‘Most Americans are not aware of how concentrated the financial sector has gotten,’ Harvard Law professor says | Institute for Business in Global Society
www.hbs.edu
With fast-growing private equity firms controlling as much as 20% of the U.S. economy with minimal disclosure requirements, business leaders must understand the implications of increasing concentration of ownership by both private equity firms and index funds and advocate for enhanced reporting standards.

With fast-growing private equity firms controlling as much as 20% of the U.S. economy with minimal disclosure requirements, business leaders must understand the implications of increasing concentration of ownership by both private equity firms and index funds and advocate for enhanced reporting standards, a Harvard Law School professor argues. At stake: market competitiveness, innovation, and economic fairness.

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Private equity has its origins in leveraged buyouts in the 1970s and 1980s. The idea was to take companies, usually publicly listed on the stock exchange, borrow a lot of money—that’s the leverage—and buy them out. Then, they could use their control to improve the value of the company and resell it, typically 3 to 5 years later. That’s the original idea of what private equity mostly does.

What’s changed since then is that the scale of operations of private equity has grown and grown and grown—to the point that now private equity controls between 15% and 20% of the entire U.S. economy. They’re no longer buying isolated companies and flipping them back to the public markets. Instead, they buy them and sell them to mostly other private equity firms. They’ve become their own separate capital universe.

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The private equity industry is very good at convincing Congress or regulatory officials to shape laws in a way that allows them to remain essentially dark. They don’t put out public reports. They don’t put out any information that the public can use to evaluate what they’re doing, or even their investment performance.

It is increasingly a challenge for the legitimacy of capitalism. Capitalism depends upon some degree of transparency about how it’s functioning, how workers are being treated, and how consumers are being treated.

  • FauxPseudo @lemmy.world
    5·
    2 days ago

    Remember that bit in Pretty Woman where they are in the big business meeting and you find out that the goal is to buy the company and sell it off piece by piece because the company is worth more on parts than as a whole? The good guy in the movie is the one that decides to use the ship yard to make ships instead. Make instead of destroy.

    Most people never pay attention to that part of the movie. But I did. That’s a private equity, aka hedge fund, aka corporate raiders company he owns. He makes money by buying a company and destroying it to squeeze as much money out of it as possible. Everyone loses and he gets richer.

    Private equity, where the profits don’t trickle down, and you can’t buy shares so the wealth concentrates even more while also making a profit from running a company into the ground and having it collapse in bankruptcy.

    People don’t realize the systemic risk this puts the world economy at when a sizable chunk of the world economy is held by people individuals who are only finding new ways to make the most money and have zero obligations society.