I'm thrilled to see this video resonate with so many of you. Let me share a bit about myself: 👨💼 I'm a lawyer who discovered a passion for using videos to explain things I think people should know. If you think I should keep doing this, consider supporting me on Patreon at www.patreon.com/themarketexit Obviously, there are nuances to private equity that I couldn't cover in this relatively short video. While I stand by everything I say in this video, I do agree with (and have learned from) some of the points that have been raised in the comments. I read all the comments, and I appreciate them all, even if I haven't had time to respond to all of them, yet. I'm actually working on a potential long form film about private equity, if you become a Patreon supporter, you'll find more information. Lastly, if you enjoyed this video, you'll find a lot more - even better stuff - on my channel, so do please check that out. Thanks!
Spot on. I work for a company sold to PE. They followed the playbook of layoffs and gobbling up many other small companies in the biz. And the people that survived got rewarded with double the workload. The scum bag management tried to motivate the flock into thinking we were an upstart company, but in the end they sold us out to a bigger competitor. They of course raked it in via stock options and other rewards. If you get acquired by PE there will be tough times ahead for you
PE firms sometimes buy companies that they don't understand. I saw it happen when they bought translations firms in Japan. They thought everyone was replaceable, so they could fire everyone and hire cheaper staff. They didn't understand that the long term relationships between the customers and the translators was the reason for the success. Id ots.
@@monyafeek101 Yup, part of our "transformation" included offering older staff buyouts, earlier retirements. Though they later found out that oops, we actually need those folks since they possessed all the expertise. They had to offer these older ex employees big packages to bring them back as "consultants." Nice work.
@@monyafeek101PE sees everything as replaceable and as a machine or product that either can be sold for profit, replaced with something cheaper or just kicked out and someone else has to do their job on top
@@bobbobertson7568also related, management types worldwide have started systematically replacing their companies' workforces with cheaper incompetent counterparts (big tech being swarmed by clueless Indian people, being one example) then disasters happen as a result, said management types quit right before the occurrence so that none of the blame sticks to them, the incompetent replacements get the heat, then said management types offer to fix the ruins as consultants for a fat fee.
In the UK, in addition to the care homes and vet clinics mentioned below, we're seeing the same thing with utility companies, water companies, ferry companies, being bought by private equity, and pumped full of debt at the expense of investment. That's why we have such a problem with sewage pollution! it's completely wrong.
This is the product of Tory millionaires plundering the UK and getting paid by their friends to makes laws to help them plunder even more. Irony people vote for Tories to get plundered. It is like people vote for the pirates so the peoples ship can be plundered even more.
FYI - the earnings are called ‘carried interest’ so that partners can pay a much lower tax rate than they would if it were considered regular salary. It’s an insane loophole to benefit rich people.
this is just not true. carried interest is the bonus you earn from outperforming the hurdle rate set by your investors. This source of income is volatile and is not how the managers make their stable income.
@@SolomonTibbey you literally just called it ‘income’ hahaha - so they outperformed others and got rewarded, great that doesn’t mean it should be taxed in an entirely different category than a waiter’s tips or an athlete’s performance bonus. You start with saying ‘that’s just not true’ but don’t refute the substance of anything I said
@@YonatanAxel-e3f I wasn't clear. What I'm saying isn't true is that "its an insane loophole to benefit rich people." It SHOULD be taxed as a capital gain. Its volatile with the markets. You're out of your league here. "so they outperformed others." No buddy that's not what carried interest is. The managers do not get a single dollar if they don't beat a certain return benchmark. And since the probability of beating this benchmark is in line with the market, its treated as a capital gain. The investors are already taxed on the money used in these funds. So you want to tax them twice at the same intensity (irrespective of your opinion on how much wealthy people should be taxed)?
@@SolomonTibbey who’s talking about taxing the investors twice?? You think conflating fund investors with asset managers is really gonna convince me that ‘I’m out of my league’? And who cares if performance is volatile or if that’s how they make money, that’s still not a justification for differential treatment. Lots of people in the economy undergo volatility in their situation, and nothing here precludes the asset management industry from coming up with a different compensation scheme if they don’t like it. -sincerely, ‘buddy’ (no need to be a douche)
@@YonatanAxel-e3f Are you're oblivious to the fact that you wrote 'hahaha', as if I'm the one being a douche. Also yes it does seem you are out of your league. 1) What am I conflating? 2) asset managers? not to be picky but these are alternatives, so I don't know if that was just you being casual with vocab or that that's proof you don't understand much. Capital gains include inflation, which is a large reason why it should be taxed less. Your investments are also at a lower tax-rate than normal income
The Economist magazine pointed out that tax relief on debt interest puts a massive distortion into the global economy. It acts to discourage investment through share issues and encourages 'investment' by taking on debt. Which is the preferred model for private equity. The best way to deal with the distortions in financial markets which encourage parasitic private equity firms is to remove the tax incentives that favour debt over equity.
@@tommatthieen5017- agreed. The analysis of PE investments is pathetic. The video is simple to understand and well produced. But the content is garbage.
I'm working in the m&a advisory field in China and deal with or for a lot of the buyout funds from day to day. What you presented is largely correct but I have to say you presentation quality is insane. Not mentioning the phenomenon visuals, the storyline design, pace, the skill to simplify concepts but keeping the essense are all top tier. I'm honored to be one of the early follower to a million subs to be channel.
I enjoyed the video. But as a PE investor I have to disagree with your editorial opinion and offer a couple of counterpoints: - Private equity is an important source of capital for small and medium sized businesses too small for public markets but too big/mature for venture capital. The maturity of the US Private equity markets plays a large part in driving growth for middle market companies/new industries as compared to the relatively nascent EU PE industry. - The paper cited that shows returns for PE and public equity are the same are net of fees. To say they return the same but PE charges higher fees on top of that is false and is double counting. In any case, even if they were the same returns, PE returns are less volatile and uncorrelated with the broader market which plays a large part in attracting institutional investors despite the higher fees charged - Industry consolidation is the natural progression of the industrial life cycle and is healthy for growing companies. Economies of scale is a business 101 term. Of course some transactions will fly under the regulatory radar, they only care if a transaction results in monopoly power. Market power does not equal monopoly power - most failed LBOs are a result of Pe firms buying out and trying to save already failing businesses. While I cannot deny its ugly when it happens, these investments lose their investors money and the Pe professionals are likely to be out of a job as well
Agreed100% the video is politically tinted as fuck I am a private debt investor myself Also the 2% fee structure is disappearing, we are seeing 1.5% being market standard in Europe and 1.0% for debt funds
Thank you. A very negative view of the PE industry. This is what the media does, lump everyone together because of the horrors of LBOs and the 80s and 90s of KKR etc PE firms bring expertise to grow scale then exit the investment. Lately it’s been holding the investment. If anything watch out for the hedge funds there’s some dark ones out there that dabble in arms dealings and sources out of Suriname. I’ve said more than enough if PE was so bad why is it still here? Why is Bain a prominent firm doing a lot more than the gov in communities?
I’m in the private equity space as well and I find it unfortunate that so many people have such a skewed perspective of the industry, viewing it as purely evil.
Thank you! That's one of the nicest compliments anyone could give me. I watch at a lot of Netflix documentaries to get inspiration for the graphics, style etc -- even though TH-cam content is different -- here you must earn every single second of the viewers' attention.
Very interesting video - thanks! Private Equity clearly needs greater regulation and scrutiny. I've noticed a few companies in the UK where the products they sell have been degraded after being acquired by private equity firms. One example is PG Tips Tea which was owned by Unilever but then sold to a private equity firm which changed the shape and taste of the tea bags to a much poorer quality. You've also got Subway which was bought by a private equity firm last year and you already notice that the quality of Subway has also degraded. Private Equity is a really toxic industry and is making billionaires even richer at the expense of everyone else.
The production quality, the animation, ease of understanding concepts, the music all is top tier He is seriously underrated This video really helped me with my project You have gained a sub my friend
Nice job creating awareness. Private equity is a tapeworm on the economies. Experienced it firsthand. If you cannot actually build or grow something that adds to GDP, work in private equity.
About the last statement regarding the most brilliant and hard working people working for private equity, I would like to remind you that being meritocratic does not equal being good hearted, often again finance and management consultancy is also highly nepotistic and reserved for the privileged few who go to top schools, there’s an entire chapter on class segregation and privilege that lies at the center of one’s access to such jobs to begin with.
Simply outstanding explanation and production. PE is one of the dominant variables in the erosion of the middle class in industrialized countries creating serious, implications for inequity and social justice and of course, overall economic growth .
Really, really oustanding piece here. These are exactly the points many have been trying to make for years, but here are well-articulated & presented. ...Bravo to the creators!
Great video. For context I’ve work in executive search for PE and have done for the past 10 years. Giving me a deeper level of access. The vast majority of your video is correct the one aspect I would say needs changing is PE returns vs public returns, the vast majority work in multiples of 100% , eg the trajectory of the fund is 6x meaning 600% returns which is very different from public market returns. And another darker aspect you forget to mention is the “private” in PE a lot of these businesses move In the shadows and like it that way, I believe the PE industry holds close to $7Tr AUM it’s crazy that their names do not ring bells to the everyday person and why is this! Anyway great video!
Thank you for your comment Nick! I agree with you that the opaque nature of PE is a major problem and that it's something I could have talked more about in my video. On some level, the lack of transparency is the underlying reason for why PE "gets away" with what I call the PE sauce and its ingredients. A problem also seems to be -- and many talk about this -- that many large investors seems to not scrutinize their PE investments enough, if at all. Re. your comment on returns: I find Mr. Phalippou's arguments in his paper convincing -- it would be interesting to hear your thoughts about that paper. But I also realize this is a hotly debated and contentious topic and I did, therefore, include a disclaimer that I believe the PE compensation schemes are unjustifiable even PE returns exceed other asset classes. Thanks again!
Hi am looking to break into PE. Currently associate in RE fund management but making around $180k and 28. What would pay be if I was to take a role. As starting analyst, or could I transition to associate level. Would this be a pay cut and what level could I get up to. Background undergrad in Mathematics and finance from top Russell group university in UK and MBA from Wharton. Currently in London. Thanks
@@dac8939 sorry for the late reply, I’m actually London based too, so happy to have a conversation. Do you wanna drop your name and I’ll find you on LinkedIn?
The returns on the funds themselves largely depend on the sector of which the fund operates within (Infrastructure, real estate, generalist, tech, life sciences, etc) It is also less volatile than the public markets, though you sacrifice liquidity for time, most pension funds, universities, investment institutions are looking 10-25 years ahead and want to mitigate any cyclical risk. Yes financial engineering happens within these firms for target companies, but so does restructuring and growth within the company itself. The consultants are typically deal sourcing, the lawyers are required for the filings needed to acquire a company (in the states). Multiple expansion rarely happens anymore besides in the tech. But yes, you're correct about the regulations, it is limited. Loved the video.
The core problem with private equity is that once there is a downturn, there will be many bankruptcies and the managers of these PE firms will leave the pension funds holding a bag of you-know-what.
@@lawrencesmith9059Well what we’re seeing now is that the funds are requesting extra time. A lot of partner agreements between the pension and the PE fund include a potential time extension (1-2) years. Contracts can be amended, and no firm wants to take a loss and have reputation risk, they need to keep raising funds etc. we’re at an interesting time right now.
Fantastic channel. just discovered! congratulation Andres, i rarely come across a channel with such well crafted relevant ideas. the research, the graphics, the editing , the copy, very very impressive! keep it up, we need more of this.
Private Equity sucks: if your company is bought by private equity = RUN FOR THE EXITS. My US-based company was bought by Private Equity, and we were treated like a number and not as an employee...."THEY" drove the company into the ground and blamed the us, the field reps! Seven years later they sold to a Hindu company for $33 million less than what they paid! Equifax Spin-off to ChoicePoint to New Mountain Capital d/b/a Overland Solutions! THEY ATE THRU MANAGERS TOO! They KILLED my 18-year career! My commissioned based salary decreased by 57.6% over a 4-year period due to lost business income from insurance companies and US government sources like DME, HUD and Medicare!
Excellent video -- and criminally underrated channel. It dovetails with my own personal experience of watching past employers and everybody around then get raped by unscrupulous PE firms, and I do think from experience that PE is one of the greatest social ills of our time -- they are like a plague of locusts that have descended on our high streets and employers. I cannot help but wonder if we need leaders who can call it out, and then attack the problem head-on through much more aggressive competition enforcement -- and resourcing that fight adequately.
I agree with your view. But I believe the problem is deeper than just PE. In my view, PE is the logical result of raw capitalism and laissez-faire government. Thanks for you kind comment! :)
Should be appalled no one has done anything to stop it!!! Every PE should be required to co-sign on every loan taken out on a company they buy..."If ABC goes under, the bank will take all of your assets before the company is assessed a dime..." As in, any loan made, must require personal collateral borrowed against it...
One correction, the Oxford paper states that the performance is the same as public index funds after fees are deducted. So you can't claim that due to fees, returns on PE are worse than benchmarks.
This guys biases throughout the video are so blatant that I can’t tell if he’s doing it on purpose or he just didn’t do sufficient research for this video.
I saw a study once, about the avg return of hedge funds in the USA. It was pathetic. It was like -1%, when the S&P500 was returning 8-9% over the same period. Wouldn't be surprised if net returns were the same for PE firms. Especially if in the net return calculation, you include the number of staff laid off. I mean, you need to look at the whole equation to derive the net returns. It's like those idiots who claim an EV pollutes less than a petrol car. It's true if you only look at the finished product over a short period of time, but if you include the pollution generated with the extraction and shipping of lithium, the relatively short life of batteries, etc... petrol cars are still a better option for the environment. I imagine the top management of businesses acquired by PE firms is lured with insane amounts of quick profits that make their eyes shine, and is naive, at best.
@@johnsmith-ro2twI would be very surprised if any of these do better than just buying a few low fee ETFs like VOO or IVV. These PE balance sheets are going to pooh with interest rates the way they are. Investment advisors are likely much more interested in capturing and locking in decent returns from bonds or using an ETF like TLT to get that exposure without having to manage a bond book. On top of all of this if they were considering risky investments like PE then they should have just put all of their money in NDX tracking ETFs with ~18.7% average annual return over the past decade and fees would be in low bps. Problem is a mix of incompetent investment advisors in charge of these sources of investment and stakeholders chasing exposure. Everyone focuses on the success stories like early investing in META or TSLA another thing PEs often have is high concentration risk.
Going on what is written here on the The Oxford paper, it seem to comparing local stores and affiliated franchises. PE is higher risk with locked in investment with magic rollup Sause including the growth and benefits it has. Index funds have the protection of the market so in and out in a day. Seems to be not enough competition in PE to push down there 2/20 rates. Perhaps higher interest rates with cause PE to be reluctant to deploy there raw - powder so quickly.
Needed more emphasis on the loan scam they pull...They basically cut every penny they can, raise every price they can, borrow every penny they can, then leave the fictional entity that they destroy with the bill...Bank gets the property back, to sell to someone else...Bank manager gets a kick back to write off any remaining losses...
You got yourself a new subscriber. And yeah that's a pretty good description of what is happening in companies that are owned by private equity. Us blue collar folks are nothing more than a resource for them akin to forklift and handheld scanners.
Thanks for another great video! This is whats happening to the gym industri in Sweden at large and also In my town of Gävle. Recently we had around 5-7 different gyms owned by small buisnes entrepreneurs that where all bought by one private equity company. This is really hurting the entrepreneurship in our town and also limiting peoples choices and most people are oblivion to the fact that this is happening.
I completely agree with you -- I've seen the same thing. If you look at for example SATS, one of the biggest PE-owned chains in Sweden, they're taking state-of-the-art price discrimination techniques to the next level. It's just amazing the amount of effort they spend tweaking their pricing system to get people to pay as much as possible. Thank you for your comment and for watching!
@halsokampen3600 why would a business owner consider the impact on consumer choice? You offer him the present value of all his future cash flows today vs the grit of running the business over many years and uts an obvious choice. If the consumer/market feels strongly about it - and believe they could provide a better service than a PE bought gym then it seems a good opportunity to start a gym.
The 'professional fees' like accountants, environmental consultants, lawyers etc. that bill by the hour, are not payed extra by the investor. Those fees are payed either by the sponsor, i.e. they come out of the management fee already payed, or are part of each asset investment. Other than that your video had great production and synthesis to a complex topic!
Facts. The 1st piece about the for-profit school I’m yea. Buy them out haha it’s a pos school not focused on education but profit haha. And very few PE firms borrow from the bank.
If the sponsor doesn't close the deal, the investors eat the cost. If the deal closes, then the DD costs and expenses are just capitalized and paid by the company. Think of the management fee as the sponsors' income/salary and it is paid by the Fund investors. Fees the sponsors' charge the individual companies are offset against management fee.
Good explanation here. And greatly needed. I heard a proverb about "driving a car off a cliff and calling that "flying". To prove that the passengers are flying we need private equity. The proof also applies to the great talent and knowledge of the pilots.
The huge private fund managers like pension fund etc., usually have their own consulting companies in the name of their immediate family members and the PE firms are asked to hire few of their consultants, in this way the fund managers get kickbacks for their business via their family members. The main beneficiaries here are the fund managers who get kickbacks, their only condition is it should meet at least the stock market returns.
I believe the largest incentives are the taxes payed on investment income; Which, does im fact beat publicly traded funds. With a difference of only %5, they can include that in their prospectus as realized gains...EX: Publicly traded ETF fund, charges %15 annual capital gains taxes, while PE firms only charge %10. That is an immediate %5 the investors receive annually...The PE structures the funds to pay as little tax as possible, through loop holes, and off shore banking...
Other comments here have mentioned this, but there are real benefits for major investors to use PE. More exposure to certain industries and size companies, diversifying away from being totally reliant on stocks for upside, and sometimes a longer and more stable investing timeframe. In general though I’m not impressed with the results.
Excellent content! But I also have to say, the production quality of your videos is amazing. And I appreciate that you bring in a European perspective (Hi from Hamburg, Germany).
Love the editing and production quality, maybe lower the text noises a bit, they’re kind of distracting at points for me, others may agree. Cool video though, thanks!
thank you very much! I appreciate the sound improvement suggestion, I will keep that in mind for the next video for sure. Sound mix is something I struggle with
I met a very high powered financial consultant on a flight a few months back. He was actually a good person. He talked about how private equity is destroying the world.
Was intrigued by the title and was immediately very impressed with the level of editing and video production for the number of subscribers you have. Completely agreed with your message as well. Keep it up!
As someone who works in the sphere of PE (consultancy), I am also struck by how many contradictions the industry produces. There are clearly many intelligent people involved, but simultaneously there are individuals who have less financial literacy than a corner shop owner. Some middle market firms are doing some good work in providing companies access to funds and support that can help turn them around, whilst others can only be described as financially successful criminals. PE loves nothing more than bragging about how much value they are creating, but whenever you get down to the detail there is an incredible atmosphere of suppression, where everyone is almost neurotically keen not to share information that could implicate them in parasitic behaviour of some form - they take the "private" aspect quite literally indeed.
Private Equity involves loans to private companies, often offering higher returns and diversification. Due to its complexity and risks, a financial adviser can help with due diligence, access, and risk management, ensuring investments fit your strategy and comply with regulations.
In the realm of private Equity, diversification and a deep grasp of market dynamics are essential, particularly in volatile times. Balancing potential opportunities with prudent risk assessment can guide investors effectively through the complexities of private credit investments.
Certainly, I’ve been working with a specialized financial adviser to navigate private credit investments. Starting with an initial allocation of $100k, my adviser has strategically managed my investments, optimizing entry and exit points. This approach has grown my private credit portfolio to approximately $500k.
Thank you very much Kuzzat! Welcome to the channel. Unfortunately I don't speak Turkish, so I don't understand the content on your channel. But it looks great, really nice cinematography!
I always thought private equity was when you take the people that work for a company's hopes, dreams, and livelihoods, and that of their families throw it into a big meat grinder. Then, watch gold coins pour out the other end like a big slot machine that devours human souls. I think my explanation still works, but I'll use yours when describing it to friends and family from now on.
the problem with PE is that when the company fails, it does not hit the PE firm, which has extracted value from the company and leaves the losses for investors, employees and customers.
This feature of unloading the debt on the target company and if it fails there's no risk for the Private Equity firm (who owns it) is just completely illogical. It's like a monopoly money hack that a 9 year old kid made up
That's not how it works in reality. PE firms who default on their debt won't be able to raise money for their next fund. Also, debt at the target level is by no means different than a public company borrowing too much
@@CJ-yz9xc so you are saying the lawyer in the video is factually wrong for saying that? (he says its tge target company defaulting, not the PE firm who owns the target company but not tge target companies obligations)
The leveraged buyout model is extremely strenuous on a company’s balance sheet since debt is collateralised by assets and revenue. It’s done to benefit just the few executives that get a big payday. Interest repayment alone would make the running of the company be on hard mode.
And the executives are not held liable for the failures or debts even though they are in control and get all the benefits. If it wins, they win. If it loses, they are immune. Lovely world isnt it?
Fun fact : there are businesses specialized in trading debts. They employ high profiles similar to PE firms profiles (former ministers, big 3 consultants, MBA guys, etc...). They buy debt, restructure it and sell it. THey make tons of money, just like those PE firms. So, even when the company acquired by a PE firm is left with a ton of unmanageable debt, there is still a way for some other sharks to make more money. Not sure who's left holding the bag eventually. My guess is : the taxpayer when the gov is involved to help.
Regarding your last remark on the most brilliant people working for PE, this is a problem in more industries such as consulting etc. It’s a really attractive careerpath when you are just graduated. Rutger Bregman started the ‘School for Moral Ambition’ in Amsterdam to create an alternative perspective for these brilliant students. Your channel is great btw! I subscribed.
I agree with you about the consultancy industry, including law firms. They absorb way too many of our most hard-working and brilliant people. Rutger Bregman is one of the authors that has influenced me the most, he's great. I look forward to his next one. Thank you for your comment and subscribe :)
Thank you David! Yes, I've been thinking a lot about the difference between creating value in your work vs. shuffling wealth around in your work. I'm trying to come up with a good angle for a video about that, but it's difficult to find a good approach. If you have any ideas, I'd be happy to hear it :)
@@TheMarketExit Awesome! Nice to hear that. hmm... i've been thinking alot about identifying and solving problems lately. I'm still in the early stages. hmm... Perhaps Maybe a video about how the best companies solve the most difficult problems. People are motivated by solving difficult challenging problems. So, running with your "special sauce theme" We need a "new special sauce" to solving problems and identify the best ingredients to go into that special sauce. LoL I Hope it helps.
@@davids7879 That's good -- I like that a lot. There is a lot of discussion on how "problem solving skills" will become increasingly important for young people entering the work force. But there is little talk about which problems should be solved.
This one of the best produced videos I've seen in a while and I love the focus on finance - although I disagree on some of the points you made in the video - I really hope you continue to make videos like this. Absolutely top tier.
I feel that at the core of your presentation is the age old phenomenon of greed vs fear. Is this the trap door through which even the most brilliant enter? Those caught in survival are more easily forgiven. Thank you for your brilliant insight and cognizant commentary, very courageous.
Hey, you’ve just got another subscriber. The production quality is amazing and informative. I’m not sure why you do not have a million subscribers by now. Wishing you the best of luck and get your break really soon. Looking forward to more videos. 🙏🏻
Very interesting, I wish I viewed this about 15 years ago when I held an accountant position in a private equity firm - the highest I was ever paid, and all what I was doing doing was photocopying financial documents because the whole of the accounting was outsourced to some prestigious accounting firm specialized in private equity in London. I had no idea what they were doing and how they were going to do it. They have been washed by the 2008 financial crisis tought.
Yeah but the analysis is wrong. Everything in life has pros and cons. Even drinking water and exercise has cons. This video makes it seem there is no upside to PE. But the fact is that companies going bankrupt is in itself a very important service to society. Efficiency - operational and allocational efficiency - are what made USA a great nation in the first place. There are many other benefits to PE funds. Pensioners such as teachers directly benefit (CALPERs). But the video never mentions that.
Excellent video! I was looking for some background on PE as I'm exploring its impact on healthcare. Which as far as I've been able to gather (still early in the research) has been terrible. Anyway thank you, your video was very helpful.
The rise of PE firms and their accelerating rampage through western economies through asset repackaging looks like the subprime mortgage crisis. Good video 👍🏼
Your last point is very important and something that most western economies should worry about. If some of the best minds are effectively taking part in zero sum games we are wasting our potential.
It’s modern language for venture capitalists and asset stripping.. because they became a dirty word… these firms invest with other peoples money or your pension fund to be specific. Then exit the firms once they have milked all the value they can by covering their own exposure first.. it’s nothing new. The super smart management is called management fees…. 😅
How? They are being offered more than the company is worth. Of course they are selling...No. We need to simply change the rules, to make individuals in a PE personally responsible when the business fails...Stop allowing them to borrow against the company without co-signing their own assets to cover the loans...
There is nothing inherently wrong with PE. Anyone can borrow money and apply the same technique to purchase a small business. In fact, in many ways the industry is a plus, as it provides an exit for many entrepreneurs and business owners. Here is the problem: The early LBO practitioners made incredible returns as the market was nowhere near as competitive as it is today. The key driver of returns to an LBO is the level of debt. They were able to borrow a significant portion of the purchase price and still be able to afford the interest payments; in your terms, the debt was not "back-breaking." However, today you have so many PE firms vying for the same companies that the purchase prices have been driven very high. The PE firms' high returns depend on being able to borrow the majority of the purchase price but, because of the higher prices, the company is not able to meet its debt obligations. Best case scenario: The PE firms slashes and cuts costs (tends to make society unhappy) to meet interest payments. Worst case: Company goes bankrupt. Just like every investment, competition erodes returns, and the PE firms are not willing to accept lower returns and take on less debt. PE can be great if it applied correctly. The real problem lies with the banks who are willing to fund these deals where the pro-forma statements are stupidly optimistic and unlikely to develop.
Good points Markus. I agree with you that many of the negative aspects of PE are to a large extent driven (or at least enabled) by the approach adopted by lenders. But also, and perhaps more importantly, by the lack of proper scrutiny by the investors.
The comment sounds like someone who works in PE, or rather LBO. The video here is accurate regarding PE firms greed and destruction of businesses and industries. LBO's(PE firms) were created in 1980's to strip out assets to the benefit of investors and PE executives. Check out the move, " other peoples money" with danny devito......
@@vincentorlando6767 When people criticize PE firms, they are criticizing buyout funds...AKA. LBO practitioners. Venture capital and growth equity are also forms of private equity but are used by companies to raise capital. I'm not exactly sure what your point is? My point is that if a company goes bankrupt (or employs drastic measures to avoid bankruptcy) then coverage was too tight to begin with
@@mazterz My point is your comments indicate you are very pro PE industry. This video shows the true nature of PE firms. PE is part of VC industry, and yes they have different strategies...buyout, RE, growth, VC. The video points out after all the various expenses totaling like 6 or 7%, not just the 2% management fee, the returns do not justify the investment when compared to other investments
@@vincentorlando6767 I'm not anti or pro the industry. We aren't talking about returns (which historically have been comparatively very good) - the video mostly talks about the process. There is nothing wrong with the process. It is in its application at scale in a competitive environment where things can go south
So unless a company is a publically traded entity, the investor market can't invest in that equity class. Real estate is a great example of this. There are only a handful of real estate entities that are publically traded. That leaves the vast majority of real estate outside of investment. You are also branding every PE firm in the same light. They are not. The obvious worst case is the Blackrocks and Vanguards, but there's a lot of PE firms out there in everything from Tech VC to Crypto.
You're probably right that not every PE firm is the same. All LBO firms do rely on the same ingredients to create "value", though. The problems are inherent in the business model.
@@TheMarketExit 100%. The LBO strategy is what is causing most of the issues. Carrying that much debt is fraught with risk and requires immediate servicing, which in any company worth buying the first "value" option is cutting costs, and 9 times out of 10 that means payroll..."effeciency." Access to ridiculous amounts of credit floating around contributed to this. Everybody got "Grabby" trying to corner large market share in various markets. Hopefully that will continue to contract. It's like they totally ignored 2008. At the same time, beyond LBO, even minority stakeholders who happen to be big players are causing all kinds of problems. Blackrock and Vanguard with their nose in everyone's business and trying to play cultural dictator is starting to produce a huge backlash.
12:09 is completely misleading and dishonest. Cash flow is a major factor is what differentiates a great company from a mediocre company. This isn’t just used for the PE firms to try to squeeze every dollar out of these companies, it’s to actually create a healthier business that will have more lasting power in the market. Not all are successful in making these companies better but to portray these firms as evil and say they don’t care about these businesses is flat out wrong.
I'm thrilled to see this video resonate with so many of you. Let me share a bit about myself: 👨💼 I'm a lawyer who discovered a passion for using videos to explain things I think people should know. If you think I should keep doing this, consider supporting me on Patreon at www.patreon.com/themarketexit
Obviously, there are nuances to private equity that I couldn't cover in this relatively short video. While I stand by everything I say in this video, I do agree with (and have learned from) some of the points that have been raised in the comments. I read all the comments, and I appreciate them all, even if I haven't had time to respond to all of them, yet. I'm actually working on a potential long form film about private equity, if you become a Patreon supporter, you'll find more information.
Lastly, if you enjoyed this video, you'll find a lot more - even better stuff - on my channel, so do please check that out. Thanks!
You should pin your comment! Nice vid 👍🏽👍🏽
@@dannytjon Smart! Thanks!
The editing of this video, combined with its exceptional educational value, is astounding.
Thank you very much and congrats on the success with your channel. I could learn a lot from you. You make really cool documentaries
Spot on. I work for a company sold to PE. They followed the playbook of layoffs and gobbling up many other small companies in the biz. And the people that survived got rewarded with double the workload. The scum bag management tried to motivate the flock into thinking we were an upstart company, but in the end they sold us out to a bigger competitor. They of course raked it in via stock options and other rewards. If you get acquired by PE there will be tough times ahead for you
PE firms sometimes buy companies that they don't understand. I saw it happen when they bought translations firms in Japan. They thought everyone was replaceable, so they could fire everyone and hire cheaper staff. They didn't understand that the long term relationships between the customers and the translators was the reason for the success. Id ots.
@@monyafeek101 Yup, part of our "transformation" included offering older staff buyouts, earlier retirements. Though they later found out that oops, we actually need those folks since they possessed all the expertise. They had to offer these older ex employees big packages to bring them back as "consultants." Nice work.
@@monyafeek101PE sees everything as replaceable and as a machine or product that either can be sold for profit, replaced with something cheaper or just kicked out and someone else has to do their job on top
if you have not been offered a personal incentive package, most would be better off considering their options.
@@bobbobertson7568also related, management types worldwide have started systematically replacing their companies' workforces with cheaper incompetent counterparts (big tech being swarmed by clueless Indian people, being one example) then disasters happen as a result, said management types quit right before the occurrence so that none of the blame sticks to them, the incompetent replacements get the heat, then said management types offer to fix the ruins as consultants for a fat fee.
Wow, the algorithm has done you dirty.With this level of production quality, your channel should be WAY bigger.
That's very kind of you. I'll keep making videos :)
In the UK, in addition to the care homes and vet clinics mentioned below, we're seeing the same thing with utility companies, water companies, ferry companies, being bought by private equity, and pumped full of debt at the expense of investment. That's why we have such a problem with sewage pollution! it's completely wrong.
Also financial advisors!!!
This is the product of Tory millionaires plundering the UK and getting paid by their friends to makes laws to help them plunder even more. Irony people vote for Tories to get plundered. It is like people vote for the pirates so the peoples ship can be plundered even more.
I've worked for a company owned by Private Equity company. Sucks. Just care about the money. Kills employee morale, and the good people leave
FYI - the earnings are called ‘carried interest’ so that partners can pay a much lower tax rate than they would if it were considered regular salary. It’s an insane loophole to benefit rich people.
this is just not true. carried interest is the bonus you earn from outperforming the hurdle rate set by your investors. This source of income is volatile and is not how the managers make their stable income.
@@SolomonTibbey you literally just called it ‘income’ hahaha - so they outperformed others and got rewarded, great that doesn’t mean it should be taxed in an entirely different category than a waiter’s tips or an athlete’s performance bonus. You start with saying ‘that’s just not true’ but don’t refute the substance of anything I said
@@YonatanAxel-e3f I wasn't clear. What I'm saying isn't true is that "its an insane loophole to benefit rich people." It SHOULD be taxed as a capital gain. Its volatile with the markets. You're out of your league here. "so they outperformed others." No buddy that's not what carried interest is. The managers do not get a single dollar if they don't beat a certain return benchmark. And since the probability of beating this benchmark is in line with the market, its treated as a capital gain. The investors are already taxed on the money used in these funds. So you want to tax them twice at the same intensity (irrespective of your opinion on how much wealthy people should be taxed)?
@@SolomonTibbey who’s talking about taxing the investors twice?? You think conflating fund investors with asset managers is really gonna convince me that ‘I’m out of my league’? And who cares if performance is volatile or if that’s how they make money, that’s still not a justification for differential treatment. Lots of people in the economy undergo volatility in their situation, and nothing here precludes the asset management industry from coming up with a different compensation scheme if they don’t like it.
-sincerely, ‘buddy’ (no need to be a douche)
@@YonatanAxel-e3f Are you're oblivious to the fact that you wrote 'hahaha', as if I'm the one being a douche. Also yes it does seem you are out of your league. 1) What am I conflating? 2) asset managers? not to be picky but these are alternatives, so I don't know if that was just you being casual with vocab or that that's proof you don't understand much. Capital gains include inflation, which is a large reason why it should be taxed less. Your investments are also at a lower tax-rate than normal income
The Economist magazine pointed out that tax relief on debt interest puts a massive distortion into the global economy. It acts to discourage investment through share issues and encourages 'investment' by taking on debt. Which is the preferred model for private equity.
The best way to deal with the distortions in financial markets which encourage parasitic private equity firms is to remove the tax incentives that favour debt over equity.
Production level is top-tier. Explanations are easy to understand for an average retail investor like me. New subscriber here 👍
He is amazing 👏
im working in the industry. unfortunately there are a lot of innacuracies in it
I second this
@@marwenbenhadj6878😮😮😮😮😮😮😮😮😮😮😮😮
@@tommatthieen5017- agreed. The analysis of PE investments is pathetic. The video is simple to understand and well produced. But the content is garbage.
I'm working in the m&a advisory field in China and deal with or for a lot of the buyout funds from day to day. What you presented is largely correct but I have to say you presentation quality is insane. Not mentioning the phenomenon visuals, the storyline design, pace, the skill to simplify concepts but keeping the essense are all top tier. I'm honored to be one of the early follower to a million subs to be channel.
Thank you, I'm really glad you liked it!
This video should be played in every country's parliament
They know it.
Who do you think owns the politicians ?
lol i think you don’t understand how the bread is buttered in parliment
You are truly underrated. Level of production is off the charts. Love this ☺
Thank you for the kind comment Kevin John!
I enjoyed the video. But as a PE investor I have to disagree with your editorial opinion and offer a couple of counterpoints:
- Private equity is an important source of capital for small and medium sized businesses too small for public markets but too big/mature for venture capital. The maturity of the US Private equity markets plays a large part in driving growth for middle market companies/new industries as compared to the relatively nascent EU PE industry.
- The paper cited that shows returns for PE and public equity are the same are net of fees. To say they return the same but PE charges higher fees on top of that is false and is double counting. In any case, even if they were the same returns, PE returns are less volatile and uncorrelated with the broader market which plays a large part in attracting institutional investors despite the higher fees charged
- Industry consolidation is the natural progression of the industrial life cycle and is healthy for growing companies. Economies of scale is a business 101 term. Of course some transactions will fly under the regulatory radar, they only care if a transaction results in monopoly power. Market power does not equal monopoly power
- most failed LBOs are a result of Pe firms buying out and trying to save already failing businesses. While I cannot deny its ugly when it happens, these investments lose their investors money and the Pe professionals are likely to be out of a job as well
Agreed100% the video is politically tinted as fuck I am a private debt investor myself
Also the 2% fee structure is disappearing, we are seeing 1.5% being market standard in Europe and 1.0% for debt funds
Thank you. A very negative view of the PE industry. This is what the media does, lump everyone together because of the horrors of LBOs and the 80s and 90s of KKR etc PE firms bring expertise to grow scale then exit the investment. Lately it’s been holding the investment. If anything watch out for the hedge funds there’s some dark ones out there that dabble in arms dealings and sources out of Suriname. I’ve said more than enough if PE was so bad why is it still here? Why is Bain a prominent firm doing a lot more than the gov in communities?
I’m in the private equity space as well and I find it unfortunate that so many people have such a skewed perspective of the industry, viewing it as purely evil.
how do you get funding from them ?
Amen. Thanks for saying this. I’m a fellow PE investor
This is some Netflix production level, such a good and clear explanation, you're going to blow up soon! Keep going
Thank you! That's one of the nicest compliments anyone could give me. I watch at a lot of Netflix documentaries to get inspiration for the graphics, style etc -- even though TH-cam content is different -- here you must earn every single second of the viewers' attention.
Very interesting video - thanks! Private Equity clearly needs greater regulation and scrutiny. I've noticed a few companies in the UK where the products they sell have been degraded after being acquired by private equity firms. One example is PG Tips Tea which was owned by Unilever but then sold to a private equity firm which changed the shape and taste of the tea bags to a much poorer quality. You've also got Subway which was bought by a private equity firm last year and you already notice that the quality of Subway has also degraded. Private Equity is a really toxic industry and is making billionaires even richer at the expense of everyone else.
The production quality, the animation, ease of understanding concepts, the music all is top tier
He is seriously underrated
This video really helped me with my project
You have gained a sub my friend
Thanks! Good luck with your project. Send me a link?
Unpleasant truths are often the most important ones to wake up to! Well done
Nice job creating awareness. Private equity is a tapeworm on the economies. Experienced it firsthand. If you cannot actually build or grow something that adds to GDP, work in private equity.
I'm shocked that they allow private equity firms to exist in Denmark. We have to ban them world-wide.
About the last statement regarding the most brilliant and hard working people working for private equity, I would like to remind you that being meritocratic does not equal being good hearted, often again finance and management consultancy is also highly nepotistic and reserved for the privileged few who go to top schools, there’s an entire chapter on class segregation and privilege that lies at the center of one’s access to such jobs to begin with.
Can't believe the algorithm recommended this channel. Would angel invest into your success if possible 🥂
The Algorithm works in mysterious ways. Thank you! 🍾
I would VC invest into your channel 🛩
Simply outstanding explanation and production. PE is one of the dominant variables in the erosion of the middle class in industrialized countries creating serious, implications for inequity and social justice and of course, overall economic growth .
Thanks!
Never commented on a TH-cam video before but the production quality here is just insane
Your video production quality is insane
Really, really oustanding piece here. These are exactly the points many have been trying to make for years, but here are well-articulated & presented. ...Bravo to the creators!
Thank you very very much Garrett for the kind comment!
Hey hey , great videos .. I am in private equity and I totally agree with your analysis.. very good .. Tak..❤
Glad to hear it - thank you!
Great video. For context I’ve work in executive search for PE and have done for the past 10 years. Giving me a deeper level of access. The vast majority of your video is correct the one aspect I would say needs changing is PE returns vs public returns, the vast majority work in multiples of 100% , eg the trajectory of the fund is 6x meaning 600% returns which is very different from public market returns.
And another darker aspect you forget to mention is the “private” in PE a lot of these businesses move In the shadows and like it that way, I believe the PE industry holds close to $7Tr AUM it’s crazy that their names do not ring bells to the everyday person and why is this!
Anyway great video!
Thank you for your comment Nick! I agree with you that the opaque nature of PE is a major problem and that it's something I could have talked more about in my video. On some level, the lack of transparency is the underlying reason for why PE "gets away" with what I call the PE sauce and its ingredients. A problem also seems to be -- and many talk about this -- that many large investors seems to not scrutinize their PE investments enough, if at all. Re. your comment on returns: I find Mr. Phalippou's arguments in his paper convincing -- it would be interesting to hear your thoughts about that paper. But I also realize this is a hotly debated and contentious topic and I did, therefore, include a disclaimer that I believe the PE compensation schemes are unjustifiable even PE returns exceed other asset classes. Thanks again!
@@TheMarketExit I’d also love to see an in-depth video on large PERE businesses snapping up single dwelling homes.
Hi am looking to break into PE. Currently associate in RE fund management but making around $180k and 28. What would pay be if I was to take a role. As starting analyst, or could I transition to associate level. Would this be a pay cut and what level could I get up to. Background undergrad in Mathematics and finance from top Russell group university in UK and MBA from Wharton. Currently in London. Thanks
@@dac8939 sorry for the late reply, I’m actually London based too, so happy to have a conversation. Do you wanna drop your name and I’ll find you on LinkedIn?
@@dac8939 Ironic :D Best of luck to you :)
The returns on the funds themselves largely depend on the sector of which the fund operates within (Infrastructure, real estate, generalist, tech, life sciences, etc) It is also less volatile than the public markets, though you sacrifice liquidity for time, most pension funds, universities, investment institutions are looking 10-25 years ahead and want to mitigate any cyclical risk. Yes financial engineering happens within these firms for target companies, but so does restructuring and growth within the company itself. The consultants are typically deal sourcing, the lawyers are required for the filings needed to acquire a company (in the states). Multiple expansion rarely happens anymore besides in the tech. But yes, you're correct about the regulations, it is limited. Loved the video.
The core problem with private equity is that once there is a downturn, there will be many bankruptcies and the managers of these PE firms will leave the pension funds holding a bag of you-know-what.
@@lawrencesmith9059Well what we’re seeing now is that the funds are requesting extra time. A lot of partner agreements between the pension and the PE fund include a potential time extension (1-2) years. Contracts can be amended, and no firm wants to take a loss and have reputation risk, they need to keep raising funds etc. we’re at an interesting time right now.
Fantastic channel. just discovered! congratulation Andres, i rarely come across a channel with such well crafted relevant ideas. the research, the graphics, the editing , the copy, very very impressive! keep it up, we need more of this.
I liked the sound effects. Thanks for the translation in English.
Private Equity sucks: if your company is bought by private equity = RUN FOR THE EXITS. My US-based company was bought by Private Equity, and we were treated like a number and not as an employee...."THEY" drove the company into the ground and blamed the us, the field reps! Seven years later they sold to a Hindu company for $33 million less than what they paid! Equifax Spin-off to ChoicePoint to New Mountain Capital d/b/a Overland Solutions! THEY ATE THRU MANAGERS TOO! They KILLED my 18-year career! My commissioned based salary decreased by 57.6% over a 4-year period due to lost business income from insurance companies and US government sources like DME, HUD and Medicare!
The cinematography was so good, as long as the information!!!
Thank you very much Sylas, I did spend a lot of time getting all visuals right so its great to hear that you liked how it looks
I admire you for giving up your highly paid (but very stressful) job and following your conscience and your humanity.
Only 623 subs? Wow, what a gem.
It's 66.7K now 😇❤️🙏🏻
Excellent video -- and criminally underrated channel.
It dovetails with my own personal experience of watching past employers and everybody around then get raped by unscrupulous PE firms, and I do think from experience that PE is one of the greatest social ills of our time -- they are like a plague of locusts that have descended on our high streets and employers. I cannot help but wonder if we need leaders who can call it out, and then attack the problem head-on through much more aggressive competition enforcement -- and resourcing that fight adequately.
I agree with your view. But I believe the problem is deeper than just PE. In my view, PE is the logical result of raw capitalism and laissez-faire government. Thanks for you kind comment! :)
Very well presented and explained, didn't realise so much of this was going on.
Should be appalled no one has done anything to stop it!!! Every PE should be required to co-sign on every loan taken out on a company they buy..."If ABC goes under, the bank will take all of your assets before the company is assessed a dime..." As in, any loan made, must require personal collateral borrowed against it...
One correction, the Oxford paper states that the performance is the same as public index funds after fees are deducted. So you can't claim that due to fees, returns on PE are worse than benchmarks.
This guys biases throughout the video are so blatant that I can’t tell if he’s doing it on purpose or he just didn’t do sufficient research for this video.
I saw a study once, about the avg return of hedge funds in the USA. It was pathetic. It was like -1%, when the S&P500 was returning 8-9% over the same period. Wouldn't be surprised if net returns were the same for PE firms. Especially if in the net return calculation, you include the number of staff laid off.
I mean, you need to look at the whole equation to derive the net returns. It's like those idiots who claim an EV pollutes less than a petrol car. It's true if you only look at the finished product over a short period of time, but if you include the pollution generated with the extraction and shipping of lithium, the relatively short life of batteries, etc... petrol cars are still a better option for the environment. I imagine the top management of businesses acquired by PE firms is lured with insane amounts of quick profits that make their eyes shine, and is naive, at best.
@@johnsmith-ro2twI would be very surprised if any of these do better than just buying a few low fee ETFs like VOO or IVV. These PE balance sheets are going to pooh with interest rates the way they are. Investment advisors are likely much more interested in capturing and locking in decent returns from bonds or using an ETF like TLT to get that exposure without having to manage a bond book.
On top of all of this if they were considering risky investments like PE then they should have just put all of their money in NDX tracking ETFs with ~18.7% average annual return over the past decade and fees would be in low bps.
Problem is a mix of incompetent investment advisors in charge of these sources of investment and stakeholders chasing exposure. Everyone focuses on the success stories like early investing in META or TSLA another thing PEs often have is high concentration risk.
Going on what is written here on the The Oxford paper, it seem to comparing local stores and affiliated franchises. PE is higher risk with locked in investment with magic rollup Sause including the growth and benefits it has. Index funds have the protection of the market so in and out in a day. Seems to be not enough competition in PE to push down there 2/20 rates. Perhaps higher interest rates with cause PE to be reluctant to deploy there raw - powder so quickly.
What's your real argument there except just a baseless rant over his video ? @@Itssconnorr
Great Job anyone considering selling their business to Private Equity needs to watch this !
their, not there.
Private equity is such a disaster its not even funny. They just squeeze you so tightly that they make it incredibly hard to even operate.
Thank you so much for making this topic easy to understand. As many people as possible need to be aware of this parasitic industry.
Needed more emphasis on the loan scam they pull...They basically cut every penny they can, raise every price they can, borrow every penny they can, then leave the fictional entity that they destroy with the bill...Bank gets the property back, to sell to someone else...Bank manager gets a kick back to write off any remaining losses...
You got yourself a new subscriber. And yeah that's a pretty good description of what is happening in companies that are owned by private equity. Us blue collar folks are nothing more than a resource for them akin to forklift and handheld scanners.
Production and Explanation are on Professional Level
Thanks for another great video! This is whats happening to the gym industri in Sweden at large and also In my town of Gävle. Recently we had around 5-7 different gyms owned by small buisnes entrepreneurs that where all bought by one private equity company.
This is really hurting the entrepreneurship in our town and also limiting peoples choices and most people are oblivion to the fact that this is happening.
I completely agree with you -- I've seen the same thing. If you look at for example SATS, one of the biggest PE-owned chains in Sweden, they're taking state-of-the-art price discrimination techniques to the next level. It's just amazing the amount of effort they spend tweaking their pricing system to get people to pay as much as possible. Thank you for your comment and for watching!
Were the owners forced to sell? I guess not.
Ofcourse not! They where paid to hand over their keys. But the problem is What it does to the market and comsumer choice.
That's not the point. I guess nobody ever thought that was the case thought.@@Andreas1986xyz
@halsokampen3600 why would a business owner consider the impact on consumer choice? You offer him the present value of all his future cash flows today vs the grit of running the business over many years and uts an obvious choice.
If the consumer/market feels strongly about it - and believe they could provide a better service than a PE bought gym then it seems a good opportunity to start a gym.
Excellent video. You explain it very well. Also the book 'Plunder' by Ballou is a good primer on PE.
The 'professional fees' like accountants, environmental consultants, lawyers etc. that bill by the hour, are not payed extra by the investor. Those fees are payed either by the sponsor, i.e. they come out of the management fee already payed, or are part of each asset investment. Other than that your video had great production and synthesis to a complex topic!
Facts. The 1st piece about the for-profit school I’m yea. Buy them out haha it’s a pos school not focused on education but profit haha. And very few PE firms borrow from the bank.
If the sponsor doesn't close the deal, the investors eat the cost. If the deal closes, then the DD costs and expenses are just capitalized and paid by the company. Think of the management fee as the sponsors' income/salary and it is paid by the Fund investors. Fees the sponsors' charge the individual companies are offset against management fee.
The editing is AMAZING
Good explanation here. And greatly needed. I heard a proverb about "driving a car off a cliff and calling that "flying". To prove that the passengers are flying we need private equity. The proof also applies to the great talent and knowledge of the pilots.
what the hell, did the algorithm showed a great video? that's a first time lmao
awesome video, of course subscribed!
Thank you very much! Appreciated
Just: wow! Very rare to match top level content with ditto production quality.
The huge private fund managers like pension fund etc., usually have their own consulting companies in the name of their immediate family members and the PE firms are asked to hire few of their consultants, in this way the fund managers get kickbacks for their business via their family members. The main beneficiaries here are the fund managers who get kickbacks, their only condition is it should meet at least the stock market returns.
I believe the largest incentives are the taxes payed on investment income; Which, does im fact beat publicly traded funds. With a difference of only %5, they can include that in their prospectus as realized gains...EX: Publicly traded ETF fund, charges %15 annual capital gains taxes, while PE firms only charge %10. That is an immediate %5 the investors receive annually...The PE structures the funds to pay as little tax as possible, through loop holes, and off shore banking...
Other comments here have mentioned this, but there are real benefits for major investors to use PE.
More exposure to certain industries and size companies, diversifying away from being totally reliant on stocks for upside, and sometimes a longer and more stable investing timeframe.
In general though I’m not impressed with the results.
The level of presentation is outstanding and super easy to understand.
One of the best ways to build your fortune - buy an existing business.
Second best is starting a fund.
@privateequityguy tell me more please.
Great presentation, very nice graphic and editing skills; as well as the concept explained, easy to digest for even the less knowledgeable, bravo
Very nice production! I usually find political and economical subjects boring, but this video presented it in a very informative and fun fashion 😀
Klas, that's a very kind compliment, thank you so much 🙏
Excellent content! But I also have to say, the production quality of your videos is amazing. And I appreciate that you bring in a European perspective (Hi from Hamburg, Germany).
Love the editing and production quality, maybe lower the text noises a bit, they’re kind of distracting at points for me, others may agree.
Cool video though, thanks!
thank you very much! I appreciate the sound improvement suggestion, I will keep that in mind for the next video for sure. Sound mix is something I struggle with
I met a very high powered financial consultant on a flight a few months back. He was actually a good person. He talked about how private equity is destroying the world.
Was intrigued by the title and was immediately very impressed with the level of editing and video production for the number of subscribers you have. Completely agreed with your message as well. Keep it up!
Thank you Nathan! I will keep making my videos better and better and hopefully the audience will follow
As someone who works in the sphere of PE (consultancy), I am also struck by how many contradictions the industry produces. There are clearly many intelligent people involved, but simultaneously there are individuals who have less financial literacy than a corner shop owner. Some middle market firms are doing some good work in providing companies access to funds and support that can help turn them around, whilst others can only be described as financially successful criminals. PE loves nothing more than bragging about how much value they are creating, but whenever you get down to the detail there is an incredible atmosphere of suppression, where everyone is almost neurotically keen not to share information that could implicate them in parasitic behaviour of some form - they take the "private" aspect quite literally indeed.
Private Equity involves loans to private companies, often offering higher returns and diversification. Due to its complexity and risks, a financial adviser can help with due diligence, access, and risk management, ensuring investments fit your strategy and comply with regulations.
In the realm of private Equity, diversification and a deep grasp of market dynamics are essential, particularly in volatile times. Balancing potential opportunities with prudent risk assessment can guide investors effectively through the complexities of private credit investments.
Certainly, I’ve been working with a specialized financial adviser to navigate private credit investments. Starting with an initial allocation of $100k, my adviser has strategically managed my investments, optimizing entry and exit points. This approach has grown my private credit portfolio to approximately $500k.
My partner’s and i have been considering going the same route, could you share more info please on the advisor that guides you.
Nicole Anastasia Plumlee can't divulge much... Most likely, the internet should have her basic info, you can research if you like..
Wow, her track record looks really good from what I found online. I'll take a chance and see how it goes. Thanks for the info
Great video, learned a lot. Subscribed. Thanks!
Thank you very much Kuzzat! Welcome to the channel. Unfortunately I don't speak Turkish, so I don't understand the content on your channel. But it looks great, really nice cinematography!
You have gotten yourself a new sub, amazing production quality and very clear explanation 😃
I always thought private equity was when you take the people that work for a company's hopes, dreams, and livelihoods, and that of their families throw it into a big meat grinder. Then, watch gold coins pour out the other end like a big slot machine that devours human souls. I think my explanation still works, but I'll use yours when describing it to friends and family from now on.
capitalism without failure is like religion without hell
Nice analogy, but one philosopher statet that to exist, means to suffer…
What is the analogy? Most of the world's religions do not have a Hell.
@@hjf3022Cap
the problem with PE is that when the company fails, it does not hit the PE firm, which has extracted value from the company and leaves the losses for investors, employees and customers.
How is that a good analogy.
It's more like war crimes without accountability
So much truth...
If only each viewer would take action...
Same here in Sydney. They destroyed Trucking company here that supplies groceries to the store. 1500 jobs at risk.
Great channel! Thank you for this great work! ❤
This feature of unloading the debt on the target company and if it fails there's no risk for the Private Equity firm (who owns it) is just completely illogical. It's like a monopoly money hack that a 9 year old kid made up
That's not how it works in reality. PE firms who default on their debt won't be able to raise money for their next fund. Also, debt at the target level is by no means different than a public company borrowing too much
@@CJ-yz9xc so you are saying the lawyer in the video is factually wrong for saying that? (he says its tge target company defaulting, not the PE firm who owns the target company but not tge target companies obligations)
My G needs more Subs. AMAZING CONTENT WELL NARRATED.
Thank you very much FLOGs!
The leveraged buyout model is extremely strenuous on a company’s balance sheet since debt is collateralised by assets and revenue. It’s done to benefit just the few executives that get a big payday. Interest repayment alone would make the running of the company be on hard mode.
And the executives are not held liable for the failures or debts even though they are in control and get all the benefits. If it wins, they win. If it loses, they are immune. Lovely world isnt it?
Fun fact : there are businesses specialized in trading debts. They employ high profiles similar to PE firms profiles (former ministers, big 3 consultants, MBA guys, etc...). They buy debt, restructure it and sell it. THey make tons of money, just like those PE firms. So, even when the company acquired by a PE firm is left with a ton of unmanageable debt, there is still a way for some other sharks to make more money. Not sure who's left holding the bag eventually. My guess is : the taxpayer when the gov is involved to help.
Revenue is not part of any balance sheet so I don't know how it could collaterise anything.
Regarding your last remark on the most brilliant people working for PE, this is a problem in more industries such as consulting etc. It’s a really attractive careerpath when you are just graduated.
Rutger Bregman started the ‘School for Moral Ambition’ in Amsterdam to create an alternative perspective for these brilliant students.
Your channel is great btw! I subscribed.
I agree with you about the consultancy industry, including law firms. They absorb way too many of our most hard-working and brilliant people. Rutger Bregman is one of the authors that has influenced me the most, he's great. I look forward to his next one. Thank you for your comment and subscribe :)
As someone who is planning on going into private equity, this is an amazing video, extremely high quality production and information, subscribed!
Thank you KingAmplify! Good luck with your career in PE, it's competitive but rewarding if you make it
The production level of this is insane for 3k subs. Keep this up and the channel is gonna blow up massively
I will keep making videos for sure :) Thanks for commenting!!
Excellent content! I like the fact that you mention at the end the importance of "creating something new". This can't be stressed enough today.
Thank you David! Yes, I've been thinking a lot about the difference between creating value in your work vs. shuffling wealth around in your work. I'm trying to come up with a good angle for a video about that, but it's difficult to find a good approach. If you have any ideas, I'd be happy to hear it :)
@@TheMarketExit Awesome! Nice to hear that. hmm... i've been thinking alot about identifying and solving problems lately. I'm still in the early stages. hmm... Perhaps Maybe a video about how the best companies solve the most difficult problems. People are motivated by solving difficult challenging problems. So, running with your "special sauce theme" We need a "new special sauce" to solving problems and identify the best ingredients to go into that special sauce. LoL I Hope it helps.
@@davids7879 That's good -- I like that a lot. There is a lot of discussion on how "problem solving skills" will become increasingly important for young people entering the work force. But there is little talk about which problems should be solved.
the second you said „market manipulation“, I got hit with an unskippable coinbase ad.
had me rolling
This one of the best produced videos I've seen in a while and I love the focus on finance - although I disagree on some of the points you made in the video - I really hope you continue to make videos like this. Absolutely top tier.
Thanks! I do indeed plan to keep making videos. New stuff coming out next week, stay tuned :)
I feel that at the core of your presentation is the age old phenomenon of greed vs fear. Is this the trap door through which even the most brilliant enter? Those caught in survival are more easily forgiven. Thank you for your brilliant insight and cognizant commentary, very courageous.
Is that a Finnish man’s head on your cartoon character? Why does he look like an ex-US president candidate? Mitt Romney
You're actually spot on, it's a composite of Romney and Gordon Gekko, two legendary men of PE
Hey, you’ve just got another subscriber. The production quality is amazing and informative.
I’m not sure why you do not have a million subscribers by now. Wishing you the best of luck and get your break really soon. Looking forward to more videos. 🙏🏻
Thank you very much for your kind words. I'll keep making videos irrespective of how many will watch them. This is just way too much fun
@@TheMarketExithappy to hear this passion!
Very accurate
-a VC
Very interesting, I wish I viewed this about 15 years ago when I held an accountant position in a private equity firm - the highest I was ever paid, and all what I was doing doing was photocopying financial documents because the whole of the accounting was outsourced to some prestigious accounting firm specialized in private equity in London. I had no idea what they were doing and how they were going to do it. They have been washed by the 2008 financial crisis tought.
Well done. Tremendously valuable insight for the public at large, and provides good context for better understanding broader topic of capitalism.
Thank you very much Anthony! Indeed, many features of private equity are simply logical extensions of how capitalism functions
Yeah but the analysis is wrong. Everything in life has pros and cons. Even drinking water and exercise has cons. This video makes it seem there is no upside to PE. But the fact is that companies going bankrupt is in itself a very important service to society. Efficiency - operational and allocational efficiency - are what made USA a great nation in the first place. There are many other benefits to PE funds. Pensioners such as teachers directly benefit (CALPERs). But the video never mentions that.
Very well done. I like that you examine published research papers.
Excellent video! I was looking for some background on PE as I'm exploring its impact on healthcare. Which as far as I've been able to gather (still early in the research) has been terrible. Anyway thank you, your video was very helpful.
The rise of PE firms and their accelerating rampage through western economies through asset repackaging looks like the subprime mortgage crisis. Good video 👍🏼
You need to keep doing this as much as you possibly can, you are exceptionally talented at both production and content delivery. well done!!
Thank you very much!
Your last point is very important and something that most western economies should worry about. If some of the best minds are effectively taking part in zero sum games we are wasting our potential.
Well done, keep it up if you have a passion for this!
Thank you very much Brandon! I do have a passion for this and I intend to push hard to get better at this
Absolutely fantastic video. Probably the most important message that everyone doesn't know they need to hear.
Thanks! Send it to some people you think need to hear it :)
@@TheMarketExit Keep it up! I will subscribe on Patreon!
Amazing stuff here. Glad I found your channel and hope more others do soon
Thank you very much Alex! I'll keep working hard to make better videos and hopefully I'll find an audience
It’s modern language for venture capitalists and asset stripping.. because they became a dirty word… these firms invest with other peoples money or your pension fund to be specific. Then exit the firms once they have milked all the value they can by covering their own exposure first.. it’s nothing new. The super smart management is called management fees…. 😅
Blame the CEOs and boards that their companies sell to PE
How? They are being offered more than the company is worth. Of course they are selling...No. We need to simply change the rules, to make individuals in a PE personally responsible when the business fails...Stop allowing them to borrow against the company without co-signing their own assets to cover the loans...
Very good production value.
Really good video, mate. Great content, clear explanation, great editing, and no nonsense! Absolutely, appreciate your work . Thank you
How is this channel so small?! This is amazing work, instant subscribe
Great video.
I liked how you use the “magic sauce” “ingredients” analogy.
The visual aid and timing is perfect.
Thank you Oby!
Everything about the video is amazing but, particularly, the visuals are stunning!
I'm glad you like them!
There is nothing inherently wrong with PE. Anyone can borrow money and apply the same technique to purchase a small business. In fact, in many ways the industry is a plus, as it provides an exit for many entrepreneurs and business owners. Here is the problem: The early LBO practitioners made incredible returns as the market was nowhere near as competitive as it is today. The key driver of returns to an LBO is the level of debt. They were able to borrow a significant portion of the purchase price and still be able to afford the interest payments; in your terms, the debt was not "back-breaking." However, today you have so many PE firms vying for the same companies that the purchase prices have been driven very high. The PE firms' high returns depend on being able to borrow the majority of the purchase price but, because of the higher prices, the company is not able to meet its debt obligations. Best case scenario: The PE firms slashes and cuts costs (tends to make society unhappy) to meet interest payments. Worst case: Company goes bankrupt. Just like every investment, competition erodes returns, and the PE firms are not willing to accept lower returns and take on less debt. PE can be great if it applied correctly. The real problem lies with the banks who are willing to fund these deals where the pro-forma statements are stupidly optimistic and unlikely to develop.
Good points Markus. I agree with you that many of the negative aspects of PE are to a large extent driven (or at least enabled) by the approach adopted by lenders. But also, and perhaps more importantly, by the lack of proper scrutiny by the investors.
The comment sounds like someone who works in PE, or rather LBO. The video here is accurate regarding PE firms greed and destruction of businesses and industries. LBO's(PE firms) were created in 1980's to strip out assets to the benefit of investors and PE executives. Check out the move, " other peoples money" with danny devito......
@@vincentorlando6767 When people criticize PE firms, they are criticizing buyout funds...AKA. LBO practitioners. Venture capital and growth equity are also forms of private equity but are used by companies to raise capital. I'm not exactly sure what your point is? My point is that if a company goes bankrupt (or employs drastic measures to avoid bankruptcy) then coverage was too tight to begin with
@@mazterz My point is your comments indicate you are very pro PE industry. This video shows the true nature of PE firms. PE is part of VC industry, and yes they have different strategies...buyout, RE, growth, VC. The video points out after all the various expenses totaling like 6 or 7%, not just the 2% management fee, the returns do not justify the investment when compared to other investments
@@vincentorlando6767 I'm not anti or pro the industry. We aren't talking about returns (which historically have been comparatively very good) - the video mostly talks about the process. There is nothing wrong with the process. It is in its application at scale in a competitive environment where things can go south
So unless a company is a publically traded entity, the investor market can't invest in that equity class. Real estate is a great example of this. There are only a handful of real estate entities that are publically traded. That leaves the vast majority of real estate outside of investment.
You are also branding every PE firm in the same light. They are not. The obvious worst case is the Blackrocks and Vanguards, but there's a lot of PE firms out there in everything from Tech VC to Crypto.
You're probably right that not every PE firm is the same. All LBO firms do rely on the same ingredients to create "value", though. The problems are inherent in the business model.
@@TheMarketExit 100%. The LBO strategy is what is causing most of the issues. Carrying that much debt is fraught with risk and requires immediate servicing, which in any company worth buying the first "value" option is cutting costs, and 9 times out of 10 that means payroll..."effeciency."
Access to ridiculous amounts of credit floating around contributed to this. Everybody got "Grabby" trying to corner large market share in various markets. Hopefully that will continue to contract. It's like they totally ignored 2008.
At the same time, beyond LBO, even minority stakeholders who happen to be big players are causing all kinds of problems. Blackrock and Vanguard with their nose in everyone's business and trying to play cultural dictator is starting to produce a huge backlash.
Crazy quality, thank you!!... I bet you will have 100k followers in 2 months...
Thank you very much -- I will keep making videos as good as I can and hopefully the audience will follow :)
12:09 is completely misleading and dishonest. Cash flow is a major factor is what differentiates a great company from a mediocre company. This isn’t just used for the PE firms to try to squeeze every dollar out of these companies, it’s to actually create a healthier business that will have more lasting power in the market. Not all are successful in making these companies better but to portray these firms as evil and say they don’t care about these businesses is flat out wrong.
Really, you believe they operate out of altruism?