Wild Stories
In crazy times, wild things happen. In this article, we have collected 3 relevant, ever-present stories that explain what is behind the investors' minds
In a cloyingly titled memoir «What it takes: lessons in the pursuit of excellence» Stephen Schwarzman, the co-founder of Blackstone, explains how his private equity giant came to control the money of the nation's largest public pension funds. Today it has a net worth of about $33 billion. And it is not because private equity, or what Wall Street used to call leveraged buy-outs (LBOs), is particularly good at buying and growing companies. It is because private equity can extract a lot of hidden fees from pension funds. Large private equity firms have market power over the funds from which they raise money and can set terms that make it very difficult to tell how much they are being charged. Schwartzman's net worth is a result of this.
Where are the customers Yachts?
In the last five years, the public has become aware of private equity. People are angry that rents are skyrocketing while private equity investors from large investment firms are buying and renovating super apartments downtown. More broadly, the public notices while their pensions seem empty, the people who run them — like Schwarzman — are throwing multimillion-dollar parties with acrobats, camels and fake Mongolian soldiers. But what is private equity? Let's dig in.
Unlike a mutual fund, in which a manager collects money from investors and buys publicly traded stocks and bonds, private equity collects its money behind closed doors, instead of selling floating stocks or bonds that can be traded on an exchange. Investors put money into funds administered by private companies, which then buy the companies, under the guise of restructuring them, and then sell them. The stated goal is to provide returns to their investors. Private equity firms take commissions and fees, as well as a percentage of the profits when companies are sold.