Thursday 8 March 2007

Investigation into Private Equity?

According to the BBC yes, but I notice the terms and conditions of the inquiry mean that there will be no actual result. This is a classic NuLab response to any issue of the day, just like John Reid earlier in the week; something must be seen to be done.

This is more important than anything actually being done. Which of course they can't do, as they don't have any answers.

13 comments:

Anonymous said...

Financial Engineering in the 21st Century (no.1 in a series of 13)

While they are looking into the role of PE, how about an enquiry into off-balance sheet finance, huh?

I know which one is the more likely to bring down the pillars of the Temple...

CityUnslicker said...

too right Nick; where angels fear to tread.

Anonymous said...

I don't fully understand how private equity works.

I don't understand how they can borrow money to take a company over, load that company with debt, then bugger off having sold all its assets and left it with their debt - if, indeeed, that's what PE firms do.

Is there an idiot's guide to it anywhere?

Pogo said...

It appears to me that there's a horrible similarity between today's private equity and yesterday's "Milken era" junk bonds...

One can only hope that the fall-out, if and when it comes, isn't quite as devastating.

CityUnslicker said...

Rick - see some of my posts from Sept 06.

Pogo- yes, it has many similarities to junk bonds.

Anonymous said...

In fairness PE covers a very wide spectrum of different investment approaches.

Some PE money has definitely been flipped in a very short timeframe. But there is so much PE wonga looking for a home that some funds are now looking at holding assets over a longer period.

There is even talk of PE investing in nuclear power! Sounds like anathema, and indeed it would be to some funds: but it just goes to show what a wide spectrum is out there.

James Higham said...

PE in nuclear? Chernobyl here we come.

Prodicus said...

'PE' has recenlly been discovered as a new enemy by the Guardian-believing classes. It's nothing more what we used to call venture capital, according to Evan Davis. People with money backing someone else's business in the hope of a profit but at very high risk. Some win big, some lose big. It is the very foundation of business, and of profit-making which is otherwise known as pension-earning (for the general public). Investigate it? First they should read a GCSE textbook on economics. Typical left wing poncery.

CityUnslicker said...

ND/prodicus - I think this shows how the governments of the world have allowed the excess liquidity in the system to beomce an issue. there is literaly too much money; it will chase more risky projects which will fail and therefore cause real loss. This is a huge mis-alllocation of resources.

It is fine to say the government does not understand; they don't. however, it does not mean that the PE houses are a froce for good. They are not, vulture capitalists are a danger, for the reasons above.

Anonymous said...

At the risk of going round in circles, CU, I don't think you can safely generalise quite as much as that. Not all PE activity can properly be characterised per your 11:49. I have seen some very striking improvements in allocation of resources effected by PE initiatives.

Heaven knows, there is enough inefficiency and mis-allocation of risk & resources still to be addressed in the publicy-quoted corporate sector (let alone the public sector itself).

CityUnslicker said...

ND - Of course the public sector would be worse. I am sure though the the asset bubble allowed by US/Japan has creadted money to chase risky chances. A lot of this has been put into hedge and PE funds; very risky for the economy as a whole.

Pe does of course work to reform companies, however it is at risk of irrational exuberance in the current market climate.

A less liquid global market would mean more money invested in less risky alternatives than the current PE investments (some are at debt to earnings rations of 10x, tell me how these are going to work.). of course

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