From Socialist Voice, April 2011

Private equity’s opportunity

Like vultures—and some are actually known as “vulture funds”!—private equity is hovering, waiting for a victim to devour. The victim will be the cheap purchase of a state company or assets, as states, burdened by banking debt, seek to raise capital by any means necessary and to support their class allies in big business and finance capital.
     In the case of Ireland, the Fianna Fáil Government had commissioned a second McCarthy Report to assess the readiness of state companies and assets for sale. This position was further enshrined in state policy by the terms of the EU-IMF deal that specifically mentions this report and dictates the privatisation and sale of assets in return for their imposed loans.
     Private equity funds do not invest to build or sustain a company or service. They do so to make a quick profit, specifically at the expense of the company, its employees, and those who rely on its service or product. They do so initially through what is known as a leveraged buy-out, where the debt amassed to make the purchase (and any other debt the investors may have) is loaded onto the purchased company. They then strip the company’s assets: anything of value is siphoned off or sold, with no consideration for the future of the company. In addition to this, any capital reserves are raided and pension funds devoured, leaving a carcase and a shell of what used to be.
     The present crisis has been described as the perfect opportunity for the vulture funds, a particularly vicious branch of private equity; and so it is interesting to report a recent insider account of what happened when private equity met at the “Super-Return” Conference in March.
     73 per cent of those who attended this conference did not disagree with the description given above of their activity and admitted that they “only add value some of the time.”
     David Bonderman, founder of Texas-Pacific Group, now known as TPG Capital, suggested that this year would see a return to massive activity, as private equity globally has been sitting on approximately $450 billion worth of savings—sitting and waiting for states to become increasingly desperate to sell.
     “When governments are selling, you should be buying. And when governments are defaulting, we should look at that as an opportunity. Prices are always lower when the troops are in the street. A good default, like Portugal or Greece, would be very good for the private equity business. Might not be so good for the republic, but it would be good for us.”

Home page  >  Publications  >  Socialist Voice  >  April 2010  >  Private equity’s opportunity
Baile  >  Foilseacháin  >  Socialist Voice  >  Aibreán 2010  >  Private equity’s opportunity