Talk:Private equity

What about the public policy aspects of Private equity ownership?

I'm not a financial expert, but it seems glaringly obvious that no one has discussed whether or not this type of ownership is good thing for a nation's citizens. Not just it's wealthy citizens, but ALL it citizens. I suspect that there's something bad-smelling about this type of 'secret' ownership.

This is emerging as a significant subject in UK politics; I was surprised not to see anything about it here. 86.132.137.36 01:57, 10 July 2007 (UTC)

This article truly should cover criticisms of the private equity industry that have recently intensified, specifically allegations that private equity firms doctor balance sheets without actually repairing businesses and concerns about insufficient taxation of private equity partnerships. —Preceding unsigned comment added by 128.36.22.34 (talk) 04:15, 14 December 2007 (UTC)

I'd argue that you have already identified exactly why one needs to be extremely careful when discussing "criticisms" of any particular activity. You quite rightly pointed out that certain interest groups have made allegations that private equity managers have not actually made measurable improvements to investee companies. However, that is all most of these in fact are; allegations. While I do not disagree that broader social issues could well be a useful point of information for this topic, one must be careful to also note the motive/s of the abovementioned interest groups (typically these motives are political, based on the number of senate and congressional inquiries). Notwithstanding that the private equity industry has issues, the argument can be made for such a section in articles about any type of investment activity. Your suspicion about the "smell" of what you classify as secret ownership is concerningly narrow in focus. Trading in public markets is arguably worthy of more intensive scrutiny because it is just that "public". The current US Senate investigations into alleged price manipulation in trades of Lehman Bros stock highlights this point.

Josephus1972 (talk) 11:36, 27 August 2008 (UTC)Josephus1972

• A source into the much larger media discussion on the above topic: the workers, companies burdened by enormous debt to fund the purchases and dividends demanded by private equity funds, and communities afftected by the results of private equity funds, and the frozen status of many funds as a consequence of the drastic reduction in lending for this kind of purpose, and describing equity funds that made money, despite the company being owned going into bankruptcy.
  Creswell, Julie (October 4, 2009). "Profits for Buyout Firms as Company Debt Soared". New York Times. Retrieved October 4, 2009. {{cite news}}: Cite has empty unknown parameter: |1= (help)
  -- Yellowdesk (talk) 17:15, 5 October 2009 (UTC)

I am in favor of including WP:NPOV additions on this topic if something constructive can be proposed. I would like to see what suggestions people have to make on this front as most of the comments above are not going to pass neutrality tests. The entire topic really has more to do with the specific actions of individual firms and people rather than of the financial topic, private equity. The NYT article is about one specific deal done by one specific firm, Thomas H. Lee Partners. Would someone care to generalize that for the entire industry? What about the role of Ares Management that is on the other side of the transaction, "rescuing" the company from bankruptcy? Additionally, the risk of default / bankruptcy could be discussed in more detail in the Leveraged buyout article |► ϋrбanяeneωaℓ • TALK ◄| 18:00, 5 October 2009 (UTC)

• I speculate, without having done any research, there certainly must be more than a few articles about the frozen state of the private equity world at this time, in a parallel to the evaporation of many hedge funds, because of the lack of lending, and the greater uncertainty of achieving a result because of a more uncertain public equities market. Perhaps even an overhang of systemic bankruptcies is likely to be written about as well.
  -- Yellowdesk (talk) 05:07, 6 October 2009 (UTC)

Are you talking about looking at the topic from a historical perspective on how the pace of private equity investments slowed in 2007-2009? There is already some of that in History of private equity and Private equity in the 2000s. I am all on board with tracking this development although it probably should not be written in the moment but with a little hindsight - which is where I think those articles are now. I think the real topic that will be discussed is the large amount of capital that is still committed to private equity and its potential uses. There is an overhang of oveleveraged companies although I am not sure what makes that systemic. Interestingly in late 2008 / early 2009 there was a lot written about massive numbers of bankruptcies and the closure of half of the private equity firms as a result of the financial crisis. the PE world has not been nearly as impacted on that front as hedge funds where investors can pull out their money. Again - feel free to be WP:BOLD and add something to let others comment on. |► ϋrбanяeneωaℓ • TALK ◄| 12:47, 6 October 2009 (UTC)

Yes, an historical perspective, in addition to a review of the consequences of the private equity industry. These are probably best separate articles. Here's another example, similar to the previous item. -- Yellowdesk (talk) 04:27, 11 October 2009 (UTC)

• Fabrikant, Geraldine (October 9, 2009). "Debt Trips Up Hinckley, Venerable Yacht Maker". New York Times. {{cite news}}: Cite has empty unknown parameter: |1= (help)

Give it a try but the tone of that article does not approach WP:NPOV. The "consequences of the private equity industry" is not an NPOV concept. |► ϋrбanяeneωaℓ • TALK ◄| 12:50, 11 October 2009 (UTC)

Removal of automotive section

I removed this edit about a news story regarding a car dealership business. That would be appropriate for a news report about the subject, but I don't think it belongs in an encyclopedia article about private equity as a whole.—DMCer™ 08:47, 28 January 2008 (UTC)

Why a LP?

Why is the fund that owns the investments a limited partnership if it has no loans? Couldn't it just as well be a limited liability company or an unlimited partnership then? Is is because of laws regarding other differences betwen the general and limited partners other than about limited liability? For example on influence over investment decisions or about what information about the investments or the firms performance have to be shared?--JR, 17:42, 12 May 2007 (UTC)

Private equity is typically structured as a limited partnership because the investors do not seek to exercise any management control over the investments and it provides limited liability to the investors. Funds could potentially be structured as LLCs however LLCs are newer than LPs and as such LPs are the traditional structure and investors are accustomed to the terms set forth in the limited partnership agreement. Also, certain states and foreign jurisdictions tax LLCs less advantageously than LPs and LLCs have had more issues than LPs of treatment as a disregarded entity creating liability for passive investors.Urbanrenewal (talk) 17:31, 8 May 2008 (UTC)

Disambiguate, please

Can someone who understands this article disambiguate the term "equity" used in the lede?  --Lambiam 12:00, 12 August 2008 (UTC)

User:Urbanrenewal changed it to point to stock. I think Ownership equity is better though. For some reason we also have Shareholders' equity. Zain Ebrahim (talk) 12:52, 12 August 2008 (UTC)

Record Private Equity Deals

The following section was removed from the article due to the fact it is outdated and needs to be replaced. I believe TXU is now the largest deal. Not sure what the criteria for "individual" deal is? As buyer? As seller? I don't think that is the largest LBO by an individual.|► ϋrbanяenewaℓ • TALK ◄| 22:23, 4 January 2009 (UTC)

The largest private equity deal of all time was that of Equity Office Properties Trust which was acquired by Blackstone in 2007 for $38.9 billion an increase of $3.1 billion because of intense bidding war.

The largest private equity deal for an Individual was the sale of London City Airport, Dermot Desmond purchased the airport for an estimated £25 million in 1995. In 2006 a consortium of AIG, GE Capital and Credit Suisse paid a reported £1.65 billion of which Dermot Desmond gained £1.2 billion.

GA Review

This review is transcluded from Talk:Private equity/GA1. The edit link for this section can be used to add comments to the review.

This article does not meet the good article criteria and has too many issues. It has therefore failed its nomination. Issues include but are not limited to:

• The lead does not adequately summarize the entire article. It needs to be longer, around three paragraphs per WP:LEAD.
• There aren't enough inline citations to verify the information in the article. It starts off well referenced, and then not so much later on.
  • "Investments in private equity" is unreferenced
  • Same with "Liquidity in the private equity market"
  • And most of "Private equity firms"
  • Along with most of "Private equity funds"

Questions and comments placed on this page will receive responses. Once these issues have been resolved, feel free to renominate the article. Thanks! Gary King (talk) 17:14, 5 January 2009 (UTC)

Australian Tax Office relied on Wikipedia reference (this Article)

I don't know whether to be proud of Wikipedia, or ashamed of my Tax Office!

"THE Australian Tax Office faces international embarrassment after it used the online site Wikipedia as a source for a ruling affecting the fate of hundreds of millions of dollars. Wikipedia has been criticised for the quality of its information, but the ATO trusted it enough to use it for a definition of the business term "private equity"."

Malcolm Farr From: The Daily Telegraph(Australia) December 18, 2009 7:19AM Australian Tax Office relied on Wikipedia reference --220.101.28.25 (talk) 11:02, 18 December 2009 (UTC)

I think it is because they are not given access to proper resources and so have to rely on wikipedia. —Preceding unsigned comment added by 124.187.212.131 (talk) 11:25, 18 December 2009 (UTC)

incomprehensible intro

Someone objected to my attempt to make the intro less confusing. They said private equity refers to the asset class not to simply non-public equity. That is however incomprehensible mumbo-jumbo for most readers, which in addition contradicts the explanation of private equity in numerous reference works. Most WP readers have no idea what an asset class is, and the link doesn't help because it leads to asset allocation. In addition, the intro should first say what private equity is and not first unnecessarily and confusingly explain that stocks (not stock securities) are an asset class. And most WP readers also do not understand the confusing term equity, especially because it means many different things in English. In addition, the unnecessarily confusing word links to the article stock and this does not explain what equity is. Let's stick to something comprehensible like this. --Espoo (talk) 17:12, 17 January 2010 (UTC)

Hello! I will attempt to rewrite the intro into simpler words. I agree with you that as of now it is not very clear. Best regards,BruceMiton (talk) 11:59, 30 August 2017 (UTC)

why 11bn loan on books of acquired company but not in private equity investment firm company?"

Under 1.1 "simple example", i would like to question why the 11bn loan appear on the books of XYZ company(the acquired company) and not on the private equity investment firm?? — Preceding unsigned comment added by 220.255.1.165 (talk) 17:57, 17 December 2011 (UTC)

Move history section up?

I think it makes more sense to put History and development second—immediately following the introduction—rather than how it is now, jumping right into Leveraged buyout second. (The article might benefit from a further re-organization, but I think this would make a big difference to start.) Any objections? If none in 24 hours, I'll make the change. Disclosure: an indirect client of mine is a private equity advocacy organization, and as such I have a possible COI with the topic. If I propose any further changes, I'll always bring them here first. Cheers, WWB Too (talk) 18:08, 15 December 2011 (UTC)

Sorry, I would object on the grounds that the sections Leveraged buyout to Other strategies expand on concepts introduced in the introduction, and so logically follow the introduction. Surely the best place for History and development is after private equity has been defined in full. AWhiteC (talk) 20:41, 15 December 2011 (UTC)

Thanks for your response, AWhiteC. I don't agree that Leveraged buyout "follows logically" from the introduction. (And shouldn't the intro say something about the history of private equity?) I realize that the order of the first four—actually, seven—sections mirrors that of the introduction, but I still think it's more than a little confusing to jump from the intro to one specific strategy. Perhaps then what makes more sense is to create a parent heading for these seven sections, with a short introduction identifying them as significant strategies private equity firms may use. What do you think? Cheers, WWB Too (talk) 15:02, 20 December 2011 (UTC)

I liked the idea so much I did it! Please feel free to reverse it or change it if it's not what you intended. A paragraph on history would be a good addition to (maybe the end of) the intro. I don't feel qualified to do it; feel free! AWhiteC (talk) 18:30, 21 December 2011 (UTC)

Hey, very cool. Glad we could agree on it, and it's certainly a good start. My goal really is to make the page more accessible, which I realize is no small challenge. I'll think about it and see what advice I get, and aim to suggest any major changes here before implementing directly. Cheers, WWB Too (talk) 18:45, 21 December 2011 (UTC)

nurture expansion,?

and new product development? As I understand it this is a lie, the opposite of what these firms do. Also isn't this distinct from "venture capital" which is presumably involve in pre IPO companies whereas a company has to have substantial public equity to get the attention of these entities. 72.228.177.92 (talk) 19:14, 11 January 2012 (UTC)

I think its fair to say that there's private equity narrowly defined (leveraged buyout) and private equity broadly defined (leveraged buyout + venture capital + other less important stuff). The latter is used more in Europe (inc. UK) I hear, and the former is more American usage. Do you still think there's a problem with the text? Wildfowl (talk) 22:15, 11 January 2012 (UTC)

It appears unchanged, I suppose the POV about which I'm most passionate is best served if it stays as it is/made more so. However the feedback would be just make it factual and consistent with accepted usage, which as I understand it assigns the "corporate raider" role to this, it's the bogey of capital or something, seen all kinds of statements to that effect in the capitalist press, Forbes and the like, and with other articles. In this case letting the masking go forward is better than trying to pull it off. Those pushing the opposite POV would be better off taking the creative destruction line than attempting the big lie, if they were you know, smart. 72.228.177.92 (talk) 08:17, 12 January 2012 (UTC)

I only suggest to the author of this comment to read the following article: http://www.vernimmen.com/ftp/21_11_2011_What_is_private_equity.pdf. Also, as Wildfowl points out, there are different types of PE deals. — Preceding unsigned comment added by 80.12.92.32 (talk) 13:16, 22 May 2014 (UTC)

Criticism section

Does anyone think we ought not have a sub-section for the criticism of this industry? There's been plenty of it recently. The Sound and the Fury (talk) 22:21, 23 January 2012 (UTC)

• As long as it adheres to WP:NPOV I think it should be fine to include discussion of the recent political discourse. I don't think wikipedia is the appropriate forum to start trying to make one case or the other. |► ϋrбanяeneωaℓ • TALK ◄| 04:40, 25 January 2012 (UTC)
  • I agree, of course. We don't make cases here, but it would make sense to include these prominent criticisms. A piece in New York Times today discussed this very question, in fact. Finance can be hard for outsiders to understand. The Sound and the Fury (talk) 15:28, 25 January 2012 (UTC)

I agree, due to the complexity of the issue it is difficult for people to form an opinion on private equity banking on their own. Therefore we need to present the reader with different views on the subject. — Preceding unsigned comment added by 77.251.3.219 (talk) 16:30, 21 May 2012 (UTC)

Proposed paragraph reorganization

In December I made a few suggestions on this page, and one minor edit to the article on behalf of a client, PEGCC. Now I have another suggestion regarding the Private equity fund performance, which I've described in detail at WikiProject Cooperation. I'd like to focus any discussion over there, so I'd like to invite anyone watching this page to offer feedback, and even to make the changes if you agree they're appropriate. Cheers, WWB Too (talk) 23:27, 10 February 2012 (UTC)

PE and HF

I don't understand the meaning of this sentence "Private equity specialization is usually in specific industry sector asset management while hedge fund specialization is in industry sector risk capital management." AliceStanley11 can you clarify? The Sound and the Fury (talk) 22:17, 18 June 2012 (UTC)

I agree. The sentence either makes no sense or is unclear Jaeljojo (talk) 22:21, 7 July 2012 (UTC)

The "simple example"

Are there any objections if I rewrite the "simple example"? The present one is unreal (just above 20% equity), has the wrong size (most PE deals are much smaller), deals with public companies despite the fact that most PE deals are in private companies and claims PE go for fast sale only and claims that PEs do nothing but wait and sell when market is up. Somewhat biased I would think ... Jaeljojo (talk) 22:24, 7 July 2012 (UTC)

Please could you post your revised version here first? I am the author of that example. It is actually based on an example given in Peston's book (see citation given in article) but with names and numbers changed to avoid copyright issues. I therefore think it is a valid example. You obviously think otherwise. Let's talk about this in earnest in this Talk space. I am open to persuasion! Wildfowl (talk) 19:38, 9 July 2012 (UTC)

Sure. I did not mean to say that the example you mention is wrong but I think it deals with a situation that does not happen too often (as laid out above). Please see my attempt below:

A private equity fund raises USD 100 m based on a certain investment strategy (what industries to invest in, whether to go for minority investments or majority investment, what they intend to do with the companies during the holding period, how long they intend to hold companies, and so on). After one year of searching, they find a company that attracts them and that is up for sale. They agree to buy the company for USD 50 m. As the company has stable cash flows and a good asset base, they get a bank loan of USD 25 m that helps finance the acquisition and they use USD 25 m of the money they raised from their investors to pay for the USD 50 m. They improve the operations of the company and manage to grow the sales of company so that when they sell the company 4 years later, they manage to get USD 85 m for it. As in these four years, they paid back USD 10 m of the original USD 25 m bank loan, they get USD 75 m for themselves, meaning that they tripled their own investment of USD 25 m, even though the value of the company increased by only 70%.

I think this is closer to the real situation and I believe it explains the concept better. please let me know what you think. Sorry it took me 4 days to reply, will be faster next time. Jaeljojo (talk) 17:31, 13 July 2012 (UTC)

Regarding your objections, I have carefully checked the present example against the source, which I regard as reliable (the BBC's business editor), and I feel that it is valid. Feel free to add your example if you wish, but I would not be happy to see my example deleted. There is no escaping the fact that there are controversies around private equity; I feel that my example airs some of those in a restrained way, whereas yours gives the impression that PE is "just another business activity". Regarding your detailed criticisms:

• The present one is unreal (just above 20% equity) – all I can say is that it is taken from the book.
• has the wrong size (most PE deals are much smaller) – big deals are more important that smaller ones; the days of big deals may yet return.
• deals with public companies – not explicitly public, just big.
• claims PE go for fast sale only – PE must always hurry because otherwise a huge interest bill would arise.
• claims that PEs do nothing but wait and sell when market is up – no, only suggests that PE operations are much more profitable in buoyant market conditions.

Let me know what you think. Incidentally, do you have any kind of stake in private equity? (I do not.) Wildfowl (talk) 20:18, 16 July 2012 (UTC)

Sorry, you are very wrong. Whatever you think about private equity, an example should be neutral and real and not unreal and biased. It does not make it more real and less biased that a BBC guy wrote it. 20% is absurd (infact you are below 20%). Why should big deals be "more important" (important for what?) and by the way big deals have never disappeared they are just not representative of the industry. The example explicitly mentions "stock markets soar" so why do you talk about "not public just big". "PE must hurry otherwise huge interest bills would arise"? This has nothing to do with reality. I suggest you inform yourself about cost of capital. If you want to criticize private equity, write a section "criticism of private equity".

I am fairly new to Wikipedia and I am quite disappointed about the poor level of articles when it comes to economics and specifically private equity (check "management buy-out" for another example). If you want to keep you example, fine, I will not pursue as with two people only participating in a discussion, it is kind of hard to form a majority opinion and this is what Wikipedia I thought is about. If no one else cares about this issue, well, this is another message for me. And by the way, how can one have "a stake in private equity"? I am a chemist by education, so do I have a "stake in chemistry"? I am interested in good articles about private equity and chemistry and infact many other areas and this article on private equity is not good because it is biased and factually wrong. Jaeljojo (talk) 21:09, 16 July 2012 (UTC)

You seem to me to be energetically biased in favour of private equity. I note that you have not answered my question about whether you have a stake in private equity or not. I would not be in favour of you altering this article. If you think the article is factually wrong, please give details here rather than alter the article. Wildfowl (talk) 20:37, 17 July 2012 (UTC)

I will modify when I get time and then the community can decide. Jaeljojo (talk) 22:05, 18 July 2012 (UTC)

I work in Private Equity (which I understand can modify my perception of PE, since it is very different from Wildfowl's). I agree 100% with Jaeljojo on the following points: Big deals are not representative of the industry. Apart from personal experience, some objective data can confirm that average size is between 100mUSD and 300mUSD. Please check http://www.pwchk.com/home/eng/pr_260214_2.html for more info. Moreover, the financial leverage is clearly absurd and has never been seen in the last twenty years. However, a study from the Tuck School of Business points out that in 1988 Equity contribution on deals was of 9.8%. (http://pages.stern.nyu.edu/~igiddy/LBO_Note.pdf). I believe this particular example is purposefully depicting Private Equity (and specifically LBO operations) as not only megalomaniac but also purely financially driven, when it is not the case. It is true that some operations go sour, and a criticism section is much welcome, but this simple example is plain wrong. Also, Jaeljojo is right when he points out that "PE must hurry otherwise huge interest bills would arise" is factually wrong. Moreover it is in contradiction with the (also factually wrong) statement that loan/equity is left on the books for the company to pay after the exit. The example given by Jaeljojo, which is also an over-simplification and gives the example of a perfect investment, can be used to present a good case. Then, we could explain what happens if the bought company does not generate sufficient cash flows and does not meet expected returns on investment (in which case the financial leverage increases the value-destruction). This way both sides are explored in an unbiased presentation. Also, Wildfowl should learn more about Private Equity. — Preceding unsigned comment added by 80.12.92.32 (talk) 13:19, 21 May 2014 (UTC)

Hi there, Wildfowl here! "Wildfowl should learn more about Private Equity" – Wildfowl agrees! He/she/it has nothing to do with the PE industry, but tries hard to keep abreast of what it is up to. What would make you happier with the example? We could scale down the sums involved by a factor of ten, say. We could reduce the leverage. We could put in some words about improving the functioning and profitability of the company. Maybe the statement about hurrying could be toned down or omitted. Maybe the risks of PE operations could be mentioned. But there's only one problem – we would not be able to cite the given source. I think having a citation is important where there is controversy, as here. I don't think Jaeljojo has a citation. Where does that leave us? Possibly looking for a well-sourced example that doesn't offend private equity industry people. Thoughts? Wildfowl (talk) 18:22, 21 May 2014 (UTC)

Hi Wildfowl! I'm the guy who commented yesterday. I get your point, having sources is an important feature when making an argument, specifically for this example. I have found two explanations that might allow us to find an agreement. The first one is www.cba.uri.edu/tong/l7_private_equity.ppt, which provides a ppt presentation of the Private Equity industry. Please look into slides 9 to 11 for the construction of the specific example. Slide 11 provides a clear and simple table that explains value creation for shareholders in a LBO operation. However, it assumes entry multiple and exit multiple equal (which is not always the case, and is not in line with one of the current statement "the stock market is experiencing a bull market", even though this statement implies an IPO exit, which is not that frequent). And, more importantly, it does not look into the option of a bad investment, that generates insufficient cash-flows and therefore does not allow for deleveraging. This ppt presentation is hosted by the University of Rhodes Island (cba.uri.edu is the website of their College of Business Administraton) and cites "Training the street, Inc" as their source. My second explanation comes from an associate professor that teaches in my school (HEC Paris) and can be found here: http://www.vernimmen.com/ftp/21_11_2011_What_is_private_equity.pdf. In my opinion, the article presents Private Equity in a very laudative/positive way. However, I just wanted you to read points 7 and 9, respectively titled "Why do some people criticize Private Equity?" and "What is the social and economic impact of Private Equity?". I would like to emphasize the first phrase in point 7, that is "Private  equity,  and  in particular the buyout segment (LBO),  is sometimes  criticized  in the public debate". The important point is that people often think that buyouts (LBOs) and Private Equity are one single thing, when in fact LBOs are only one type of operation (yes, it is the main operation, both in value and in volume). In that respect, giving a simple example that oversimplifies one type of operation, and assumes this operation is huge by nature, and assumes that money is only by financial leveraging and timing of exit, leads the reader to heavy misunderstandings. The initiative of presenting an PE deal in a simple way, without the financial lingo and exotic figures/concepts, is crucial. But it is so important that it cannot mislead the reader, especially since they have no idea and therefore are not able to see through the bias. Please tell me what is your opinion on my comment. If you want to, I can build a table using exactly the same figures as in the PPT presentation I suggested, and I can add 2 columns to show how a bad investment can go sour. — Preceding unsigned comment added by 80.12.92.32 (talk) 12:59, 22 May 2014 (UTC)

Hi 80.12.92.32, I have made some changes to the article to address some of your points. See here. You might be able to supply citations for the two final notes. I think the PowerPoint presentation you quote does not provide a full example, but I might be wrong. Feel free to compose an alternative example, which might perhaps be presented in addition to the Peston example, as a typical "non-mega" deal. Wildfowl (talk) 18:46, 22 May 2014 (UTC)

Hi Wildfowl. Thank you for addressing some of my points. I acknowledge the changes and I believe they are going in the right direction. However, I still am not satisfied with tis presentation of the deal. I will look into this weekend and try to find sources. — Preceding unsigned comment added by 80.12.92.32 (talk) 11:40, 23 May 2014 (UTC)

Hi Wildfowl. I also had another question. I do not understand why you mention "The lenders (the people who put up the $11bn in the example) can insure their loans against default, at a cost, by buying credit derivatives, including credit default swaps (CDSs) and collateralised loan obligations (CLOs), from other institutions". While it is possible (given the size of the debt in your example) that those banks actually do buy credit derivatives following the operation, it is not the initiative of the Private Equity fund, nor the initiative of the bought company. Furthermore, what the bank does with the loan has nothing to do with the operation itself, it's just a part of how the bank manages its risk. Would you mention in the article "House" that the Collateralised Debt Obligations created by banks to resell junk credit (loans given to people who could not afford them) is part of the financial transaction that involves a family buying a house from a Real Estate company? I think not. As the image associated with CDOs and CDSs (which are very complex operations) is usually very bad, I think mentioning them just hurts Private Equity for no reason. Also, and just for your information, when the debt is that big, banks refuse to lend the money alone. They will start an operation called "syndication" of the loan which means several banks will participate in the loan under the lead of one institution. Thus reducing the exposure of each lender to counterpart risks. — Preceding unsigned comment added by 80.12.92.32 (talk) 16:34, 23 May 2014 (UTC)

Noted. I guess there's nothing wrong with giving an idea of the overall financial context. "As the image associated with CDOs and CDSs (which are very complex operations) is usually very bad, I think mentioning them just hurts Private Equity for no reason." – WP:NOTPROMOTION. Wildfowl (talk) 20:53, 23 May 2014 (UTC)

I think there is something wrong with that statement. As explained previously by Jaeljojo and myself, Private Equity deals are much smaller than that and will at most require syndication of the loan. Credit derivatives are not a consequence of the LBO and should not appear anywhere in this article, and much less on the simple example people will turn to in the first place. Could you please provide a reason other than the one you provided? It leaves me very unsatisfied as I fail to understand how CDOs and CDSs are related to Private Equity. I am sure you did not mean to purposefully lie to the reader of the article or imply that those two operations are correlated when you know they are not. I therefore deduce that you know why those two operations are correlated, and I assume you have taken that from Peston's book. I believe those two operations have nothing in common except that banks are protagonists in both. Please give me your understanding of the subject, and ideally proofs. I would like to thank you for this debate, as it is done in good faith by both sides. — Preceding unsigned comment added by 79.85.116.223 (talk) 14:43, 24 May 2014 (UTC)

Please do not suggest that I am lying – I find that very offensive. There is absolutely no lying going on. Incidentally, as you are very vocal in defence of the Private Equity industry, can I ask: in addition to working in PE, are you being specifically paid for this work, or were you asked or instructed to do it?

I have adjusted the article. I do not know whether that meets with your approval. There is no harm in the mention of credit derivatives in the first note; Private Equity does not exist in a vacuum; it is important for the reader to understand how Private Equity operations interrelate with other operations of the financial services industry, in my opinion. The purpose of this article is to explain about Private Equity, not to sanitise it. Wildfowl (talk) 22:11, 24 May 2014 (UTC)

P.S. Please add four tildes (~~~~) after your comments to sign them. — Preceding unsigned comment added by Wildfowl (talk • contribs) 22:14, 24 May 2014 (UTC)

Hi Wildfowl. I did not suggest that you are lying. It is exactly the opposite. I suggested that you were acting in good faith and that the only reason why you mentioned CDOs and CDSs is because you really thought they were related. I am just trying to understand your point of view. To answer your question, I am not paid to do this work, and I do not wish to sanitize Private Equity. I am an analyst in a French Mid-size PE firm and I am contributing to this article because I feel like I have the knowledge that makes my interventions relevant. What I was trying to say is that I felt you were really trying to understand Private Equity and I still think it is the case. As such, I would like you to understand that Private Equity firms and banks are two different institutions that have nothing in common. The bank gives funding (through debt) to the Private Equity fund and the bank deals with its risk exposure through operations like CDOs and CDSs. I can put it this way: if Private Equity did not exist, the banks would still create financial products like CDOs and CDSs. Therefore, and in my most honest opinion, I fail to understand how mentioning CDOs and CDSs in this article is relevant. For a comprehensive understanding of Finance,and the different players involved, I suggest that you read the excellent book called "Corporate Finance", written by Pierre Vernimmen, Pascal Quiry and Yann Le Fur. I believe there is a difference between promoting Private Equity, and criticizing/suggesting to remove statements that have nothing to do with Private Equity. I am just trying to ensure that people get a fair understanding of Private Equity, and this means removing phrases or hints that suggest that Private Equity funds are responsible for financial products like CDOs and CDSs, which were the roots of the 2008 financial crisis. — Preceding unsigned comment added by 79.85.116.223 (talk) 01:40, 25 May 2014 (UTC)

Hi Wildfowl. Please give me an answer this week. In case you do not provide the answer I will create an account and modify the article. Best regards, 80.12.92.32 (talk) 13:12, 27 May 2014 (UTC) Financial_Hazard

There is nothing about the article that "suggest[s] that Private Equity funds are responsible for financial products like CDOs and CDSs". An article should give relevant context, and I am sure there are many examples of this throughout Wikipedia. To remove such mentions would be censorship. I simply don't believe you when you say "I am just trying to ensure that people get a fair understanding of Private Equity". You admit a conflict of interest. I think you should create an account, but you should not edit this article to bias it in favour of the Private Equity industry. Wildfowl (talk) 13:01, 29 May 2014 (UTC)

Hi Wildfowl. I think it is unbelievable that you should think you know better than I do what is linked to Private Equity and what is not. You have, over the course of these discussions, proved several times your utter lack of knowledge of both this specific industry and finance in general. Invoking censorship just because you are not ready to accept you wrote an example that is both inconsistent and biased is morally wrong. Would you say a chemist is biased whe he/she writes about chemistry on Wikipedia? Or maybe he/she just knows what he/she is talking about. I will create an account and modify this section of the article. I will also learn about the procedures about settling a disagreement on Wikipedia. I have done all I could to teach you what you did wrong and what you should change, and I now will make sure this example is moderated by a wikipedia moderator. 80.12.92.32 (talk) 12:10, 2 June 2014 (UTC) Financial_Hazard

Dear Wildfowl,

I would like to come back to our issue regarding the simple example section as presented in the Private Equity article of Wikipedia. I would like to structure my comments in two parts. The first part will simply suggest small changes in your example without changing the substance of it. The second part will debate the substance of your section.

First part: I suggest changing the chronological order of the first phrase:

"A private equity fund, ABC Capital II, borrows $9bn from a bank (or other lender). To this it adds $2bn of equity – money from its own partners and from limited partners (pension funds, rich individuals, etc.)"

Would become:

"A private equity firm raises a new fund, ABC Capital II, with a total commitment of USD 10bn. This money is raised from its own partners and from limited partners (pension funds, rich individuals, etc.). It then wants to acquire XYZ Industrials which is valued at USD 11bn. For this acquisition, ABC Capital uses USD 2bn of equity (its own money) and borrows USD 9bn from a bank (or other lender)."

I suggest slightly modifying the exit process:

"The stock market is experiencing a bull market, and XYZ Industrial is sold two years after the buy-out for $13bn, yielding a profit of $2bn."

Would become:

"After two years, ABC Capital wishes to exit from this investment. Out of the different exit strategies, it chooses to IPO because the stock market is bullish. XYZ Industrial is IPOed and and ABC Capital sells its stake for USD 13bn, yielding a profit of USD 2bn"

(obviously, the way we present this exit strategy is oversimplified since it will be very hard for ABC to sell 100% of its stake, at least in the short run.) Those two minor changes only seek to bring more precision to the example. They do not change at all the operation.

Second part:

I will not try to argue on whether the example is biased or not. It is a question of interpretation and sources. As you know (since I provided you with sources in our discussion) the average deal is much smaller in size. I personally believe that most LBOs (at least in Europe) have much smaller debt-to-equity ratio, but then again it is possible to find some examples of such leverage (in the 1980s). Let's not argue on those points since we both disagree and have sources.

I would like to bring your attention to two points:

First, Private Equity operations achieve high returns through three steps.

The first one is to increase the operating profits of the firm (EBITDA), either by streamlining the company and selling assets (as you mention in your example) in order to reduce costs, or by increasing revenues (while keeping margins or even increasing margins).

The second one is to increase the attractiveness of the company (i.e. invest in attractive markets like new geographies with good growth prospects or new product lines with higher margins). This attractiveness is measured by indicators such as the EBITDA multiple or the P/E ratio (for listed companies).

The last one is to increase leverage (i.e. finance acquisition with a large portion of debt). However it is important to be aware that debt in itself does not create value. It does increase the profits made by the PE firm as long as the company generates returns that are higher than the interest rates of the debt. The leverage components acts as an accelerator. If it goes well, debt will make it go better for the PE firm. If it goes wrong, debt will make it even worse for the PE firm (and the company).

Why did I go through this lengthy explanation? Simply to point out that your simple example only considers financial leverage. You also say that XYZ Industrial is IPOed at a good time, which would hint that the valuation multiples have increased between the time of acquisition and the time of sale, but it does not put a stress on the underlying cause for this higher valuation. I believe the simple example should be structured in a way that makes the three components listed above apparent.

Second, the simple example follows with: "The lenders (the people who put up the $9bn in the example) can insure against default by syndicating the loan to spread the risk, or by buying credit default swaps (CDSs) or selling collateralised debt obligations (CDOs) from/to other institutions (although this no business of the private equity firm)."

I agree 100% on the syndication part. However I still believe that CDOs and CDSs have nothing to do here. As we have had this discussion before, I would like to sum up the arguments we listed:

I believe CDOs and CDSs should not appear in the simple example for two reasons: the first one because these financial operations are not initiated by Private Equity firms. The second one because those instruments have a bad reputation and I dislike the implicit association that the example presents.

You believe that the section should not be changed for two reasons: the first one because you believe it is important to give context and explain how Private Equity operations interreact with other financial operations. The second one because you believe I want to promote Private Equity and want to censor any controversy that might arise on the subject.

I do not want to censor controversies, and I think a controversy section should be created on the Private Equity article. This controversy section could include a lot of interesting controversies, such as high leverage and limited liability of the funds, complex financial engineering and tax avoidance schemes, vulture funds etc...

However, I know that CDOs and CDSs should not be presented as "context". For CDOs it is obvious, it has nothing to do with Private Equity. Maybe your source mistook CDOs for syndication, but I have never heard of SPV for pools of loans from PE transactions. I would like to have proof that this financial product exists before saying it does. Now regarding CDSs. While it is possible for the lenders to buy CDSs in order to insure against default risk from XYZ Industrials, it is not caused by the LBO transaction but only because the bank wishes to manage its risk. Banks will buy CDSs against sovereign bonds, corporate bonds and maybe some other products. By the way I am not even sure it is possible to buy CDSs on non-listed debt instruments, since the definition of the event that triggers the CDSs is defined by a consortium of banks and it would imply that those banks can assess the specifics of the situation. Back to my point: as CDSs operations are not caused by the LBO transaction, it should not be included, even as context. As you can see, those very complex products are far from simple, and you are saying it is part of a context when there is no proof of that.

Thank you for reading my comments, I would welcome your inputs. Best regards, — Preceding unsigned comment added by Financial Hazard (talk • contribs) 12:31, 30 December 2014 (UTC)

Financial Hazard, some observations:

• The clue is in the name: "Simple example ...". Your proposed changes would make the article more verbose. They would also introduce a lot of jargon. The whole point of the example was to help non-finance people to understand private equity.
• Citation for use of CDSs and CDOs to cover loans by banks to PE funds: Robert Peston, "Who Runs Britain?", 2008, p. 31 (last 4 lines) and p. 32 (lines 5–7).
• Your phrase "those instruments have a bad reputation and I dislike the implicit association" says it all; you seem to be trying to detoxify the private equity brand.

Under the circumstances, I feel that I have to ask you two questions:

• You said earlier that you have a conflict of interest. Can I ask, are you being paid to do a PR job on this article?
• In order to help me understand the nature of the conflict of interest, are you employed by a private equity firm or a firm that has an interest in the enhancing the image of the private equity industry?

I do not feel that there is any justification for me altering this article until these questions have been answered. Wildfowl (talk) 19:00, 30 December 2014 (UTC)

Hi Wildfowl:

There's a difference between a simple example and a muddled one. The comments I suggested in the first part just bring some more precision without adding complexity. One can see the damage made by imprecise, non-rigorous simplifications and how it has lasting consequences on the understanding of a subject by the section you wrote based on Peston's book. The libraries are not open this week where I live, but I will also check the source carefully.

Ok now to the "conflict of interest" point. I am not being paid to do a PR job on this article, I do not work in PR. I am employed in a French Mid-size PE firm that only raises money and invests in French Mid size companies, and does not do any lobbying. I am willing to give you my contact details and identity on a private basis in order to show you that I am only trying to be precise and exact.

I have provided extensive explanations as to why CDOs and CDSs have nothing to do with Private Equity.

I am truly disappointed by your lack of honesty... — Preceding unsigned comment added by 84.99.192.216 (talk) 10:17, 31 December 2014 (UTC)

Proposal to merge "Series A round" article into this one

Hi. The Series A round article has been without sources for over 4 years. What content is has is certainly related to private equity. Since this article appears to be more mature and better maintained, I have proposed merging what can be salvaged from Series A round into an appropriate section here, and then doing away with that fledgling article. --Ds13 (talk) 02:01, 24 August 2012 (UTC)

Series A round is a distinct enough entity that I don't believe it needs to be merged. Moreover, most Series A rounds would be considered venture capital rounds; rarely would a private equity transaction involve Series A financing since almost by definition private equity transactions are later-stage transactions. — Preceding unsigned comment added by Wo fat50 (talk • contribs) 02:13, 5 March 2013 (UTC)

Liquidity in the private equity market

Sorry, Chongalulu, you added the following text to the above section (at the end of the first paragraph) but I removed it as it didn't seem to be in a good place, seemed much more specific than the text round about, and the link in the citation didn't work.

In research by GF Data, upper mid-market transactions (those between $100-million and $250-million) which have been completed by private equity groups “have consistently attracted premium multiples compared to smaller trans-actions.”

Can we discuss this issue in here? Wildfowl (talk) 23:23, 28 December 2012 (UTC)

Who is reading this?

Dear Wikipedia writers,

Please consider who comes to an encyclopedia page titled 'Private Equity', or any Economics term for that matter. This page is firstly for the average person, the layman, and they know words like 'money' and 'ownership' and 'invest'. If you write a page on what a cell is, you dont explain how its the most plenipotentiary (link) gubbernational unit (link) of the endoplasmic reticulum conglomerate (link). You start with 'its a thing, in a thing, that does this, and its made of stuff'. I could read whole definitions of Economics terms and go away not knowing what the hell any of it is. Please consider who an encyclopedia is written for. — Preceding unsigned comment added by 2.110.239.227 (talk) 11:30, 15 March 2015 (UTC)

I agree with the above criticism, this is a very poorly written article that is hard to understand for non-experts. I went ahead and added at the top the label

Wimvdam (talk) 07:01, 11 December 2016 (UTC)

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Article needs to address the net employment impact of p.e. Most 'restructuring' means cutting jobs.

Most new new jobs are created through relatively new companies (Kauffmann 2016). Established firms may do things more efficiently -- which means either fewer jobs or less capital. 'Restructuring' is a euphemism that typically involves cutting jobs, increasing unemployment. (It's easy for young people in particular to not understand this, and their own role in furthering wealth inequalities.) This should be stated explicitly in the article, with relevant citations. Wtf2wtf (talk) 01:40, 22 May 2020 (UTC)