PRIVATE EQUITY 101
WHAT, REALLY, DOES A PRIVATE EQUITY MANAGER DO?
BOTTOMLINE
A good "return" is required in order for people to invest, especially in risky companies needing rescue.
Risky investments average greater return, but some just can't be saved.
Costs must be cut to save poor performing companies (as with General Motors, for instance)
Good "regular" people are investors (pension funds, unions, foundations provide 60% of the money).
Borrowing allows for providing dividends to the investors, as a return for their investing.
Not "evil", but make valuable contributions - Private equity firms are of great benefit, and some deals simply don't work, but they don't try to not have them work! (i.e. they only borrow based on a lender saying it is feasible to borrow; they are doing their duty to return money to the investors; they are not charities as that would be cheating the investors; just a reality of business).
Those who evilize and lie about it are not to be supported in politics.
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NOT responsible for:
Issues that were not a national issue at the time: Outsourcing
(Romney only did that to save a company when all else would not work, saving some jobs in the US that
would have been lost if the companies went broke!)
Creating jobs just to create jobs (and an expectation of that is complete nonsense; however the byproduct was
the saving and the creation of more than 100,000 jobs)
It is naive at best and politically misleading at worst to imply or say otherwise. Do not be fooled by that. It is a non-issue, but attention will be directed to these, as the voters are considered to not be knowledgeable enough to know better and certainly the politicians want to not give them the facts!!!!!
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GOOD RATE OF RETURN REQUIRED TO INVEST IN HIGH RISK COMPANIES
Capital cannot be raised if it doesn't have sufficient returns for taking the risk.
Doesn't that make sense?
DIVERSIFICATION TO REDUCE RISK
A company must invest in several different companies so that it protects against having a few companies not being rescued. Make sense?
The ones that are successful turnarounds must have a high return to offset the complete loss on the unsuccesful ones. Make sense?
Yes, by definition "risk" means you'll lose some sometimes, but to call the loss intentional or "bad" or to say a manager is better off by losing money is preposterous, prejudiced, and certainly misleading.
Doesn't that make sense?
REAL, GOOD PEOPLE BENEFIT FROM THE PROFITS
Although some people are prejudiced against the wealthy, 60% of the money was provided by pensions, unions, foundations, and endowments, all benefitting non-rich Americans.
So, it would seem there is no reason to oppose their interests.
Doesn't that make sense?
HOW DO YOU GET MONEY TO THE INVESTORS FROM A "GROWTH" COMPANY?
This is definitely a "101" concept.
Growth companies and companies where money must be invested in building the company don't have extra cash flow, as profits are put back into building the company. Some companies on the stock exchange never give out dividends, because they want to grow. Make sense?
In order for a private equity firm to get a "return", which means "money, cashola", it must often borrow against the increased value of the company. The lenders lend based on the strength of the company so this obviously is no "ruse"; obviously the equity firm and the company managers had first to have built up so it was worth something(!) . They borrow a portion of some of the growth and give it out to the investors as dividends - for the investors do not make a return until they get actual cash!
Does that make sense?
And those who attribute some evil motive to this are either 1. totally ignorant (and therefore shouldn't be commenting at all) or 2. they are being dishonest, deceptive, attempting to mislead people who don't know better. No company in their right minds tries to hurt a company and no company can anticipate the future perfectly so there must necessarily be some risk in borrowing - but it is surely not evil or "vampirish". (Those who impute such motives are putting out total bullbleep!)
Does that make sense?
OBVIOUSLY, JOBS ARE SAVED, THOUGH SOME TRIMMING IS NECESSARY TO SURVIVE
A good example of a company going through a rescue process is General Motors, which went through what Romney had recommended, a "managed bankruptcy" to reorganize and trim down in order to survive.
Dealerships were closed, many jobs were lost (as the company couldn't afford to carry workers who weren't producing, as demand was too low), pensions were trimmed back, union power and benefits had to be trimmed back... and so on.
Was this evil? (Obama says it is, when applied to Bain, but not to his own doing. Think about that.)
Or was this the right thing to do?
Doesn't that make sense?
OVERALL SUMMARY
There is no "evil" and terribleness about rescuing companies, unless you want to say the General Motors rescue was unjustified. All companies are trying to do well for their investors. Not all companies make it.
There is much benefit from saving jobs and from making money for the investors. That is all good - and show the benefits of capitalism - and of good management. Saving (and creating) are good things.
Doesn't that make sense?
Obama's Dishonest Ads - Rebuked even by Dems.
Bain Capital (and Romney record): "the gold standard of ethics in the industry"
Interesting:
The Actual Facts Of What Romney Said About Detroit - He said to restructure it in managed bankruptcy so it would be economically viable, so that it would then be safe for the government to guarantee the companies borrowing He did not say to let them go out of business!!!! If you read past the title of the article, you'll see that!
