Far from creating wealth or adding value, private equity (PE) is another capitalist way to filch wealth already created by workers. The long-term success of companies in their portfolio is no concern to PE firms. Instead, their sole purpose is to extract the maximum profit for themselves and investor clients within their self-defined time frame.
Private equity (PE) firms manage investment funds on behalf of clients, which can be organisations like pension funds or insurance companies, or extremely wealthy individuals. In exchange, these PE firms charge fees and get a share of profits above a pre-set minimum.
They often work in partnerships or consortiums to buy and manage a portfolio of companies. Their strategy is to extract value for their clients and themselves, before selling the companies on.
PE funds have a finite term of 10 to 12 years, with investors seeing dividends typically from year six onwards. PE firms often use debt to buy a company and then put the debt on that company’s books. They may even use the company to acquire more debt purely to fund dividends to their investors.
• Related article: What’s going on with retailing in Britain?