries
(monopolies), but uses expansive language and doesn't properly caveat it's
argument that PE is bad in general. Parent uses restaurants as an example of a
more ordinary competitive business, where academic research exists that shows
the benefits of PE.

~~~
Noseshine
Your reply doesn't address any of the points of _my_ reply. Once more: _Why_
would it be relevant at all that something works for restaurants, a completely
different environment? Mentioning restaurants does _not_ work to refute the
article's points.

Yes the article is horrible. It's not even an article. But that does not mean
you can now go ahead and use _anything_ to refute it. That's illogical. You
have to use _good_ logic even when trying to refute something bad.

~~~
1anh2kqowg
The examples in the article are atypical because they are monopolies.
Restaurants are typical because they are not monopolies. Academic research
about a typical case is high-quality evidence.

------
Noughmad
Once you get through the horrible way of presenting information that goes far
beyond of [https://xkcd.com/1273/](https://xkcd.com/1273/), there isn't much
to the message. Yes, in a country whose citizens distrust the government and
firmly believe in the invisible hand, products and services are produced and
served by private firms rather than the government. Isn't this what you always
wanted?

~~~
ProAm
Except it's usually the government selling these projects to private firms, so
the tax payer gets the worst of both sides of the coin. There are some things
that are fundamentally necessary (e. g. roads and highways, water) that should
not be sold to private industry as for public interest vs profit should be
priority number 1.

~~~
rayiner
Profit serves an important function: it creates incentives to invest and
guides investment into areas where demand exists. Our public services in the
US are the subject of dramatic underinvestment and also malinvestment (I.e.
why your public bus stop every block instead of every 5, why there are three
guys standing around for every one guy doing road work). So clearly getting
profit out of the equation hasn't worked well.

------
dpeterson
So private companies with the monopoly of force the government has. Again, the
private part isn't the problem. It's the privilege government gives them
through exclusive deals to pick the electorate's pockets.

~~~
ChrisLTD
I wouldn’t be surprised to learn that a lot of these deals come from
constrained government budgets rather than corruption. The conservative
movement has been very effective at keeping taxes and government revenue low
since the 1980s.

~~~
yummyfajitas
This is simply not true. The conservative movement has utterly failed at
keeping taxes and revenue low.

[https://fred.stlouisfed.org/series/W006RC1A027NBEA](https://fred.stlouisfed.org/series/W006RC1A027NBEA)

[https://fred.stlouisfed.org/series/B245RC1Q027SBEA](https://fred.stlouisfed.org/series/B245RC1Q027SBEA)

[https://fred.stlouisfed.org/series/S210400](https://fred.stlouisfed.org/series/S210400)

[https://fred.stlouisfed.org/series/W070RU1Q027NBEA](https://fred.stlouisfed.org/series/W070RU1Q027NBEA)

If budgets are constrained, it's because spending has simply risen faster than
tax revenue.

~~~
rigoleto
tax revenue as a percentage of GDP has been stable since WWII -
[http://www.taxpolicycenter.org/statistics/source-revenue-
sha...](http://www.taxpolicycenter.org/statistics/source-revenue-share-gdp)

------
rbcgerard
What types of public services (and their quality) are bing provided by private
firms vs governments and municipalities is a very relevant conversation, and
one we should be having.

However, conflating private equity with wall st., and making a distinction
between how firms under private equity ownership behave vs. public equity or
closely held (no financial sponsor) seems pointless other than to further some
other purpose (which i won't speculate about)

~~~
LA_Banker
>However, conflating private equity with wall st., and making a distinction
between how firms under private equity ownership behave vs. public equity or
closely held (no financial sponsor) seems pointless other than to further some
other purpose (which i won't speculate about).

Agreed, and I say this as someone who's generally a fan of the New York Times'
journalism. Here they simply seem to be trotting out the "look, it's Wall
Street!" trope without offering deeper analysis (at least in this piece).
Which is a shame because there are industries where private equity has a
laudable record and others where the record is rather checkered.

And this notion, of course, oversimplifies "private equity" into one
monolithic actor. As though a competent private equity firm which seeks to
maximize value through improving quality wouldn't operate a company
differently from one which seeks to extract value solely through levered
financial engineering.

The scrolling art is nice though.

------
rayiner
The article presents horrible examples. Transportation and water are two
sectors ripe for disruption by the private sector. Governments around the
country are polluting rivers and poisoning children with lead because they
refuse to raise water rates on grandma to upgrade their infrastructure. And
here in DC, the Metro literally keeps catching on fire. We have a multi-
trillion infrastructure spending backlog in these sectors because government
operation has been such a disaster.

------
rdtsc
Also it is important to realize that a lot of private entities like have money
for lobbyists and they use them very well. For example, they might "bribe" an
official in charge of budget to cut the budget for schools in a certain area,
if the PE happens to own and manage charter schools.

School doesn't have money, is struggling. PE lobby firm issues a few press
releases pointing out what a failure public schools are. Then another press
release about how there is a way out -- go to their schools, and so on.

Or if they happen to lease land and run an tolled expressway, they might lobby
local government against expanding or improving local roads, because it means
a but in the profits for them, and so on.

The cheapest and most effective way to profits is to often to do just that --
lobbying and regulatory capture. That is what's scary with privatizing
everything.

------
jbhatab
I only see this being a problem if there are no free market forces being
allowed. One of the examples was that 'some' of the private equity ambulances
and fire trucks arrive late. As long as a better one comes in and replaces
them, then what's wrong with that?

I have a lot more faith in a greedy money driven investor and company to
delivery on the end product than the government. At least they will do
everything possible to maximize profits. If they get contracts and have a
complete monopoly with no free market though, then this is an issue.

~~~
nostrademons
Do you actually have a choice which ambulance and fire truck you get when you
dial 911?

Markets only work in the presence of consumer choice, agency, and evaluation.
If there are no consequences for bad service, you will continue to get bad
service. Similarly, if the consequences for bad service fall on people who do
not have a say in which service is chosen, you will still get bad service.

------
Cshelton
So much mis-information... I don't know where to begin.

And why did they have to go on and call out named PE groups...(Fortress). What
does that achieve NYT?

What is the goal of this in the first place...? If we want to educate people
on what PE really does, let's talk. But this is clearly just targeting the
masses with a one sided viewpoint to try and get them to associate 2008 again
and raise their pitchforks back up. Accomplishes nothing.

------
daveloyall
This conversation is a little off the rails, in my opinion.

Colors of money, market forces, the political alignment of the NYT... None of
these are the most interesting part.

The government(s) exists to serve the people, right? To provide safety,
predictability in the environment, in our lives. We exchange a little liberty
for those benefits and indeed pay taxes, too.

Corporations exist to make money. And to protect their owners from liability,
I guess? I'm no expert on why corporations exist, and I certainly can't tell
you why they should exist.

This animated series of tweets from the NYT (it's hardly an article!) tells us
that corporations, specifically a subset known as "private equity", now own
things that the average person does not expect them to own.

For me, the takeaway is: The number of things NOT owned by corporations is
decreasing and traditional resistance (by the governments and individuals) is
failing or has failed.

------
daveloyall
Hm. I have seen the phrase "private equity" a lot of times.

I thought it meant "money that belongs to companies".

But after skimming through
[https://en.wikipedia.org/wiki/Private_equity](https://en.wikipedia.org/wiki/Private_equity)
for ten seconds, I realize that I have no idea what "private equity" is.

This is embarrassing, but experience has taught me that I have to push through
these situations, where I suddenly realize that my ignorance on some topic is
truly profound...

I thought all companies above a certain size were publicly traded. ...Wait, do
I have some incorrect definition of publicly traded?

It means there is stock in the company for sale, right? What percentage (by
count) of companies are publicly traded? By volume?

If a large company isn't publicly traded, does that make it a private equity
company?

~~~
bllguo
> I thought all companies above a certain size were publicly traded. ...Wait,
> do I have some incorrect definition of publicly traded?

Size doesn't really matter. I suppose you could say size and public status are
correlated. Companies who are publicly traded have gone through an IPO and
their shares are available for purchase at stock exchanges.

For instance Uber is large but not publicly traded.

If a large company isn't publicly traded it is a private company. I don't
think "private equity company" is a term in wide use, but a private company
has private equity that is available for VC and private equity firms to invest
in.

As a HN user you may be familiar with how VCs work? VC can be thought of as a
subsection of the PE industry.

~~~
daveloyall
> a private company has private equity

So a VC, an investor... can buy a share of the private company?

And then as the value of the private company grows, so does the value of the
VC's share?

If there isn't a public market for such shares, then how does the VC sell the
share?

~~~
frankydp
Usually in a liquidity event. IPO or sale of the company.

~~~
mbesto
Yup. Or more generally known as M&A which could be a buyout (LBO from a PE
firm), bigger company acquisition, merger, IPO, or selling shares to another
investor.

------
jgalt212
Private Equity was bar none the biggest winner in the financial crisis. They
got to buy all sorts of assets super cheap, fund those purchases at interest
rates not seen in many years, skirt Reg T[1], and a dodge taxes via the
carried interest tax loophole.

What's not to love about them. Oh, and let's forget they often secretly double
dip on fees. i.e charge their LP's management fees, and their portfolio
companies advisory fees (which are often not disclosed to their LPs).

Despite all this hating, I'd sooner invest in a PE fund then HF or VC.

[1] regular investors can only lever 2:1 in equities, but PE often leverages
10:1 or more.

------
timwaagh
I don't think private equity is really to blame. As the government cannot
afford to provide services anymore it outsources them. The tax rate stays the
same, of course. Governments are getting ever more inefficient at what they
do, leading to ever more austerity measures. how to break this spiral i do not
know. making a government more efficient is not something that's usually
discussed but it is becoming ever more obvious money is leaking at an
accelerating pace.

~~~
afsina
Trying to make a Government efficient is a fools errand.

~~~
ionised
As is trying to make a hedge fund, private equity fund or publicly traded
company soicially responsible.

------
anonbanker
While this is biased towards the NYT narrative (the last third of the article
is their opinion on the situation), the key is to look up what the legal
definition of Equity[0]. Start your own private equity firm. Or go one step
further: incorporate in Delaware, Indiana, or Nevada (or Better yet, Bermuda,
Nevis, or Antigua), and start generating some real income in the game.

0\. [http://legal-dictionary.thefreedictionary.com/Equity](http://legal-
dictionary.thefreedictionary.com/Equity)

~~~
LA_Banker
One doesn't exactly "start [their] own private equity firm." Tens of (more
often: hundreds of) millions of dollars must be raised and even then, they
must bid (or acquire by other means) on companies.

Anyone with a net worth above $1mm can become a venture capitalist, given that
VCs deal with earlier stage companies which, as a result of their youth, are
happy to take small checks for minority investments.

Private equity, because it deals with mature companies and (more often than
not) involves controlling stakes, requires very, very large checks. And
because investors don't like an undiversified portfolio, the PE firm must have
the means to write many very, very large checks.

This isn't an undertaking that just anyone can do. Of course, if someone has
the means to raise hundreds of millions of dollars, has a nose for investing,
is experienced in both buy-side mergers & acquisitions as well as the
operations of a company in a given domain, then co-sign your advice.

Though index funds or an advisor would be much less risky for someone with
those means.

~~~
anonbanker
oh come on, Don't pretend it's hard to do; you can start a private equity firm
to own your house and car. Sure, it won't have the same muscle as the larger
ones, but it isn't impossible. just draft the documents, and agree to
underwrite (or get a corporation to underwrite!).

~~~
LA_Banker
An LBO of a home is called "getting a mortgage." And yet, one's car or home
isn't exactly a share-issuing company. You can form a company to own it – but
that's not private equity.

Are you familiar with what "private equity" is? Note that "private equity" is
distinct from "private" "equity."

~~~
anonbanker
One's car or home isn't _normally_ owned by a share-issuing company. are you
saying it can't be owned by one? Pretty sure there's a well-known Mayer
Amschel Rothschild quote about owning vs. controlling.

Private equity is an asset class. equity securities and debt (such as, oh,
unpaid medical bills, and the right to collect on them) can be purchased as
well as corporations/corporate debt.

Are you sure you understand what I'm saying?

~~~
smallnamespace
First off, no bank will underwrite your mortgage for your house if you will
own it under a corporate name. It's just too unusual for the bank to think
about, and also they lose the ability to place a lien against you personally.

Second, what exactly do you accomplish by doing this, except paying a bunch of
money in incorporation fees and drafting documents?

There's a reason why corporate shell games are usually played by people with
relatively deep pockets: all the benefits that come from using corporate law
require lawyers and accountants, and those are expensive.

------
james-watson
From Wikipedia:

"Bloomberg Businessweek has called private equity a rebranding of leveraged-
buyout firms after the 1980s. Common investment strategies in private equity
include: leveraged buyouts, venture capital, growth capital, distressed
investments and mezzanine capital."

So this is just a continuation of the Gordon Gekko LBO firms, made possible by
the deregulation of Wall St that occurred around that time.

No surprise here. The Wall St genie is out of the bottle, and it will continue
to wreak havoc until we have another Great Depression.

------
anonu
Isn't this the by-product of the neoliberal mindset we have been promoting in
the United States for at least a century now? This isn't a surprise to me and
I suspect the article's real intention goes beyond conveying how PE firms
actually work - and simply demonizing Wall Street - an industry that comprises
a substantial percentage of our workforce.

~~~
orthoganol
I have no issue with keeping the public up-to-date on what high finance is
doing, even if biased towards mistrust. They tanked the economy in 2008 and
hurt everyone. I would go as far to say, we should be mistrustful.

------
trequartista
Does anyone have a few examples of the claims being made here? Like what
utilities and services are being owned/managed by PE firms?

~~~
callmeed
Probably some of these:

[https://en.wikipedia.org/wiki/Investor-
owned_utility](https://en.wikipedia.org/wiki/Investor-owned_utility)

------
adgulacti
not much of an "article", rather "hey look, we can do this stuff with your
browser" effort with financial factoids sprinkled all over.

------
jjawssd
A bunch of fear-mongering. Little substance.

------
dredmorbius
Another spectacular example of how to put your medium entirely in the way of
conveying your message.

Stripped of cruft, and I'm writing as someone sympathetic to the message,
there's not much there there:

<q>

This Is Your Life, Brought to You by Private Equity

Since the financial crisis, the private equity industry has become hugely
influential. Here’s how it plays out in your daily life.

By JENNIFER DANIEL, JOSH WILLIAMS, BEN PROTESS and DANIELLE IVORY |

A few years ago, that glass of water might have come from your local
government. Today, it could be courtesy of a private equity firm. It may taste
the same, but there’s a good chance your bill has gone up.

Private equity firms are essentially savvy bargain hunters. They make money by
buying up businesses they consider to be underperforming, looking to maximize
profits and eventually sell them off.

These investors have lots of money at their disposal, mainly from rich
individuals and pension funds. They also face fewer regulations than banks.
Since the 2008 financial crisis, they’ve expanded their horizons and begun
shopping for bargains in new places.

Their reach is probably all around you, from the clock on your wall to the
toilet paper in your bathroom. And now, private equity firms are increasingly
taking over services usually reserved for the government.

Let’s say that, like most Americans, you drive to work.

These roads, bridges and highways are increasingly maintained by Wall Street
investors. They either own the road, or manage it on the government’s behalf.

When you get to the office, Wall Street firms can also be found in your
parking garage, where they collect your cash.

Even if you don’t drive to work, private equity can follow you onto trains,
too.

Some towns without stops complain that they will get the annoyances of train
traffic, including noise and delays, without the economic benefits of having a
station. Fortress, for its part, says its project is creating jobs and taking
cars off the road.

Private equity also helps oversee public golf courses in several states …

… it builds courthouses …

… it invests in private schools down the street …

… and in the local newspaper. New Media Investment Group, which operates in 31
states, is associated with Fortress, the firm building the train in Florida.

Now that you’ve made it to work, you might be sitting inside a building
controlled by Blackstone, a huge private equity firm and one of the largest
landlords in the country.

Private equity can follow you back home when you pay your monthly mortgage.
After the 2008 housing crisis, private equity firms expanded dramatically into
the mortgage business, as the nation’s banks struggled.

So, welcome home. It’s dinner time.

You might think that you paid for your fire department with your taxes. But
yours happens to be run by a private-equity-owned company, and you’ll likely
receive a bill for their services ...

… even if they show up late.

The paramedics who treat you for smoke inhalation might show up late, too.
Response times for some ambulance companies under private-equity control have
worsened.

So, relax, drink a glass of water and go to bed. Sweet dreams, tomorrow will
be a new day with private equity.

</q>

------
Kinnard
The New York Times has made great strides with interactive storytelling.

~~~
tostitos1979
Not sure if you are being sarcastic or not. I liked it!

It dumbs things down for sure and the graphics are very cartoony. The message
hits spot on. I see this in the Bay area and in other places with well-paying
jobs. The PE firms jumped to scoop up real-estate after the 2008 crisis. In
the cases I saw, they upgraded 1500-2000 a month apartments to 3200-3600 a
month fancy apartments (this is an example from Mountain View btw). The
economist inside me says PE firms helped stabilize the economy and are
bringing efficiency but the lil voice inside me says they are the scum of the
earth and the reason I'll NEVER be able to afford a house and always be hand-
to-mouth. As a rah-rah believer in capitalism, PE firms have changed my view
and made me realize of the dangers of uncontrolled pursuit of wealth and
profit.

</end-rant>

~~~
Kinnard
I doubt they could do what they're doing without a supportive state, there's a
lot more than "market dynamics" at play here.

Are you an engineer?

------
nullcipher
White text is really hard to read.

~~~
ChrisLTD
Agreed. I'm surprised they didn't put a darker background behind the text.
Otherwise it was an interesting piece.

