Why Warren Buffett Disdains The Private Equity Crowd

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Why Warren Buffett Disdains The Private Equity Crowd

Oracle of Omaha has never retreated from his long standing revulsion at  the Leveraged Buyout Crowd who tried to camouflage their profession by calling themselves  The Private Equity Crowd.    He and his curmudgeon partner Charlie Munger also show their disdain for Mitt Romney’s  wheeling and dealing at Bain & Co. by calling the Private Equity Crowd The  Two and Twenty Crowd for the obscene 2% management fees and 20% carried The Private Equity Crowd demand for their services.( A recent report said Bain even charged  a 30% carried interest fee, which brings PE to a new level of high class greed, if there is such a thing)

 

Just recently Buffett told Time Magazine that “I don’t like what private equity firms do in  terms of taking every dime they can and leveraging (companies) up so that they really aren’t equipped, in some cases, for the future.”

 

More generally Buffett always includes a  pungent blast at The Private Equity Crowd in his letters to shareholder. Just last year  Buffett stuck it to the Private Equity Crowd for changing their “moniker” from “leveraged-buyout operators” to “private equity,” which you may notice no longer has the attribute “leverage” in its name.  He has always sworn never to buy a company from the PE Crowd– as it doesn’t have the long-standing management-owner nucleus long associated with it.

 

Calling this “Orwellian”: Buffett wrote that “private equity” is a “name that turns facts upside-down: A purchase of a business by these firms almost invariably results in dramatic reductions in the equity portion of the acquiree’s capital structure compared to that previously existing.”

 

In other words its “Orwellian” because in point of fact there is less private equity and more dangerous debt piled on them. ” A number of these acquirees are now in mortal danger because of the debt piled on them by their private-equity buyers,” Buffett wrote.

 

“ It’s a lopsided system whereby 2% of your principal is paid each year to the manager(ie Bain & Co.) even if he accomplishes nothing– or, for that matter, loses you a bundle– and additionally 20% of your profit is paid to him if he succeeds.”

 

Now, The Private Equity Crowd– as personified by Mitt Romney’s quest for the White House, has become the vivid and telling controversy over the future of finance Capitalism. It is an issue closely related to the income disparity between rich and poor, between the 1% on Wall Street and the 99% on Main Street.

 

Romney is being attacked by his rivals in the Republican party and will be assaulted by the notion of his greed during the days he ran Bain during the general campaign, should he, as seems likely, win the nomination.. That’s why such highly respected and influential pundits as  David Brooks  of the New York Times, Mark Shields, a syndicated columnist on  PBS and Peggy Noonan in the Wall Street Journal are calling on Bain to articulate his views on  the unfair ramifications of finance today and relate it to what Romney promises to do once he’s in the White House– profuse claims of creating new jobs in the economy. Trust me, his Private Equity Model isn’t going to create any new jobs. In the first instance, it’s going to reduce them.

 

[Guest ValueCarl]

If I didn't know better, I might believe that Warren E. Buffett was as concerned about the hidden intentions and desires of men--private equity--churning money for the sake of money, in favor of men looking to establish a system of honest money like certain Founding Fathers were once yearning for.

 

"If the American people ever allow private banks

to control the issue of their money,

first by inflation and then by deflation,

the banks and corporations that will

grow up around them (around the banks),

will deprive the people of their property

until their children will wake up homeless

on the continent their fathers conquered." -Thomas Jefferson

 

 

Notwithstanding the fact that Warren E. Buffett has exploited such phenomenons in the marketplace for his entire lifespan while being described by me as, The Great Inflationist, I believe if he had the will, he certainly has the mental capacity to design a system which could solve most of the problems which have preceded this cluster fuck of a system thus far. He would truly need to abandon The Status Quo in the form of a DEMOCRATIC CANDIDATE along with his ill attempt in expressing a liberal bleeding heart, when truly, his party is the SAME COIN; DIFFERENT SIDE of INSANITY. Charles T. Munger likes to quote another Founding Father in this regard:

 

 

"The definition of insanity is doing the same thing over and over and

expecting different results. "

 

-Benjamin Franklin

 

There is no doubt that Private Equity has evolved in a manner which has the Founding Fathers turning over in their graves for commanding such vision and foresight, while it has turned American Capitalism upside down on its head as a result of exporting important industries along with their labor forces overseas. 

 

As for me, I have been left to ascribe the evolution of man and his money throughout the ages as follows:

 

LABOR EXPLOITATION via ENTERPRISE CORRUPTION  :(