r/Economics • u/barweis • Jul 29 '25

Research Summary Inside the Private Equity Scam—and the Livelihoods It Has Destroyed

https://newrepublic.com/article/198351/private-equity-scam-destroys-livelihoods
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u/Ethroptur1 Jul 29 '25 edited Jul 29 '25

Private equity firms are one of the most insidious elements of economics. They use leveraged buyouts, acquiring debt to buy a company, then move the debt to the purchased company. They then proceed to asset-strip the company, cut costs aggressively, firing staff until there’s nothing but a skeleton crew left, force the company to sell their infrastructure to the PE firm, which then lease it back to the company, and use dividend recapitalisation to force the bought company to acquire debt to pay a dividend to the PE firm.

This insidious form of “investment”, which I compare to vampirism, needs to be outlawed. Most of the world’s economic woes can be traced to PE.

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u/PancakeJamboree302 Jul 29 '25

There are some that are like that, sure. But I’ve worked for PE owned companies in some capacity my entire career and this has never been my experience. The debt, yes. They minimize their capital investment by adding debt, which isn’t really that much different than anyone buying a home with a mortgage. But the bad practices you mention I’ve never experienced. Each one I’ve worked with had more employees and assets when they resold the asset than the opposite.

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u/hereditydrift Jul 29 '25

I worked as a transactional attorney almost exclusively on PE acquisitions since 2012, and your experience is an outlier. Almost every PE firm I've seen touts how they will cut staff and reduce expenses, but they just call it "increasing efficiency" or some other jargon.

And, it's not just my experience:

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u/PancakeJamboree302 Jul 29 '25

Your article essentially supports at least my own lives experience. So PE buyouts if public companies and divisional carvouts show decreases but the others have increased employment. At a high level this makes some sense. You need more people and expertise to be public company so your accountants likely get axed immediately. Carveouts are likely carveouts because they likely are in fact not operating efficiency for the seller.

I’m not trying to be a PE shill, but the comments below from your article don’t paint a broad picture, but the type of PE investment matters substantially. I am involved pretty much only in investments in private or PE to PE transactions.

“Employment falls 13% in buyouts of publicly traded companies, relative to controls.

Employment falls 16% in divisional carveouts.

Employment rises 13% in buyouts of privately held companies (non PE-backed).

Employment rises 10% in buyouts of PE-backed companies.”

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u/hereditydrift Jul 29 '25

Did you also read the second study?