[HN Gopher] Private equity is devouring the U.S. economy ___________________________________________________________________ Private equity is devouring the U.S. economy Author : fortran77 Score : 199 points Date : 2023-10-30 13:25 UTC (9 hours ago) (HTM) web link (www.theatlantic.com) (TXT) w3m dump (www.theatlantic.com) | robertlagrant wrote: | This article is...not good. | | > One answer is that the private-equity industry is devouring | them. | | Another is that public companies buy them and they consolidate. | Another is management buyouts. Another is it's harder to run a | business than it used to be, for better or worse, so they close. | | > One-fifth of the market has been made effectively invisible to | investors, the media, and regulators. | | No. You still have financial regulations to follow. If you're a | medical device company, you'll still have to follow those | regulations. You have employment regulations. All sorts of | regulations. | | You just don't have to follow regulations for public companies | (such as "don't talk about this thing with anyone outside a list | until you've announced it publically, because that would be | unfair to other investors), which are expensive and onerous, nor | follow the whims of the market, which can be expensive and | onerous. | | E.g. Dell went private and the quality got a lot better. | Joker_vD wrote: | Yep. "Oh no, the investors don't get reliable information about | private-equity companies and so investment is way too risky" -- | well, then investors probably would just stop invest in them? | What's the problem? | Panezirigilloso wrote: | I think you missed a good part of the article. It says that: | "A private economy is one in which companies can more easily | get away with wrongdoing and an economic crisis can take | everyone by surprise." | | Its not about the investors, is about the economy, the global | economy. | edoceo wrote: | I see how that works for a case like Dell. I've also read about | PE buying up smaller medical/dental practices and squeezing the | price. Happened to my old dentist in Ballard, WA -- and dang, | they pushed me for x-rays on every visit (turns out there is | good margin on x-rays). Dell is still run by the OG -- these PE | folks are just trying to squeeze margin. | | And sure, they still have to follow some regulations -- but | with much less oversight when you're not public. "expensive and | onerous" is not a sufficient reason to not require a business | to do something. Paying employees is expensive and onerous, | should that stop? | scarface_74 wrote: | Why do you care if a private company has to follow financial | reporting regulations? The reason that public companies have | to is because the public buys shares in the company. | edoceo wrote: | For a small company, a sole-prop dentist for example -- I | don't. There is not enough motivation or sophistication or | dollars on the table. | | For PE backed conglomerates I care because they can and do | hide shady things in there. There is more motivation to | juke the stats; more sophistication and dollars on the | table. Sadly, because these companies are not public, when | their anti-consumer operations are discovered there is | little news about it. That results in a situation, for | example, where folk don't think there is any reason to care | about the issue. | scarface_74 wrote: | Again why do you care as a consumer? If they aren't | getting money from the public market and no taxpayer | money, how does that affect you? | | Whether the company is public or private they still have | to follow the relevant laws for their industry. | edoceo wrote: | I care because these PE backed firms can (and do) screw | the consumer (me, my family, my friends, you) and there | is no visibility. | | Do you understand it's possible to follow the law and | still use greed to screw the consumer? Are you being | intentionally naive? | scarface_74 wrote: | I'm asking you for a specific case where a PE firm could | specifically screw you and you have no choice but to be a | consumer in a way a public firm couldn't? | QuadmasterXLII wrote: | He gave a specific case of PE attemting to scam him in a | way that not only steals money from him, but would | literally irradiate his face | scarface_74 wrote: | And what does that have to do with how the company is | financed? Public GAAP disclosures have absolutely nothing | to do with whether the company is harming people or | following applicable laws for their industry. | massysett wrote: | At least in US society, the general idea is that there should | be a reason to require a business to do something. Not that | there needs to be a reason to not require a business to do | something. | | Public companies are subject to some requirements for good | reason. Those reasons may not apply to private companies. | | Companies pay employees because if they don't, they won't | have employees and therefore will lack labor, a critical | input. | robertlagrant wrote: | > "expensive and onerous" is not a sufficient reason to not | require a business to do something. | | I don't know where you're getting this from. The reason to | not require it is that the regulations don't apply. | | However, it's also true that making it cumbersome to do | business, while making the big four consulting firms endless | amounts of cash, is a real problem for all other public | companies. | anthonypasq wrote: | why not get mad at the dentist for selling out then? people | are acting like there is only 1 side on all of these deals. | TeMPOraL wrote: | Because those deals are targeted "offers you can't refuse", | by design. | | Consider: surely there is a price for which you would be | willing to sell me your business, or your house, pretty | much on the spot. The current value of your assets could be | X. Maybe you're reluctant to sell for anything under 120% | X. Maybe you know your neighbors will hate you if you sell | it, so you really won't do it for less than 140% X. I come | to you and offer you 160% X. At this price, I can be | certain you'll sell. It's a deal of a lifetime. It would be | stupid not to. | | The trick is, as a PE firm, I can make this profitable for | me all the way to say 250% X. I can just keep repeating | that deal with every other person like you in the | neighborhood, certain they'll all individually agree. And | by the time the neighborhood realizes some critical service | or area is now owned by a profit-obsessed faceless | corporation, it'll be mostly sold out already. | | The trick is to target a market segment when you're able to | make offers the other side can't refuse. Then you can | literally _divide and conquer_ it. | anthonypasq wrote: | well the person CAN very easily refuse if they care about | not selling out to some faceless corporation and fucking | their customers, but obviously most of these people dont | care about that, so again, seems like you should be | getting mad at them. | | i just dont understand exactly what is the problem here. | do you think people shouldnt be able to sell their | businesses for what they are worth? | TeMPOraL wrote: | > _well the person CAN very easily refuse if they care | about not selling out to some faceless corporation and | fucking their customers, but obviously most of these | people dont care about that_ | | Those people aren't spherical cows in an toy ethics | thought experiment. They are real people, with complex | lives and many things competing for their care (like e.g. | families). They all care about not selling out or hurting | their customers... _to some degree_. Some to larger than | others. | | The simplified algorithm the PE companies are doing is: | | - Estimate the upper bound of how much most - say, 80% - | of the owners of targeted businesses care about things; | | - Express that upper bound in dollars over the value of | business, call that number X; | | - If you can still make a profit while overpaying by up | to X for each bought business, start making offers; | otherwise, find a different target. | | There's little point blaming the business owners, because | the transactions are initiated by the PE companies, and | they specifically target businesses they know they _can_ | get anyway. They 're _taking advantage of_ the idea that | people should be free to sell their business for a fair | price if they want to. | anthonypasq wrote: | > They're taking advantage of the idea that people should | be free to sell their business for a fair price if they | want to. | | this sentence is incoherent. no one is being taken | advantage of | ben_w wrote: | What other word or phrase would describe this situation? | Even if you would you prefer "playing the long game", I | can see how doing this results in the buyer getting some | "advantage" _even though_ at first glance it looks like | throwing money away. | anthonypasq wrote: | its a mutually beneficial and agreed upon transaction | just like walmart selling me a pen for a price i agree to | buy it for. | | no exploitation of either party is necessary | ben_w wrote: | "Either" implies there are only two parties, the buyer of | the business and the seller of the business. The _third_ | party, the public who would use the services of the | business, is the one being harmed if the buyer of the | business also buys all other such businesses in order to | create a monopoly. | | This can also be done with products -- not usually pens, | but quite commonly with tickets for events. The buyer and | the seller of the tickets can be quite happy, but the | person who now owns all the tickets is free to tout them | for higher prices to the detriment of the general public | who would otherwise have bought them directly for less | money. | | This is annoying enough when it's just tickets (I'm told, | I never go to the kind of events that touts do this at), | but we also saw it with random goods during the pandemic. | edoceo wrote: | I spoke to the dentist. He was retiring and the offer was | very, very good. The PE firms can afford this because they | know they will get to squeeze a bunch of consumers for the | next 10 years. | anthonypasq wrote: | so what are you bitching about/suggesting should happen? | People should not be allowed to sell their businesses for | what they are worth? | ryandrake wrote: | Wait a minute, if the dentist was retiring, why would the | PE firm buy his practice? There'll be nobody to clean | those customers' teeth. Are they just paying a fortune | for the office, equipment, and customer list? | onlyrealcuzzo wrote: | Most of this goes away when you have positive real interest | rates. | | It makes sense to take on massive amounts of debt to buy things | when you get paid to be in debt. | | Companies that do leveraged buyouts are going to have a good | time. | | When money isn't free - companies that do leveraged buyouts | aren't going to have as good of a time. | lukas099 wrote: | Do you mean higher real interest rates? They have been | positive almost all of the last 10 years. | https://fred.stlouisfed.org/series/REAINTRATREARAT10Y | michaelt wrote: | That's the interest rate for people willing to lock their | money up for 10 years. | | Look at | https://fred.stlouisfed.org/series/REAINTRATREARAT1YE | instead, the 1 year real interest rate, and it's barely | been positive between 2009 and 2022. | lukas099 wrote: | Oh gotcha, you're right. | onlyrealcuzzo wrote: | My understanding is the 10-y is not relevant to venture | debt or leveraged buyouts: https://www.svb.com/startup- | insights/venture-debt/how-does-v... | | And anyway - yes - a 1% real return really only existed in | a long capacity since the 2000s, since QE became main | stream. | DragonStrength wrote: | Did you read the full article? The majority of it is defending | why public financial oversight is good. Saying the article is | "not good" while ignoring its central argument to make a | tangential point is not convincing. | robertlagrant wrote: | The majority of it seemed to be very cherry-picked and | caveated claims, with the claims being far more prominent | than the caveats. If you want to avoid boom and bust cycles | and the pursuit of growth at all costs, you probably want to | avoid the public markets if you can, or at least for as long | as possible. | em500 wrote: | > This article is...not good. | | I agree. The opening paragraph reeks of picking numbers to fit | a narrative. It states that the number of US listed public | firms declined from 8000 in 1996 to 4000 today (suggesting but | not explicitly claiming that a significant part has been | devoured by PE), but leaves out that the valuation of the | public companies in that period increased from 5T to 40T. | dathos wrote: | I'm not arguing for their suggestion. But if their logic is | that this happened because of PE and those PE owning also a | big chunk of those public firms, doesn't your argument proof | they are devouring a large part of the economy? | robertlagrant wrote: | Private equity by definition isn't invested in public | firms. | dangus wrote: | You could also say "all private equity is not created equal." | | I think that the common belief that private equity swoops in | and sucks the company dry like a vampire is only a half-truth. | The "company flipper" style private equity companies are | usually buying companies that are not doing all that well in | the first place. | | Not unlike a venture capital firm investment in a startup, | private equity firms probably don't expect 100% of their | investments to pan out. The idea is to buy a struggling company | for pennies on the dollar, turn it around, make a big return on | that investment. However, turning around a struggling business | isn't always going to happen, and when it fails the private | equity firms are perceived as vultures. | | A good example of a company that has done well under private | equity ownership has been Popeyes. They launched their | extremely popular chicken sandwich under private equity | ownership. The parent company has for the most part left the | strong parts of the business alone (keeping the product up to a | good enough standard) while appeasing franchises' need for more | profitable operations, leading to growth in its footprint. | chollida1 wrote: | This is, IMHO, a serious problem for the markets and regular | investors. | | Microsoft went public for a valuation of around $300M and is | trading over a $1T now. This means that regular investors had a | chance at all this growth. | | Newer companies like AirBNB and Uber went public at what could be | their max market cap valuation of billions so investors wont' get | much of a chance to make money from these companies. | | In addition to this problem of private investors(VC's) taking | most of the profits, we now have such concentration of wealth | that the big PE firms can buy alot of what used to be small | businesses and roll them up. | | Vet clinics, medial practices, engineering firms, etc all use to | to thrive on being 20 person shops are now routinely being bought | up by PE firms and rolled into larger companies which means far | fewer entrepreneurs or chances for up and coming employees to buy | into the firm from the founders, which helps stall careers. | | Heck you see it now with these firms buying up single family | housing in US cities now and then renting them back to people, | transforming regular middle class people from home owners to | renters, and transferring the home appreciate from the middle and | lower class to the PE limited partners ensuring the rich get | richer and the middle class disappears even faster. | Joker_vD wrote: | > we now have such concentration of wealth thatthe big PE firms | can buy alot of what used to be small businesses and roll them | up. | | If only those small businesses could just refuse and continue | operating on their own... alas. | scarface_74 wrote: | Exactly. No one forces these businesses to sell. It's the | owners easiest retirement plan instead of passing them down | to their kids who may not want to or have the skill set to | run the family business. | TeMPOraL wrote: | Sure, no one is blaming any individual business for | selling. Nor would you blame any particular drop of water | for flowing downhill. Still, too much water will make a dam | burst and most of the water will flood the land; too much | business owners realizing their retirement plan by selling | out to PEs, and everyone suffers - including those | retirees. | scarface_74 wrote: | Are you going to tell these mom and pop shops they can't | sell? | TeMPOraL wrote: | Of course not. The problem aren't the mom and pop shops. | The problem are the PE companies making those offers. | These are the ones to go after. | scarface_74 wrote: | How is that any different? You're still trying to stop | mom and pop shops from selling out to PE's. | | Are you also going to stop startups from getting acquired | to? Seeing that only 6 of the hundreds of companies that | YC has invested in have ever gone public, acquisitions is | the most likely exit | TeMPOraL wrote: | The difference is that PE is just one of many kinds of | buyers, but the one that has a particular tendency of | doing trades with nasty externalities. It's this pattern | of buying that is a problem, and I don't see fighting it | any different than fighting factories dumping toxic waste | into rivers. Factories, in general, are not a problem. | Actions that have destructive impact on people at scale | are a problem. | | Startups are a bad example because I absolutely _would_ | stop startups from being acquired as a general | phenomenon. The pattern of startups seeking an exit is | one of the worst economic innovations that happened to | the world. They at best just waste time of their users / | customers before inevitable rugpull, and at worst, they | actively disrupt whole market segments - not creatively | disrupt, just in the "blow the whole thing up with VC | money, disappear when it's clear the business was never | sustainable" kind of way. | | And again, it's not the acquisitions as a concept that | are the problem - it's the _pattern_ of startups being | created with acquisition as the goal that is a problem. | scarface_74 wrote: | All startups have acquisition as a goal. If not, they | aren't paying attention to statistics. | | This very site you are on is funded via VCs where only 6 | of the hundreds of companies that have been funded have | gone public. | | Who is going to buy these mom and pop shops? Are you | going to say that startups can't be acquired and either | have to go public or go out of business when the large | companies just put a few people on a clone of their | project and crush them? | ryandrake wrote: | Why would a PE firm be buying (for example) a doctor's | office if the doctor-owner was retiring? The doctor is why | the business exists in the first place. Without him, it's | no longer a doctor's office, it's a charming little suite | with front desk people and a few nurses running around. | | We had a local machine shop (that I used to go to for | welding) sadly go out of business because the owner was | retiring. I asked him if he considered selling it instead | so it could stay open and he said "Who would buy it? _I am | this shop_ and I 'm retiring. In 5 days it's just going to | be a pile of tools." | scarface_74 wrote: | For the patients and as a slow "exit" | peteradio wrote: | If only each individual bond could try a little bit harder to | resist the acid. | starcraft2wol wrote: | the point is the owners have a positive exit that they | choose. And yes people are agents | peteradio wrote: | Right America is governed by individual incentives. | starcraft2wol wrote: | There are more kinds of incentives than money. | peteradio wrote: | Doing what's morally responsible in spite of everyone | else is a losers game these days. | justrealist wrote: | It's partly that, but in medicine (dentistry, fertility, etc) | a lot of clinics are being rolled into PE conglomerates | because the bureaucratic overhead in medicine has skyrocketed | in the past 20 years, and clinic chains have better support | for doing all the paperwork and legal side of things. | plagiarist wrote: | What a convenient way to completely ignore the macro effects, | well done. | gmd63 wrote: | You joke but it's not benign. The reason economic regulations | exist is to ensure we maintain the economy as a crucible for | rewarding the smartest and hardest workers in society. | | When private money can grow cancerously via pump and dump | crypto schemes, overhyping IPO's that peaked during the | series A round, and strong arming small branches of | independently owned practices (all to later enable milk mode | and reap monopolistic profits), the general public and | society is left with overlords who do not build, they eat. | fnimick wrote: | When have the smartest and hardest workers ever been the | richest? | Applejinx wrote: | It's easy for me to believe it's not always been (and | doesn't have to be) THIS bad. | | There's functional value in a capitalist system. It just | requires ongoing maintenance, to avoid situations like | we're currently in. It's not self-repairing. Operated | properly, it makes market conditions self-repairing, but | this is at the expense of the potential market capturers. | ToucanLoucan wrote: | It was better when corporate tax rates and income taxes | for the incredibly wealthy were much, much higher. My | favorite hobby is putting Thatcher and Reagan's faces on | economic graphs to show what year they were elected is | almost universally either the same year or just about | when the global economic system went bugfuck by basically | every metric we measure. | | But, thanks to those two and the larger political milieu | they so well represent, those entities are now rich | beyond all reason and in a capitalist system that permits | things like Citizen's United, money more or less equals | political power so the odds of getting any of this | addressed are basically nil, along side other issues that | would demand corporations make less money: like climate | change, crumbling infrastructure, socialized healthcare | for the US, better socialized healthcare elsewhere, the | vanishing middle class, etc. | | Private Equity is going to get us all killed in a very | real sense. | robertlagrant wrote: | > When private money can grow cancerously via pump and dump | crypto schemes, overhyping IPO's that peaked during the | series A round, and strong arming small branches of | independently owned practices (all to later enable milk | mode and reap monopolistic profits), the general public and | society is left with overlords who do not build, they eat. | | None of those practices create "overlords". | techdmn wrote: | They could, but my opinion is that this is putting personal | responsibility front and center on what is a systemic | problem. If our economic systems encourage the consolidation | of wealth, we should change the systems, rather than blaming | individuals. | chollida1 wrote: | Well think this through. | | There are 10 vet practices in your city. 7-8 get rolled up | into one uber practice by a PE firm. | | They now have far less overhead per patient. Billing, | equipment and even vets can be amortized over far more | patients. | | You, the hold out clinic, are now more expensive, or have a | far smaller profit ratio, thus you are operating at a big | disadvantage to the other clinics in your city. | | You can hold out but what is your edge in this case where | your competitor is now bigger and can handle things like a | vet quitting as they have a bunch that roam from practice to | practice. Or they can handle buying a new machine for | millions while the bank won't lend to you due to your | shrinking margins. | | Economies of scale are a thing and can be a very real | competitive differentiator. | | You the hold out are now getting crushed by your competitors | while you look around and see your fellow vets taking | weekends off to take their new boat to the lake because they | sold their practice and you're working your 11th weekend in a | row because your other vet quit to work for your competitor | that can now pay more than you. | | I've had friends live this and its not fun. | Joker_vD wrote: | Ah, so the overall economic efficiency improves and then | everyone's better off. Wait, what's wrong with that? | gmd63 wrote: | Think of Comcast but for puppies' health | jprete wrote: | The actual problem is that the unmonetizable value gets | tossed out by PE. E.g. customer service will take a | massive dive because everyone working for the clinic or | whatever else will be time-pressured out of good service. | | Generally the problem with treating everything via pure | financial models is that some things are valuable but | hard to measure financially and those are inevitably | destroyed by PE and other entropy-maximizers. | ToucanLoucan wrote: | You're shifting goalposts. Your first comment was about | how small businesses could just refuse to sell, then a | commenter described the (very real) consequences of that | decision: a person has to work harder, for less money, to | compete with entities that can outspend them by a few | factors. Now you're saying that's more efficient overall | which is a completely different point. | | And, that's true, it is more efficient. But those | veternarians, despite now having their weekends off, are | paid barely market rate for their skills (if that) and | more importantly, no longer running their business: A PE | firm is. That means they have zero recourse if the PE | firm starts doing PE firm shit: keeping bare minimum | stock at their clinic of every last consumable, to avoid | taxation; keeping bare minimum staff at all times to | avoid paying workers; abusing staff and causing high | turnover; basically every stupid ass "why would they do | that" type decision you've heard of a large business | making in the last 30 years, PE's LOVE those decisions. | | And that's not even going into the fact that the profits | of that business are no longer going to the community in | which it operates, they're going to far away | shareholders. | Libcat99 wrote: | More efficient for the mega-vet, sure. Once you've | consumed all the competition, there's no need to compete | on price anymore. Prices can go up quite a bit before it | becomes economical for a new entrant to take a risk in | the market. Except maybe another mega-vet. | | See what Walmart did to communities and small business. | Efficiency is not all roses. | lapcat wrote: | Another issue is that doctors are coming out of school with | more student loan debt than ever before, so when it comes | time for the older doctors to retire, the younger doctors | haven't built up enough personal equity to take over the | clinics. | | Nobody seems to care about the student loan debt of | doctors, because doctors can make a good salary, but | student loan debt still has negative consequences down the | road such as this. | FireBeyond wrote: | Dentistry is different. I've seen multiple comments from | fresh DDS graduates being able to take out 7 digit loans | to acquire/start/buy in to a practice, because it's seen | as a low risk license to print money. | bondarchuk wrote: | The edge is far better service and less scammy practices | (pushing unneeded treatments/medications etc..), at least | from what I heard locally about Dutch vets. | | Incidentally in Belgium they just passed a law requiring | each veterinary practice be owned by a veterinarian. Life | could be simple... | chii wrote: | Taking the emotion out of the analysis, all i am hearing is | that the PE uses more capital, but produces a cheaper, more | efficient service. | | If the original small business owner sold, the money they | got paid isn't gone - they could've used it to start | another small business (or fund one as a VC themselves). I | don't see how PE is stifling anything, but to produce a | more intensely competitive environment. | lapcat wrote: | > produces a cheaper, more efficient service. | | More profitable perhaps, but not cheaper. In fact, | usually more expensive, because the PE firms buy up all | the clinics in a city, eliminating competition, and then | they can set the rates to whatever they want. Needless to | say, any "savings" are passed along to the investors, not | to the consumers. | | > If the original small business owner sold, the money | they got paid isn't gone - they could've used it to start | another small business | | They're usually selling because of retirement, so they're | not going to start another business. The issue here is | that the business is not passed along to another new | small business owner, it's passed along to a giant PE | firm. | | > produce a more intensely competitive environment. | | In reality, to reproduce an environment with less | competition and more consolidation, as mentioned above. | ghufran_syed wrote: | Great, that "less competition" means higher prices... | Which means someone setting up a new clinic can benefit | from those higher prices - oh look, now you have | competition again. | harperlee wrote: | Sure, until they have no competition anymore, and raise | the prices to whatever they want them to be, extracting | 99% of value from what they offer with a huge moat that | eliminates all competition. Then the consumer is left | with no pricing negotiation and the experience is | objectively worse for most of the society. | | The escape hatch for that is taxes to the powerful market | entities, that revert value back to the less powerful | market entities, but that's not popular in the U.S. | TeMPOraL wrote: | > _i am hearing is that the PE uses more capital, but | produces a cheaper, more efficient service._ | | You have to understand what "more efficient" means. It | really means "it's shit and only getting worse, but isn't | bad enough to abandon the service entirely". It starts | with a corresponding price drop, and you either get a | race to the bottom, or the competition gives up early, at | which point the quality _continues to go down the drain_ | , but the price stays the same, as the provider pockets | the difference. | banannaise wrote: | Because customers tend to almost universally agree that | they create a worse service in the process. Scaled | systems perform poorly in areas where people require | customized service rather than a one-size-fits-all | experience, and veterinary care is absolutely not a one- | size-fits-all type of service. | yoyohello13 wrote: | Cheaper and more efficient does not mean higher quality. | abosley wrote: | Quantity has a quality of its own. Dude named Piketty | wrote almost 2k pages about wrt capital accumulation. The | opposite of what you propose is what actually happens. | For another example, please see Amazon. | random_ wrote: | Vet is probably a very good example of economies of scale. | I remember a vet in my town in Brazil complaining how hard | it is if he get ill (or take vacations i presume), that he | will lose his customers and how much he regretted not | becoming a state employee. | tbihl wrote: | >what is your edge in this case where your competitor is | now bigger and can handle things like a vet quitting as | they have a bunch that roam from practice to practice. Or | they can handle buying a new machine for millions while the | bank won't lend to you due to your shrinking margins. | | To answer your rhetorical question: | | 1. People would rather deal with neighbors than with PE or | megacorps, and will do so to the extent that the difference | in price is tolerable (and to the extent that they even | know their neighbors.) | | 2. Management layers and performance based incentives are | huge costs that small enterprises should be mostly able to | avoid. | | 3. Owning a business can have a really compelling advantage | at tax time in the ranges of professional incomes we're | discussing. | | 4. Owner-operated businesses should be able to integrate | with family life, allowing dads to spend time closer to | their kids, which should be another advantage in favor of | professionals going it on their own. | | 5. Owner-operated businesses can also operate with much | more efficient facilities (housing over top of business) | when not forbidden by zoning or other regulations. | | On the other hand, people like steady salaries and set | working hours. They like leaving work at work. And, | especially as these professions increasingly see their | schools dominated by women, many of these professionals | really like stepping away from work or going part time for | 5-10 years around their 30s. | TeMPOraL wrote: | RE 1: Customers have zero influence on this. If you have | a pet, you'll need a vet, and if the owner of the owner- | operated clinic next to you gets an offer they can't | refuse... I can't imagine you'll find some other owner- | operated clinic to visit out of spite, where the now- | corporate one next to you is open, and perhaps even | cheaper. | | RE 2-5: These are all rounding errors compared to | economies of scale the PE-backed companies have. Also, | those PE roll-ups target businesses whose owners are at | the stage of life when they're just happy to take a big | payout and retire. Tax time advantages and spending some | time with kids (which is arguably less than salaried | employees of the corpo-clinic will have) can't possibly | beat being able to not work at all anymore, live | comfortably, and have _all_ the time you want for kids. | JumpCrisscross wrote: | > _I can 't imagine you'll find some other owner-operated | clinic to visit out of spite_ | | No, but I did organise a few patients to grant our vet a | loan to open a new facility. (It wound up creating some | Michael Scott Paper Company drama between the vet and her | former colleagues, which was interesting.) | TeMPOraL wrote: | People like you are our last line of defense on the | ground. Sadly, I don't think there's enough of such | people to hold the line against PEs doing targeted | divide-and-conquer on specific market segments, one by | one. | tbihl wrote: | >RE 1: Customers have zero influence on this. If you have | a pet, you'll need a vet, and if the owner of the owner- | operated clinic next to you gets an offer they can't | refuse... I can't imagine you'll find some other owner- | operated clinic to visit out of spite, where the now- | corporate one next to you is open, and perhaps even | cheaper. | | I have seldom gone to the nearest | vet/pediatrician/hospital. Inevitably I try it, it's bad, | and then I spend time driving to some place further away | that I actually like. And I drive an average of 4000 | miles per year; with the median driver traveling some | multiple of that each year, I can only assume that most | people are way _more willing_ than I to shop around. | Workaccount2 wrote: | People in general do not give a fuck about anything | besides price, and behind that, convenience. | | However, people spend a lot of time _talking_ about how | they care about more than just price. The actual | manifestation is tiny though. | ethanbond wrote: | People care about multiple things on different time | horizons. There's nothing contradictory in saying, "I | would prefer a world not owned entirely by one PE firm" | and "I will generally seek the lowest acceptable prices." | BeetleB wrote: | > People in general do not give a fuck about anything | besides price, and behind that, convenience. | | They do when it comes to their pets. | tbihl wrote: | First, you should be careful about thinking you know | people _in general_ , and even if you could know such an | abstract and totalizing thing, you don't need all the | customers, just _enough_ customers, or even _plenty_ of | customers. | | Also, the very fact of charity shows that people must | care about something other than price. Paying higher | prices to interact with your neighbors is just a much | smaller step on the same road of doing things you think | are beneficial but that won't maintain your bank account | at the highest possible value at that exact instant. | Farmer's markets are another example of the same. | | You're either looking at the wrong people or making the | wrong changes, if you don't think anyone actually cares | about anything other than price. | 1980phipsi wrote: | If the government increases regulations, then it tends to | place a bigger burden on small businesses than big | businesses for the same reasons you highlighted about | overhead. | gosub100 wrote: | I haven't thought about it this way, I hope youre right. | Here's what comes to my mind after PE buys vet clinic: | | - Analyze all the employees using a "system" to gauge | "productivity metrics" | | - Pressure management to get rid of an employee or two to | increase profits, making everyone else work harder. | | - Seek additional income streams from dubious "insurance" | products that may or may not pay. Help market their | products by spreading false information that insurance | gives them "peace of mind". | | - Increase costs to see what the market will bear | | - Put all employees on a unified HR system that has a | strict 1-size policy, little gotchas like "no health | insurance for the first 60 days", limited PTO, etc. Ignore | anyone who speaks badly because "this is company _policy_ | ". Give the business director a bonus when he finds new and | creative ways to "maximize profits" at the cost of | denigrating staff and making them work harder under more | constrained policies. | | - Lock all dr's salaries and staff pay to the same scale | because "policy". Work harder? Why try? I get paid the same | amount either way. Employees game the system to work the | minimum to avoid termination. Not because they love | animals, those people quit in the first 60 days (which is | why our health coverage doesn't kick in before then). | | - remove as much of their agency as possible, helping a | poor persons injured dog is no longer acceptable, pay-as- | you-go and sliding-scale billing are so 1990's, we have a | _business_ to run, the policy is "put the animal down and | move on to the next paying customer". House calls are a | liability and take valuable time away from the business, | effective next year they are no longer allowed. | | - appeal to emotion to upsell wealthy customers to services | that promise to prolong the animal's life (but increase | suffering and are medically unethical). | | - Fewer people go to the vet now because they can't afford | it, more animals suffer so that rich men can have more | profit. | mortify wrote: | It's not enough that large corporations use economy of | scale to undercut smaller businesses. That would generally | be a good thing for consumers. Instead, we're seeing larger | companies use their influence to increase regulation: a | cost they can absorb that smaller businesses cannot. | | We've seen this in medicine in the last 10 years. I know of | no independent doctor's offices in my area. They looked at | the cost to comply with electronic medical records | requirements and joined a local health network. | Sohcahtoa82 wrote: | My wife works in a lab for a regional medical company. They | just sold out their labs to a national medical lab company, | effective January. | | She's only heard bad things about this other company. Her | wage is basically guaranteed to stagnate, they're not as | generous about PTO, and they contribute surprisingly little | to health insurance plans. | | Oh, but I'm sure the management is flying away on a golden | parachute. | TeMPOraL wrote: | If what's good for an individual short-term was also always | good for them long-term, the world would've been an utopia. | twobitshifter wrote: | Usually what happens is that 60 something year-old founders | have retained control and not shared profits with their | employees. Looking to sell, the employees can't buy out the | founder, and the founder finds PE with deep pockets. The fork | in the road for keeping the company out of PE was passed long | before the founder got to retirement age. | scarface_74 wrote: | Then the market should value those companies properly. | Supermancho wrote: | Not sure what you are saying here. Which companies? Why? | michaelt wrote: | For private equity to take a publicly traded company | private, they've got to pay more for it than the public | market values it at. | | For example, in 2016 Softbank was able to buy ARM for US$32 | billion, but that was only possible because the stock | market priced it below US$32 billion. | Pet_Ant wrote: | > Newer companies like AirBNB and Uber went public at what | could be their max market cap valuation of billions so | investors wont' get much of a chance to make money from these | companies. | | An argument I heard is that companies prefer to stay private | longer to avoid the burden/oversight of SOX etc. The charitable | interpretation is that they are too busy growing to be | bothered, the less charitable is that they aren't capable of | growing if they have to be accountable and forthright. | tbihl wrote: | The availability of VC will necessarily siphon off | enterprises from other funding sources. | 1980phipsi wrote: | VC isn't a panacea and doesn't operate in a vacuum. If you | raise the cost of going public and staying public, then | that makes VC funding or going private more attractive. The | VC funding may come with terms that are not expected by | public company investors. | | But VC-backed companies is only one part of the private | equity trend. | | The other part that is discussed is small owner-operated or | partnership firms getting bought up by bigger ones. Here | again, if the government increases regulations, then that | tends to fall more strongly on small businesses than bigger | businesses. | tbihl wrote: | I agree with everything you have said. | | I'll just add that, with the path of finding VC well- | known and well-worn, we should expect greater difficulty. | Even if we somehow reversed the trend of all institutions | and bureaucracies to become over time larger and more | cumbersome, that is, we streamlined government processes, | we should expect an additional hesitation of growing | enterprises to return to IPO, because VC is now a | comfortable path for a significant portion of the | roadmap. | spiralpolitik wrote: | It's worse than that. The 401k generation will begin think | about retiring in the next few years. Most will discover that | their 401K, despite maximum contributions, will be insufficient | to retire on. | | This will either keep older workers in the workforce longer, | preventing younger workers for getting into positions, or it | will result in discrimination against older workers who will | find themselves unable to get jobs, let go, or laid off to make | room for younger, cheaper workers. | | The expectation for your 401k is that it's going to grow by | 6-8% each year. If there isn't any room for growth in the | market then it's going to be hard to deliver that going | forward, compounding the problem for later generations who | probably won't be inheriting anything from their parents. | flashback2199 wrote: | > Most will discover that their 401K, despite maximum | contributions, will be insufficient to retire on. | | How will that happen when there has been so much growth in | the S&P? | toomuchtodo wrote: | https://www.nerdwallet.com/article/investing/the- | average-401... | | https://www.gao.gov/blog/growing-disparities-retirement- | acco... | | https://www.gao.gov/financial-security-older-americans | | (401k plans were a way for capital to con Americans that | ditching pensions was the way to go; pension contributions | became shareholder profits, and most did not or could not | contribute to 401ks in any meaningful fashion) | flashback2199 wrote: | Thanks for this pile of links... | | I don't believe what you're saying that 401k's are | somehow not going to be enough to retire. | | Unless you meant retire where housing prices are rising | the fastest. | toomuchtodo wrote: | You didn't read the links then. Median 401k balance is no | more than $71k across all age cohorts. Assuming a 4% | perpetual withdrawal rate (Trinity study), that is | ~$2840/year in income. | | Per the GAO: | | > Even for those who do have access, traditional defined | benefit pensions have become much less common as defined | contribution plans, such as 401(k)s, have become the | primary type of retirement plan. This shift has increased | the risks and responsibilities for individuals in | planning and managing their retirement. Yet research | shows that many households are ill-equipped for this task | and have little or no retirement savings. As of 2016, | about half of households with a worker age 55 and older | had no retirement savings, and 29% had no retirement | savings or a defined benefit plan. Policymakers will need | to consider how to best encourage expanded pension | coverage, adequate and secure pension benefits, and more | effective use of tax preferences to foster workers' | retirement security. | | 40% of Social Security recipients have no other income. | | https://www.ssa.gov/news/press/factsheets/basicfact- | alt.pdf | | https://web.archive.org/web/20231028173718/https://www.ni | rso... | flashback2199 wrote: | I'm not following your reasoning | | Regardless of whether and how much private equity is | affecting growth in prices of stocks for public | companies, the S&P in which people's 401ks are invested | has grown a lot, and will probably continue to | | Low balances in 401k's are therefore due to insufficient | contributions and not insufficient growth in S&P prices | the_gastropod wrote: | This thread started as a response to: | | > The 401k generation will begin think about retiring in | the next few years. Most will discover that their 401K, | despite maximum contributions, will be insufficient to | retire on. | | The maximum individual contribution--not counting | employer contributions--is $22,500. Or if you're over 50, | it's $30,000. If You're maxing out your 401k, you'll pass | $71k after working just a few years. | | To retire with just $71k after working a typical career | of 40 years, you'd have to save less than ~$600/year. In | other words, saving $600/year--~4% of a minimum wage | salary--is enough to surpass this median $71k number | after a 40 year career and a conservative 5% avg return. | | I suspect most of these people have other savings. | toomuchtodo wrote: | > I suspect most of these people have other savings. | | Please show me the data, because all available public | sources indicate this is not the case, and in my travels, | the data confirms my conversations with these cohorts | (because I am very curious). If they have other savings | not showing up in the data, what and where is it? We | cannot simply assume it exists. Hope is not a strategy. | the_gastropod wrote: | Well, for starters, we can look at the median net worth | of Americans, which in 2019 was between $250k and $310k | for the age groups we're talking about here. Is that | enough? Still probably not, but it's a heck of a lot more | than just $71k. | | https://www.federalreserve.gov/econres/scf/dataviz/scf/ch | art... | toomuchtodo wrote: | If your net worth includes your primary residence, and | you can't live off the equity, it is not retirement | savings. It is dead capital, as you must live somewhere. | Certainly, we can include it in your estate and net | worth, but that's more pertinent to whomever is next of | kin, not the person who needs cashflow for groceries, | fuel, utilities, healthcare expenses, and so on. What the | metrics represent is important, otherwise we are blinded | to ground truth. | | I must strongly emphasize that vehicle equity is not | retirement savings if you must keep the car for mobility. | Home equity is not retirement savings if you must have a | place to live and there is nowhere to downsize to, unless | we are expecting 55+ to sell their homes and live in a | van down by the river, burning through their housing | proceeds and hopefully dying before it is exhausted. | the_gastropod wrote: | I think it's still perfectly relevant. Retirees who own | their homes have lower expenses than those that must pay | rent. If your net worth is 100% equity in your wholly | owned home, social security will go a much longer way | than someone with $71k in a 401k who must still pay rent. | | I don't know what point you're trying to make here. Is US | retirement a mess? Yes. But I don't think the magnitude | of bleakness is quite _as high_ as you're describing. | | While hardship exists, and I think we'd probably agree | that there needs to be a much better safety net in place | for people, I think it's also true that many capable | people neglect to save enough for the future. And, to be | honest, I think often it's because of rhetoric like | yours. People are hopeless, and just give up trying. | Reality is not that grim. Saving even $1M in a 401k over | 40 years has been attainable for most people by following | the boring "save 10%" strategy. | danaris wrote: | But a higher net worth due to _having_ equity in a home | is not the same as having _fully paid off_ your home. | There 's just not enough information in such statistics | to make such a determination one way or another. | | You're welcome to assume that retirees have paid off | their mortgages, but it's a wholly unsupported | assumption, given just the information in this thread. If | you want anyone else to give it credence, cite some | sources for it. | the_gastropod wrote: | https://fivethirtyeight.com/features/how-many-homeowners- | hav... | | Most Americans over 65 own their homes outright without | mortgages. | nradov wrote: | Equity is equity. It's net worth that matters regardless | of any mortgages. If a retiree has a mortgage payment | then that's just one more housing expense to factor into | retirement planning along with property taxes, | maintenance, etc. For retirees with low interest mortgage | it would be foolish to pay those off. And retirees who | have substantial equity but need cash for living expenses | can always take out a reverse mortgage. | danaris wrote: | That's completely backwards. | | In order to determine whether you can afford to retire, | you need to be looking at recurring expenses, not | illiquid assets. If you have an expected monthly income | from your 401k of, say, $1200, but your mortgage payment | is $800/month, it doesn't matter that you've got $150k | already paid into it and only another 10 years left to | go; you can't afford to retire _now_![0] | | Yes, it's theoretically possible (depending on how much | equity you actually have, and your credit score) to take | out a home equity loan to provide you with money to live | on in your retirement, but a) there's interest payments | to think of, which put you right back at the top of this | post looking at monthly expenses, and b) if this is a | significant part of your net worth (which, for many of | these people, it _absolutely_ will be), this means that | _at best_ you 're leaving your heirs with a bunch of debt | and no house, and at worst the bank just won't let you do | it in the first place. And while there is certainly a | perfectly reasonable discussion to be had of whether it's | better to use the money for yourself now, and not care | about your family, making that selfish choice is far from | universal. | | [0] No actual numbers were harmed in the making of this | post. All numbers are entirely made up. | nradov wrote: | That's completely backwards. I don't think you understand | how reverse mortgages work. It's not the same as a home | equity loan. | | As for leaving an estate for heirs, that's a separate | issue from retirement planning. There's no way to leave a | bunch of debt to heirs. If you die with liabilities | exceeding assets then any debt which remains after | selling off assets is simply defaulted. The heirs will | inherit nothing of significant value, but creditors can't | force them to pay off the remaining debts either. | c22 wrote: | It's stashed in their depreciating vehicles and equity in | their houses. | ryandrake wrote: | I know far too many people (albeit all younger than me) | who readily admit to having zero savings--retirement or | otherwise. These aren't destitute minimum wage workers. | They're professionals with decent jobs, often whose | employers have 401(k) programs. They just don't | participate in them. They deliberately don't because they | want to spend today and not lock up their money for an | uncertain future. About half think they're going to die | before retirement, and the other half have an overly rosy | expectation of a future safety-net to help them. They are | betting (unwisely IMO) that the USA will give in and not | let an entire generation die on the street. | the_gastropod wrote: | I have close friends with this mentality, and it | frustrates me to no end. 6-figure earners with severe | learned helplessness. | commandlinefan wrote: | > no more than $71k | | Don't worry, I'm sure they'll get together and vote to | distribute everybody's 401(k) balances equally among all | retirees so that they people who did save will also end | up with nothing. | ebiester wrote: | I always wonder about this 401k balance. How many people | don't roll over their 401(k)s? | jandrewrogers wrote: | The term "retirement savings" is too narrowly defined | here, since it only includes things like 401k, savings | accounts, and pensions. | | Many people have their retirement savings entirely in | rental real estate (I know several like this). Many | people have small retirement accounts but millions of | dollars in ordinary taxable investment accounts due to | the myriad restrictions that the government places on | what you can put into retirement accounts. All of these | are outside the definition of "retirement savings", | despite being actual retirement savings, but none of them | are rare. | nightski wrote: | Who do you think the shareholders are? That's right, it | includes 401(k) and retirement plan owners. It's a way to | diversify your retirement beyond a single company. A | pension plan in a company that can disappear and that can | make investments on your behalf without any control is | the big con. | | The fact that people contribute less to their 401(k) | means they care less about saving for retirement, not | that the plans themselves are a con. I personally don't | even have a 401(k) because I am self employed and there | are other options. | toomuchtodo wrote: | https://www.cnbc.com/2021/10/18/the-wealthiest-10percent- | of-... ("The wealthiest 10% of Americans own a record 89% | of all U.S. stocks") | | https://www.usnews.com/news/national- | news/articles/2021-03-1... ("Median household owns $15k | in equities") | | (unless you're wealthy, you are a token participant in | the capital markets) | nightski wrote: | I'm fine being a token participant as long as it means | I've been seeing significant gains over the past decade, | which I have. | toomuchtodo wrote: | I'm not faulting the selfish position, simply pointing | out the game is rigged for everyone except outliers (like | yourself or the ultra wealthy). These are just facts, not | feelings, when you review the data about who has | sufficient cashflow for inflows into investments during | accumulation phases as well as their current and | potential future investment exposure to these asset | classes. | | Congrats on the luck (no snark, honestly). But let us not | extrapolate luck and personal anecdotes to solutions for | systems. "In God We Trust, all others must bring data", | working backwards from first principles, etc. | nightski wrote: | They aren't facts. The number of millionaires in the U.S. | has exploded. Many are benefiting from the markets. It's | not luck. | | The fact that many would rather spend than save does not | change that these opportunities are for everyone. The | best selling car in America is the F-150 which is quite | expensive... | toomuchtodo wrote: | > They aren't facts. The number of millionaires in the | U.S. has exploded. Many are benefiting from the markets. | It's not luck. | | Are you sure it's not luck? | | https://blogs.scientificamerican.com/beautiful-minds/the- | rol... ("The Role of Luck in Life Success Is Far Greater | Than We Realized") | | https://www.technologyreview.com/2018/03/01/144958/if- | youre-... | Ref: https://arxiv.org/abs/1802.07068 | ("Talent vs. Luck: The Role of Randomness in Success and | Failure") | | https://www.pbs.org/newshour/economy/making- | sense/analysis-i... ("Analysis: If you're rich, you're | more lucky than smart. And there's math to prove it") | | https://www.marketwatch.com/story/when-you-realize-how- | much-... ("When you realize how much luck goes into | investing, you might change your methods") | Retric wrote: | Millionaire is a fairly trivial threshold these days. | Social security is now paying some people 54k/year | inflation adjusted which would take well over 1 million | to safely generate. | | A couple living on social security + 2 million in assets | may be financially secure but they are still middle | class. | gottorf wrote: | > The best selling car in America is the F-150 | | To be fair, F-150 and other pickup truck sales figures | are buoyed by fleet purchases. The better figure to cite | may be that the average new car transaction is now north | of $48k; ten years ago, it was around $30k, and this rise | has beaten general inflation. | ensignavenger wrote: | Do you have any stats that show that pickup truck sales | are bolstered more by fleet purchases than other | categories such as sedans and economy cars, both of which | are also purchased widely for various fleets? | ensignavenger wrote: | I did a bit of research, and this is what I found: | | This article says about 20% of vehicles sales are to | fleets. It says vans are the most popular fleet vehicles. | It syas "light trucks" (which includes vans) outpace cars | in fleet registrations at 22.5% vs 17.3%. | https://www.autoserviceworld.com/fleet-registrations- | continu... | | Based on that data, I see strong evidence that the F150 | is not boosted over other types of vehicles. I certainly | found nothing to support the idea that it is, and if it | is, it does not seem to be a strongly dominant | consideration. | beepbooptheory wrote: | Do you think all prima facie economic problems can be | resolved down to problems generally of individual | responsibility/spending choices like this? Or just this | one? Does the prosperity of some always assert the | culpability of the rest with regards to their own | poverty? Is the measure of person always relative like | this? | | What does it mean to you to live in world with other | people in general? Are we all fundamentally competitors | like this? Winners and losers in a game of skill (and | definitely not of chance)? Does the existence of losers | reinforce the necessity or merit of the game, of the | structure in question? Or are we trying to make everyone | winners, trying to teach them to get it together enough | to not buy all their flashy cars and such? | nightski wrote: | No I don't, but I do think in an ideal world it would. | Not everyone wants to build wealth nor should they be | compelled to. A society that gives people the options to | do what they want (in the sense of building wealth vs | spending it) would be ideal in my opinion. | robertlagrant wrote: | > > ("The wealthiest 10% of Americans own a record 89% of | all U.S. stocks") | | This is tautologous. "Wealthy" means mostly "built, and | still owns a decent chunk of, a company whose shares are | highly valued". | | Also, I could, like my parents, own nothing in the stock | market, but have a paid off house and decent savings and | a state pension, and be doing well. Proportion of capital | markets ownership is too skewed a metric to reason about. | jwestbury wrote: | > This is tautologous. | | No, it's not, and it's a problem that you're thinking | this way. A tautology would be "Americans in the top 10% | of wealth are wealthier than the bottom 90%." A tautology | is necessarily true according to logic. | | Logic does not dictate that the top 10% own 90% of the | equities. And, in fact, there's a strong argument that | societies with extreme inequality in wealth distribution | are structurally unsound societies (I don't mean that | they're economically unsound, though I'd argue that, | too). | robertlagrant wrote: | I'm saying "owning most of the stocks" is completely | equivalent to "wealthiest". The exact percentage isn't | important. It's not as though those wealthy people need | to have lots of actual cash to be considered wealthy in | such stats; they just need to own enough of a company | that's providing lots of value, or due to, that drives up | the wealth stat. | | > there's a strong argument that societies with extreme | inequality in wealth distribution are structurally | unsound societies (I don't mean that they're economically | unsound, though I'd argue that, too). | | This just depends on how you define "structurally | unsound" and "economically unsound". | mambru wrote: | This is not a tautology but a (not-so-good) measurement | of inequality. | margalabargala wrote: | Pensions tend to be much more generous. | | They are also riskier. | | People see the generosity of pension plans and | (understandably) want that, without having the risk. | gosub100 wrote: | > means they care less about saving for retirement | | They shouldn't be "caring" so much about the high cost of | living I guess? | clbrmbr wrote: | Totally agree about diversification. Reliance on a | company pension fund is terrifying. | | That said, the old pension model forced workers to make | large contributions. The 401k model does not. (Unless | your company has some amazing match deal... I've only | ever seen shitty deals like 25% of up to 4% of salary, | whereas more like a 30% savings rate is what's really | needed.) | frumper wrote: | For comparison's sake. I have a pretty good pension plan | and my employer contributes about 27% of my gross salary | to it along with the 8% I contribute. If someone offered | a 401k match of 300% on my 8% I'd call that a good deal, | but what you described is what people more often get. | fnordpiglet wrote: | Pension plans hold equity and other assets from many | companies. They are essentially like mutual funds with a | defined annuity payout. | | Defined benefit plans should never have died out, they | should have been part of a total mix. There is no reason | you can't have pensions along side social security along | side 401k/IRA plans. This gives retirees multiple avenues | for payout each with their own risk profile. The 401k is | a great idea as a retirement supplement for folks who are | interested in saving more and managing investments. But | many (most?) people are not sophisticated enough to (a) | take advantage of tax deferred savings vs paying rent and | buying food, (b) muck with investment options roll overs | and all the like. | | We are about to see a mass humanitarian catastrophe over | the next 20 years as the 401k dependent generations | retire, social security buckles, and we learn why | pensions existed to begin with all over again. | lotsofpulp wrote: | There is no difference between a defined benefit pension | plan and a target date retirement fund, except you avoid | the extra agency risk that comes with giving control of | your savings to the board of the pension plan and its | vendors. | | The only defined benefit pension plan that has a leg up | on index funds is a taxpayer funded one, because it has | the power to tax, assuming the taxing jurisdiction will | remain sufficiently economically productive decades into | the future (see Detroit for an example of one that did | not and hence was able to cut benefits to DB pension | recipients). | | Personally, I would only value a DB pension paid by the | federal government, since it can always print money. | Otherwise, give me my 0.03% expense ratio index funds. | fnordpiglet wrote: | Investment target date plans are optional and still | include the challenges of people executing roll overs, | taking loans, cashing out with penalties, and actually | choosing the right investment target date plan. Pensions | are not optional, you can't cash them out, you can't take | a loan, and they don't require any logistics to maintain | after you've moved on. The biggest flaw of 401ks is their | optionality which allows present self to buy a new car | making retired self homeless. | | You (and I) aren't the issue here - it's the majority of | people who are unsophisticated. They are autopiloting | through life, assuming social security is a retirement | plan or that they'll save later when they're closer to | retirement. This is an awful lot of people. The truth is | as a society we will be carrying them in their old age | because we didn't pay up front, instead we set up an | optional plan assuming they would pay up front. Instead | we will collectively be figuring out a way to deal with | the massive underprepared aged population using present | dollars rather than compounded dollars. | saltcured wrote: | I think you're conflating "mandatory participation" with | "defined benefits". You seem to want a system that | prevents future-damaging choices by participants. | | I think the other argument going on above is that | "defined benefits" isn't actually possible without some | escape mechanism (like tax collection) to provide the | benefits when it turns out the fund didn't perform as | well as hoped. When a private pension fund gets in | trouble, its participants lose their safety. The others | want a system that prevents future-damaging choices by | fund operators, and see defined contributions as the only | viable way to do this. You own a chunk of the fund and | can transfer it to different stewards. | onlyrealcuzzo wrote: | The majority of domestically-owned S&P shares are owned | by either pension funds or IRAs (401ks): | https://theirrelevantinvestor.com/2020/10/25/who-owns- | the-st... | | The foreign share is a roughly similar breakdown to the | domestic share. | | How do you think Pension Funds get a return if not | investing in equities in similar ratios to most people's | 401k allocation? | loeg wrote: | The quoted excerpt is referring to only the subset who | has maxed out their 401k contributions, whereas you're | describing the median, who mostly have not. These are | different groups. People who maxed out their 401ks for | their working years and had vaguely reasonable investment | options (mostly diversified stock funds) will be fine. | And social security income should not be ignored. | red-iron-pine wrote: | > and most did not or could not contribute to 401ks in | any meaningful fashion) | | burying the lede here, killer. | | to be clear, the 2% mgmt fee in a lot of 401k plans is | terrible and is absolutely scamming the average folks. | | but you can't retire on something you didn't contribute | to, either because you didn't or couldn't. | nineplay wrote: | Pensions have a lot of problems. They become handcuffs | that keep workers at the same place no matter how unhappy | they are, and employers know how to take advantage of | that. It's easy to look back with rose-colored glasses | but I know several people who dragged themselves though | several years of misery to hang on to their pension | funds. | | I wouldn't trade my 401k. | arielweisberg wrote: | Pension plans as they were are still kind of bad because | they could be mismanaged in a variety of ways. | | Pensions are kind of always problematic because you take | control away from people and give it to people with | misaligned incentives. | | It's the same if you give people control over their own | retirement because they can not contribute or mismanage | how the money is invested. Defined contribution pensions | are maybe an improvement on this because at least you | know there is money there and can have a regulatory | framework that is simple and heavily restricts how the | money can be used. I would really like to see broad | market index funds only. Dumb money should stay dumb. | | Maybe if you pull the responsibility up to the federal | government you minimize the risk of mismanagement, but | it's still pretty large. | | Seems like we are doomed to pick an option that is still | risky and it's every person for themselves. You need to | super save and not rely on any framework provided by | others. And this is where 401ks shine. Sure I am stuck | relying on the stock market, but I think the distribution | of outcomes there are more in my favor than if it were | managed by someone else. Whatever is in my 401k (or IRA | or whatever) is owned by me and is heavily diversified. | ryandrake wrote: | > Pensions are kind of always problematic because you | take control away from people and give it to people with | misaligned incentives. | | Maybe I'm the weird one, but I don't necessarily want | _control_ of my retirement fund. My primary requirement | is that it exists when I need it. Somehow the financial | industry convinced the public that being able to | micromanage their retirement investment and pick their | own stocks and mutual funds is somehow beneficial. I can | probably count on one hand the number of people I know | who find this kind of micromanagement interesting. | | I just want "money goes in" and "enough money eventually | comes out" and I don't think I'm alone in that. You can | accomplish that with a well-run pension, a well-run | government plan, and so on. Lots of options that don't | involve me having to decide between stock and bond funds. | WkndTriathlete wrote: | Having watched a close friend of my dad's sell at the | bottom in 2007-2008 after he had retired, I understand | your sentiment. | | However, before the advent of discount brokerages and | widespread 401(k) plans investing really was only for the | extremely wealthy and inept fund management - resulting | in extremely high expense ratios - was rampant. Now | investment is more accessible and ETFs are offering near- | zero (or actually zero (!) - see FNILX) expense ratios on | the strength of the economy, which has been a net win for | a larger segment of the population than the 0.1%. We're | up to 20% now! | | I would like to see a much larger percentage of the | population to be able to get in on this opportunity. | Doing away with wealth and income inequality will get us | halfway there. Trust-managed investing addresses what | you're asking for, where a company manages your | investments and retirements for you at some level of | expense ratio. (These companies exist today for | retirees.) | lotsofpulp wrote: | >I just want "money goes in" and "enough money eventually | comes out" and I don't think I'm alone in that. You can | accomplish that with a well-run pension, a well-run | government plan, and so on. Lots of options that don't | involve me having to decide between stock and bond funds. | | It is called a target date fund. | | https://en.wikipedia.org/wiki/Target_date_fund | spiralpolitik wrote: | Two market crashes and badly managed 401k accounts won't | help. Most trust that their 401k is correctly managed. This | is often not the case. | | The merry-go-round of debt ceiling and budget | confrontations in congress doesn't help. Any gains from | this year are probably going to be wiped out by that | continuing drama. | | Finally the increase in cost of living expenses and cost of | long term medical care will quickly eat into your 401k once | you stop contributing. | | The math looks ugly once you sit down and figure it out. | nradov wrote: | What do you mean by "trust that their 401k is correctly | managed"? Those 401(k) plans are self managed. In most | plans the investment selection defaults to a low-cost | retirement date fund. There's no one to trust. | spiralpolitik wrote: | If you start at a company today the default setting would | be for the 401k money to be invested in something like | LifePath N or similar ETFs that are designed for | retirement funds. Most people, lacking the knowledge to | do otherwise will stick with that. | | So you are working on the assumption that LifePath or | similar ETFs are going to be correctly managed for their | cohort (shifting into safer investments as the retirement | date approaches). | njarboe wrote: | Somehow the "safety" of bonds were not adjusted as yields | reached and sometimes went below zero. A multi-year zero | interest bond is not a very safe investment. I did have | that default setting on a retirement account and got out | of those LifePath type ETFs over a decade ago. | nradov wrote: | You appear to be confusing safety with investment | returns. As an asset class, bonds with high credit | ratings have a lower risk of losing capital than stocks. | Those bonds will lose some value as interest rates rise | but they very rarely go to zero. For investors | approaching retirement age it's more important to | preserve capital than to worry about interest rate risks. | nradov wrote: | Major passive target date funds are all correctly | managed. Periodically rebalancing between the various | component index funds to match a set ratio is not exactly | rocket science. You can just read the prospectus and | latest audit. | throw0101c wrote: | > _How will that happen when there has been so much growth | in the S &P?_ | | If you invested in an index fund, you will get very close | to the S&P 500/Russell 3000/Whilshire 5000/ _etc_. | | If you invested in an actively managed fund, then the fund | manager takes their cut, but also probably tries to be 'too | clever' and doesn't get as good returns as a plain index, | and so you're not getting as high returns. | DontchaKnowit wrote: | My 401k account offered by fidelity, using the highest risk | investment strategy available to me, returned about 8 | percent during a period where the S&P did about 30%. and | they took a 1.5% commission. Absolute fucking scam. took | all my money out and ended contributions. | wenebego wrote: | You werent allowed to invest in the s&p 500 or any other | low cost index fund? | DontchaKnowit wrote: | If I was, they did not make that clear at all. They had a | set of about 14 different "packages" that were | aggregations of different etfs and such that were | available to invest in and that's it. I couldn't find any | way to invest in a single stock or etf. | | They also told me I couldn't cash out my money until I | left the company I worked for which I am pretty sure is | untrue. | bushbaba wrote: | You can always do a S&P 500 fund in a 401k | quickthrowman wrote: | My 401k plan has an S&P 500 fund run by Fidelity that | costs 0.015% a year in fees, FXAIX. If I didn't have | access to a fund like this, I would demand to be given | access to it. | gymbeaux wrote: | Past performance does not guarantee future results. You can | find periods in the US stock market's history of years, | even a decade or so, where the return on the DOW was | essentially 0. Look at other countries and it gets worse; | Japan's NIKKEI returned 0 between 1995 and 2020. 25 years | of... dividend reinvestment I guess? Still nothing compared | to the US stock market during that period. | | The stock market is a circus- that's common knowledge- yet | we rely on it for retirement? Okay. That'll work until it | doesn't. | nradov wrote: | The Dow Jones Industrial Average is a garbage index with | components selected arbitrarily. No one in finance takes | it seriously. | | No one can guarantee stock market returns, but over | decades it's a lot safer than depending on pension | contributions from a single company. And most 401(k) | plans now offer target date mutual funds which | automatically reduce stock exposure over time, thus | reducing risk of capital loss as you approach retirement. | danaris wrote: | We're not talking about what people "in finance" know or | care about. We're talking about regular people's | retirement funds. | nradov wrote: | What's your point? Regular people's retirement funds | aren't invested in the Dow. They mostly use target date | funds. | EVa5I7bHFq9mnYK wrote: | If we are going to cherry pick, Nikkei-225 returned -6% | between Dec 1989 and Feb 2023 (dividends reinvested and | inflation adjusted). 33 years of negative returns. | BeetleB wrote: | > How will that happen when there has been so much growth | in the S&P? | | Almost no one gave the obvious answer: Most 401 K plans are | _not_ investing in the S &P. Many give you the option to, | but it's not the default, and probably over 90% of workers | are unaware of the fund. | | And quite a few do not even give you the option to invest | in it. | PKop wrote: | The cost of real goods, energy, medical care etc will | inflate to account for this, plus extracting the gains will | involve selling..to whom? At what price? | ilamont wrote: | > despite maximum contributions | | The people with insufficient 401k balances aren't making the | max. They're doing the minimum, starting too late, or | selecting the most conservative investments such as bond | funds (NAVs have collapsed) or cash. Many plans don't have | good low cost index funds, so people are forced into actively | managed funds some of which are complete garbage in terms of | fees and returns. | | Workers living paycheck to paycheck (61% of the population, | see https://www.cnbc.com/2023/07/31/61percent-of-americans- | live-...) means that contributions aren't realistic for | millions of people. | | Further, a lot of people don't understand how they work, and | never contribute, even if they could. Even with matching | contributions. Or, they don't trust them after the 2008 | collapse or a vague suspicion that the system is rigged | against them. This is what I hear from my spouse; many of her | colleagues won't touch the solid 401k investments offered by | their employer. | | Some employers have made changes that makes it easier to get | started, but many never will, assuming (wrongly) that social | security is their retirement solution. | | Your predictions about older workers working longer is | correct. You can see it now, seniors working at grocery | stores into their 70s and even older. | jandrewrogers wrote: | > Workers living paycheck to paycheck (61% of the | population | | According to US BLS and Federal Reserve studies, only about | 15% of the population necessarily lives paycheck-to- | paycheck. The median US household has a ~$12,000 surplus | per year after _all_ ordinary expenses. Note that | "ordinary expenses" includes car payments on a BMW, the | latest iPhone, and other by-no-means-necessary | expenditures, and also includes all healthcare costs. | | If 61% of the US population is living paycheck-to-paycheck, | it isn't because they need to. Americans have very high | income surpluses compared to the rest of the developed | world. 15% of the population necessarily living paycheck- | to-paycheck is still a lot of people, but it implies 85% | are not. | ilamont wrote: | > If 61% of the US population is living paycheck-to- | paycheck, it isn't because they need to. | | Consumers can share blame for not living below their | means, needless wealth signaling, and financial | illiteracy. | | But predatory entities are part of the problem, too - car | dealers obscuring true costs of borrowing ("how much do | you want to pay per month?"), credit card issuers jacking | up rates to 37%, and real estate "investors" jacking up | rents after buying mom & pop mobile homes and senior | rental units knowing that tenants have nowhere else to | go. Here's one example from Montana: | | _"I can't tell you how many calls I got from folks that | were older, like older than 55 or 60, that had lived in | their same house for decades, had the same owner for | decades who never raised the rent," Huey said. "Then all | of a sudden they lost their housing." | | Huey and other providers across the state have heard | countless stories of homeowners turning their rental | property into Air-BnBs or evicting their long-term | tenants in order to house their own children in | increasingly affluent communities._ | | https://billingsgazette.com/news/state-regional/montana- | seni... | clbrmbr wrote: | Re: predatory landlords: if they are not breaking the | law, are they really blameworthy? Seems like the previous | landlord was naive, or at least operating on an outdated | worldview where local reputation mattered. (Hard to show | up at the local Chamber or Elks or church when you are | getting old folks kicked out of their homes). | | How to solve... I'd like to find a model to apply in my | HOA to slow or reverse the corporate takeover of my | community... | renonce wrote: | They are blameworthy for not getting public and sharing | profits with regular people, rigging regular people by | inflation | inkcapmushroom wrote: | >Seems like the previous landlord was naive, or at least | operating on an outdated worldview where local reputation | mattered | | Or maybe was an individual with a conscience who didn't | want the old couple that had been in their property for | 30 years living on the street. I guess you could call | that naivety though. | clbrmbr wrote: | "Conscience", there's a word I haven't heard in a while. | If an act is "unconscionable" well then it's legally | indefensible. But the broader idea of "having a | conscience" seems to have receded, to the point I don't | really know what it means. | clbrmbr wrote: | Btw I love inky caps. Just had a marvelous flush of | shaggy manes in the yard here, fed by wood chip paths. | PH95VuimJjqBqy wrote: | Just because the law allows it doesn't mean you should do | it. | drewcoo wrote: | > Consumers can share blame for not living below their | means, needless wealth signaling, and financial | illiteracy | | That's a claim that marketing does not work and we know | that's not true. It regularly defeats "personal | responsibility" or no one would pay the marketers. | tbihl wrote: | This is over-hyped. Professionals who want out will | overwhelmingly figure out how to save more, regardless of | whether their investment returns are 5% or 9%. Most people | are working for much more than a paycheck (though I believe | they often fail to realize that), and stop working for far | more varied reasons than achieving financial independence or | a fully vested retirement plan. | | Sure, this will move some people at the margins, but most | people will stop working from physical or mental frailty, to | move across the country to be with grandchildren, or to | preserve their limited energy to do things that they find | more compelling than work. To the extent that they need to, | they'll find lower-cost ways to live, probably including | down-sizing, living with their adult children, renting rooms, | or other informal arrangements within their communities. | gymbeaux wrote: | It's not over-hyped. If you play around with the numbers, | the ~$22k per year (increases a little each year usually) | you can put in a 401k is insufficient to retire on, even if | you start at age 20 and max it each year till 55... unless | the stock market goes up, up, up. One flaw is that you can | only contribute that $22k to retirement if you have an | employer and that employer offers a 401k plan to employees. | Most do, but it also discourages entrepreneurship and gig | work (which can be lucrative). Without a 401k, we are | limited to contributing $6k/year to an IRA, which only has | a tax deduction if you make less than $85k or so per year. | | Meanwhile 15% or so of our paychecks go towards social | security, which many believe won't exist in 20 years, | regardless of contributions you made. | | Finally, the cost of retiring heavily depends on two | things- healthcare and housing. Many Americans remain | employed until 65 when they are eligible for Medicare as | their employer-provided health insurance is all they can | afford. Prior to Obamacare, these individuals would simply | be uninsured, but now it's "insured but it's ridiculously | expensive" without their employer. | | As for housing... it's common to sell a single family home | for X and use X/Y of that money to buy a smaller townhome | or condo to live in until the day you die. This can work | out well, adding tens or hundreds of thousands of dollars | to the retirement account, but it relies on the person | owning the home, having significant equity in the home if | it's not fully paid off, and being willing and able to sell | the house and downsize. | | The system is broken and in this software engineer-heavy | forum, I think it's easy to forget that we make more money | than most Americans. Heck, we make more money than most | humans. | nradov wrote: | No one retires at age 55 unless they already have | substantial wealth. The expectation is that you continue | contributing until you retire at about age 67. | BeetleB wrote: | > It's not over-hyped. If you play around with the | numbers, the ~$22k per year (increases a little each year | usually) you can put in a 401k is insufficient to retire | on, even if you start at age 20 and max it each year till | 55 | | Over the last 35 years, that would have netted you about | $3M in today's dollars. You could argue that's not enough | to retire on at 55 (although I'm sure many can), but if | you keep it up to 65 that's $6M. Easily enough to retire | on. | symlinkk wrote: | Not to mention Social Security kicks in once you hit your | 60s. | thunky wrote: | Right, but that's also assuming the person is 100% | invested in the stock market all the way up to their | retirement. That's a lot of risk. | Kon-Peki wrote: | > discourages entrepreneurship and gig work (which can be | lucrative) | | Self-employed folks can make both employee and employer | contributions to tax-advantaged retirement accounts, and | the aggregate yearly amount far exceeds what a W-2 | employee can contribute on their own. | peteradio wrote: | Maybe by then Canada will have some sort of MAID tourist | visa. | bluefirebrand wrote: | Maybe it's time for a tech startup to invent the Futurama | suicide booth. We could have a test market lined up. | | Combine it with a Cyberpunk 2077 crematorium vending | machine and it sounds like a great one stop shop. | bluefirebrand wrote: | > preventing younger workers for getting into positions | | This won't matter anyways, or at least it feels that way. | | I have no real hope that jobs that open up above me will go | to me or someone else in my cohort. What I think instead is | one of three things will happen: | | 1) Those job responsibilities will be split among remaining | people as much as possible, and effectively remain vacant | with other people scrambling to take over part of it. They | will receive a tiny pay bump at most. | | 2) Those job responsibilities will be filled by someone but | pay nowhere near what the person retiring was making. | | 3) The job will be automated somehow. | | Maybe this is too cynical but I really do feel like companies | are getting better at making sure employees make exactly the | minimum they will tolerate faster than employees are becoming | intolerant of how little they are paid. | nradov wrote: | Those are the things that happen in static or declining | companies. If you see those things happening then it's time | to look for a new job in a growing company, unless you're | already close to retirement. | bluefirebrand wrote: | Most companies have ups and downs. Longterm stable | companies tend to be static, short term success can turn | into cratering failure in a hurry, and no company can | grow forever. | | When you're interviewing, every company will swear they | are growing rapidly and making oodles of money. How do | you tell if they really are? | | If I could identify growing companies so easily I | wouldn't work at all, just make bank on the stock | markets, right? | nradov wrote: | It's easy to tell if companies are actually growing. For | public companies just read their quarterly financials. | For private companies look through LinkedIn to check the | pace of hiring and promotions. | | Of course there are no guarantees. If your current | employer stops growing then it's time to look for other | opportunities. | | I don't understand your point about the stock markets. | All other investors have access to the same growth data | about public companies. The growth rates are already | priced in. | jimmydddd wrote: | --Static or declining companies Including companies | recently purchased by PE. | HumblyTossed wrote: | This is happening all over the place and is the reason | for the huge productivity/wage gap over the past X | decades. | HumblyTossed wrote: | > 3) The job will be automated somehow. | | If we're talking middle management, that's basically just | an automated spreadsheet. | bushbaba wrote: | Honestly just see a lot more RV/Van dwellers in retirement. | housing and healthcare are the greatest costs. | trashface wrote: | This is what I'm contemplating in the near future. My house | mostly paid off, but I struggle to afford the maintenance | and some stuff is starting to go seriously wrong, and | younger people are moving into town with eye-popping | incomes, driving up COL overall. But then I can't afford to | rent either because my income is tiny. I understand RV | living has many issues but there are likely no other | options for me. | | Its "funny" that I'm not that old (40s) and I've now lived | through 2 major housing crisis as an adult. Its the same | number as my parents who are in their 80s, and they never | even had to buy a house in a post crisis era. Housing was | basically ez-mode for them their whole lives (as was | healthcare). Only now are they having any difficulty, even | with a defined-benefits pension, but they have me to help | out, lucky them (not so much me). | | As for healthcare I've given up on that already. I might | have one elective surgery next year, after that if anything | major goes wrong with me, I'm dead. Not even really | bothering with many doctor visits now, though I manage the | prexisting issues I know about. | mint2 wrote: | Also all the older workers who do have enough used it to buy | multiple investment properties, helping make house prices | absurd. | renonce wrote: | Just wondering, how many U.S. citizens have considered | retiring in another country, possibly a developing country? I | live in an Asian country where the living costs are | significantly lower than that of U.S., so as long as the US | dollar remains strong you can expect 2~3X more purchasing | power for the same dollars. Countries like Malasyia have | favorable policies for foreign retired workers, such as easy | retirement visa, world-class medical care, etc. Could be an | ideal place for retirement in case 401k was insufficient for | retirement in US. | EVa5I7bHFq9mnYK wrote: | Don't know why, but all those cheap countries are too hot | for me. All the colder climate countries are well developed | and expensive. Maybe the chain of derivation is cold -> | hard to survive -> expensive -> developed. | renonce wrote: | What about getting an air conditioner? | trashface wrote: | I'm closer to retirement than probably most people here, | and I have considered it, though I haven't specifically | looked at any countries. One risk for me is the the | potential for culture shock, as I haven't ever lived | outside the US (and indeed have not been outside of US in | over 20 years, and when I did it was to the UK, so not | exactly a big difference from US). | | I also have to take care of my aging parents here, by the | time I don't have to do that anymore, I could be near 60 | and really not in much condition to manage a big move like | that. My own retirement might be...rather short at that | point; there is no one to take care of me. | | My brother really wants us to try for Irish citizenship (we | have distant relatives so its possible while one of my | parents is still alive), but its highly unlikely we'd get | approved and Ireland is not cheap nowadays. I've looked at | Canada but there is a lot of red tape for US citizens to | move there, especially ones who are already partially | retired. | EVa5I7bHFq9mnYK wrote: | >> The expectation for your 401k is that it's going to grow | by 6-8% each year. | | I have always been suspicious of the 6-8% figure, as it also | includes an unknown number of insiders. They know when to buy | and when to sell, so their returns are higher than 6-8%. | Correspondingly, all non-insider returns are lower, such as | 3-4%, but you will not be able to tell because statistically, | it will still average out to 6-8%. | wing-_-nuts wrote: | >Most will discover that their 401K, despite maximum | contributions, will be insufficient to retire on. | | The biggest problem I have with the 401k is that it was very | clearly set up as a tax break for the upper class. It was | then extended to be the primary retirement for everyone and | it has oh so many footguns and ways to bilk retail investors | along the way. | | 1. It's tied to your employer, and not universally available. | 2. Even when it's available, it's not mandatory to save | anything. It should at the very least have a decent default | contribution with a 'I really know what I'm doing' opt out. | 3. Investment options are often active funds with subpar | performance and high fees 4. It's too easy for retail | investors to panic and sell everything during a downturn. | | If the government were really intending to set up a defined | contribution retirement plan, they should have just made the | TSP available 'at cost' to everyone. Autoenroll everyone at | 10% in a 'target date' index fund and don't let them touch it | until their 60's unless they have a terminal illness or | something. It really is that simple. | supertrope wrote: | Indeed. The switch from defined benefit to defined | contribution puts investment risk and longevity risk on the | individual. Australia has much better pension/retirement | savings policy public in the form of Superannuation. | Eumenes wrote: | > Vet clinics, medial practices, engineering firms, etc all use | to to thrive on being 20 person shops are now routinely being | bought up by PE firms and rolled into larger companies which | means far fewer entrepreneurs or chances for up and coming | employees to buy into the firm from the founders, which helps | stall careers. | | In the past 2 weeks, my local small biz autobody shop and | furnace/HVAC company have been bought by large regional firms. | The furnace company refuses to service your boiler w/o buying | from their preferred oil supplier, and the autobody shop has | adjusted their rates to essentially insure they only work with | insurance claims. | gymbeaux wrote: | It's very common for auto body shops to only work with | insurance claims. I think your best bet is to take the car to | a dealership-owned body shop, especially if it's the | dealership you bought the car from, or the same make. | MisterTea wrote: | > It's very common for auto body shops to only work with | insurance claims. | | Right, because like health care they treat the insurance | company like a giant pinata to beat free money out of. Ive | seen auto shops lie about damages, things like claiming | previous damage is part of a claim - anything to bilk them. | Of course the clients don't see any moral issues because | their car receives "free" work. | Gustomaximus wrote: | I've thought about this a bit. This concentration shift seems | good for the economy in the short term but a massive loss for | society as business increasingly becomes a chains or | centralised. Especially in areas that are traditionally owner | run like restaurants, pubs, vets, dentists, GP clinic, | pharmacy, hardware etc. Capitalism is the best system but we | too often forget a core tenant for govt to create a level | playing field. We seem to have forgotten this and make it | increasingly hard for small business which should be a | significant driver of innovation and improvement. | | I think some possible solutions would be to; | | 1) Significantly lower taxes for smaller businesses vs larger. | Even better bring personal rate inline to company rates... but | this would be a very difficult shift for governments. | | 2) Tax benefits for companies listed and actively traded, so | companies are encouraged to list and share wealth/growth. | | 3) A 'not in the national interest' law for companies that | continually pay little to no tax where you would expect them | to. Have tax department give something like a 3 year warning | they are on the 'consideration list' and if things dont change | the tax office can make them sell, or if they prefer close. And | then they remain on said list for a couple decades or so to | verify. This, while being risky for overuse, would be an | effective tool on the worst tax dodgers and wielded in a | limited capacity quite useful for those that have high end tax | strategists that keep getting around the rules. | | 4) Limit investment ownership in residential so people dont | spend their life trying to buy a house. This will allow people | to take some business risk and invest in their entrepreurship | far more easily. | | 5) Put a low market cap limit on core local business like those | mentioned above like vets, dentists, GP clinic, pharmacy. Or | maybe a progressively sliding scale annual asset tax past a | value/outlet of X. Something that limits how big these | organisations can get. | | 6) Stop large consumer distributors selling their own brand | product. Not sure how to word this exactly but places like | Amazon or large supermarkets, they should be a retailer of | other business goods only. Stop them sticking their own rip-off | product next to the other. | | Obviously a load more... | jeffreyrogers wrote: | I think it will be a cyclical thing. The PE firms actually do | run those businesses much more efficiently, but they also | become homogenized and that's offputting, which opens the | door for new entrants to differentiate themselves. | leishman wrote: | It's because of cheap money flowing into Wall Street. The | negative impact of ZIRP has only started to be felt. | ikekkdcjkfke wrote: | Where is all this money coming from? | JumpCrisscross wrote: | > _Newer companies like AirBNB and Uber went public at what | could be their max market cap_ | | Uber is worth 50%+ its IPO valuations.(EDIT: No it isn't. | Sorry, jet lagged.) | chollida1 wrote: | > Uber is worth 50%+ its IPO valuations. | | Is it? | | I just looked at the chart and saw it went public at $45 and | it currently trading at $45. | | Did it split at some point or issue a 50% div? | ta1243 wrote: | https://finance.yahoo.com/quote/UBER says opened at $41.91 | in May 2019 and is now $42.42 | | Had it kept track with inflation it would be about $50 - up | 15% | | Had it kept track with S&P it would be about $63 - up 50% | slotrans wrote: | No it isn't, as 30 seconds of research would show. | globular-toast wrote: | As John Kay put it, the stock market used to be a way for new | businesses to raise capital, now it's a way for already | profitable companies to cash out. The example he gives of one | of the first ones is Google. So it's been going on for quite a | long time now. | | The funny thing is now many of these companies _aren 't even | profitable_. It's all driven by speculation. | jeffreyrogers wrote: | It's still how many new businesses raise capital. That's how | the biotech industry works for example. (In biotech VC just | gets you to the IPO stage and you don't cash out at IPO since | typically those companies don't even have an approved product | yet). | Andrex wrote: | > It's still how many new businesses raise capital. | | Should it be? Theranos stained biotech badly. | jeffreyrogers wrote: | Business and markets run on trust. The less trust you | have the more overhead you have to verify that every | claim your counterparty makes is true. That's expensive | and means some worthwhile things become impossible to do | profitably. It's a tradeoff and I think in general the US | finds a good spot between regulation and ease of doing | business, and the rest of the world benefits from it too. | | There are failures of course, but most of the big ones | recently have been in private markets not the public | ones. | cs702 wrote: | I agree! | | But I also think the rise in interest rates could help reverse | this trend, at least somewhat. | | Consider: Until recently, interest rates in the US and other | developed economies had only declined, in fits and starts, | since the early 1980's.[a] | | Not coincidentally, the modern private equity sector was born | in the 1980's.[b] | | Until recently, private equity firms had benefited from | interest rates that only decline and valuation multiples that | only expand -- for four decades! | | A lot of deals that "work" when rates only decline will stop | working if rates don't. For example, there are a _lot_ of | private-equity-backed middle-market businesses, including | plenty of roll-ups, that were financed before rates went up, | with such high leverage that the companies are now at risk of | insolvency if rates don 't decline soon. | | If rates stay at current levels or (gasp!) continue to | increase, I'd expect to see a significant _contraction_ in the | number of private equity firms. Those private equity firms | survive may have to become mainly _lenders_ , i.e., banks in | all but name, and sooner or later will end up being regulated | as such. | | --- | | [a] https://fred.stlouisfed.org/graph/?g=1aNbC | | [b] | https://en.wikipedia.org/wiki/Private_equity#Private_equity_... | jeffreyrogers wrote: | Those companies are only at risk of insolvency if their debt | is variable rate or has a balloon payment due soon. I imagine | most PE firms are smart enough to avoid those risks. Banks | are also incentivized to negotiate with debtors in those | situations since the asset is worth more as a going concern | than it would be in bankruptcy and banks don't want to | operate a business (they have no expertise there). | | Most PE deals would work (with lower returns) without any | debt. The debt allows them to diversify into more deals | (since they put less equity into any given deal). | cs702 wrote: | > Those companies are only at risk of insolvency if their | debt is variable rate or has a balloon payment due soon. | | Actually, most LBO-type deals are financed with a | combination of bank and bond debt. A shocking number of | bond deals will be maturing within 1-3 years, and have to | be refinanced. The bank debt, senior to the bond issues, is | typically variable-rate and (depending on deal size) split | into tranches that must be repaid at different schedules | over time. Many PE-backed borrowers in recent years decided | not to enter into swap contracts to fix their debt rates. | My understanding is that things could get ugly quickly if | rates don't come down soon. | | > Most PE deals would work (with lower returns) without any | debt. | | Actually, if a deal returns _less_ than the yield on | corporate debt of similar risk, then the deal _does not | work_. LP 's in the PE fund will correctly view it as a | failure. The _raison d 'etre_ of PE funds is to earn | returns above those yields. Moreover, if a portfolio | company is already loaded with debt, finding buyers that | will pay the _old_ multiples given the new rates will prove | difficult, if not impossible -- similar to the situation | many US homeowners that locked-in ~2% mortgage rates a few | years ago face today: They cannot sell their home at the | old valuation because prospective buyers are looking at | mortgages that cost ~8% /year. Higher interest rates make | it hard to impossible to "exit" at valuations that generate | decent returns. | jeffreyrogers wrote: | I'll believe it when it happens. Banks/creditors don't | want to operate these assets (no expertise there) and | since the businesses are fundamentally sound for the most | part there is no reason to force them into bankruptcy. | "Extend and amend" (sometimes "extend and pretend") is | what they called it after 2008. | | If they had unlevered yields below the corporate debt | yield they would have negative leverage and debt would | reduce returns. | Aunche wrote: | > Newer companies like AirBNB and Uber went public at what | could be their max market cap valuation of billions so | investors wont' get much of a chance to make money from these | companies. | | Almost all of these companies were massively overvalued by the | time they IPO'd. I for one am glad that regular people were not | allowed to invest in Theranos or WeWork. Looser restrictions on | investing would create even more dodgy company's whose primary | goal is to scam retail investors, like what we've seen NFTs. | | > Vet clinics, medial practices, engineering firms, etc all use | to to thrive on being 20 person shops are now routinely being | bought up by PE firms | | IMO, this is a symptom and not a cause. Vet clinics and medical | practices would be terrible investments if it were sufficiently | easy to start new vet clinics and medical practices. Likewise, | housing would be a terrible investment if it were sufficiently | easy to build more housing. | pas wrote: | It's not terribly hard to start a clinic, but it just makes | sense to consolidate, and it doesn't make much sense for | anyone who's not a vet to start one (because of the relative | pricing power of vets). But it's not bad for vets to be able | to exit to PE after they have established the clinic. | | And after consolidation PE can make better deals with vendors | (from pharma to insurance networks to maintenance). | | (Of course exorbitant rise in vet costs shows there's room | for more vet clinics, but it's mostly a side-effect of a lot | of rich people spending a lot on their pets.) | Retric wrote: | Don't forget about inflation when comparing these numbers. 300M | in 1984 is 0.85 Billion today. Some companies IPO at huge | valuations, but ShockWave Medical, Inc., had a 2019 IPO at | roughly the same valuation as Microsoft and has seen 11x | returns since then. | | Looking at the other 2019 IPO's you see a lot of volatility but | many home runs. https://stockanalysis.com/ipos/2019/ | hnthrowaway0328 wrote: | IMO this also impacts "large" institutional investors such as | pension funds. A lot of them are going to hold the bag. | | I don't see a way to get out of it without a fundamental | change. | FireBeyond wrote: | > we now have such concentration of wealth that the big PE | firms can buy alot of what used to be small businesses and roll | them up. | | When they don't decide to do a leveraged buy out and have the | business help fund its acquisition. | | One small step away from Tony Soprano and the sporting goods | store bust out. | throw0101c wrote: | See also "The United States of Bed Bath & Beyond" from last month | (raiding a company for cash and creating debt, then declaring | bankruptcy): | | * https://news.ycombinator.com/item?id=37652479 | | "Bed Bath and Beyond files for bankruptcy", April 2023: | | * https://news.ycombinator.com/item?id=35700918 | xrd wrote: | Or, Toys R Us. | throw0101c wrote: | 'The Toys "R" Us Bankruptcy and Private Equity': | | * https://www.theatlantic.com/magazine/archive/2018/07/toys-r | -... | | * https://archive.ph/OH9QF | epups wrote: | I have been reading a lot of criticism of PE here at HN, with | similar arguments as TFA. In the case of small companies - vet | offices, medical practices, etc - it is usually claimed that a PE | acquisition enforces a bunch of changes that are ultimely | detrimental to the end product, like quality of care. However, if | that's the case, shouldn't we see non-PE companies flourish in | competition? Or PE firms emerging that respect the end product at | the expense of short term profits? | | I understand why enshittification and all these others process's | occur when you have a monopoly or a large market share. I fail to | see why it should not be punished by the market when applied to | easily disruptable sectors. | lordalch wrote: | When I moved and was looking for a new vet and dentist, I | specifically asked each one about their ownership structure and | didn't choose any that were owned by a PE firm. | badcppdev wrote: | This is the only solution in my opinion. Don't buy something | cheap if it's from a crap company. | Jill_the_Pill wrote: | >> shouldn't we see non-PE companies flourish in competition? | | It's seldom clear to patrons WHY things have changed. People | get stuck in their habits and are hesitant to start somewhere | new, particularly with things like medical services. My mom | wouldn't recognize PE as the source of a problem at her doctor, | dentist, vet or mechanic. | l72 wrote: | The problem is the PE company comes in and buys basically every | vet clinic or nursing home in a city, undercutting the | independents. Once the independents retire, shut down, or | eventually sell, then the enshittification happens. | | This has been a major problem in smaller communities where | there is essentially no choice in services anymore. | epups wrote: | Oh, I see. So the market is effectively local, like a | neighborhood or small community, which means a single entity | can more easily dominate it. | Nifty3929 wrote: | "Undercutting the independents," or offering the independents | a lot of money to stop being independent? Sounds like a | windfall for those who sell to me. | waythenewsgoes wrote: | It all comes down to available resources. It takes capital and | motivated founders to create new vet clinics. Few will want to | spread themselves thin enough to cover many clinics unless they | are in the same geographic area, and even then the market has | saturation limits. However, if an entity essentially resembling | Chase bank in terms of capital resources comes into your town | and either buys out or undercuts you drastically until you | appear to be uncompetitive, and you can't make your mortgage | payments, or cover your whole staff and equipment, what are you | supposed to do? PE can starve you out, they have the resources, | these small businesses do not. There is no competition in this | instance, just a slaughter. | morninglight wrote: | Private equity has made one-fifth of the market effectively | invisible to tax collectors. | flint wrote: | Sarbanes-Oxley | https://www.investopedia.com/terms/s/sarbanesoxleyact.asp | TehShrike wrote: | This article seems to be stretching really hard to find any way | to connect private equity with "bad things". | | I found the "private companies are kind of like public companies | pre-1929-stock-market-crash" take to be particularly incoherent. | | There might be a good steel-man argument for "privately owned | companies are bad", but this article doesn't look like it. | deepsquirrelnet wrote: | I think the mistake is to assume that all private equity is | bad. I'm sure there are good examples of what PE can do well. | | But for all of the consternation here about declining | journalism quality, the things PE has done to local new sources | is an abomination. If you're not aware of the part they are | playing, you owe yourself a bit of education. | aurizon wrote: | Dentists, vets etc are being bought up and added to a corporate | front. As long as there is a token vet/dentist as a corporate | officer, they can roll up 1000 practices. Vet/dental fees have | been going up 15-20% annually for 6-7 years. A large amount of | 'granular' billing is occurring. The days when you took a pet for | a vaccination for $30 are gone. Now you have a billed office | visit, a billed examination fee and the vaccination fee = over | $120 in all. Large numbers of people take their chances and allow | their pets to live unvaccinated or even die painful deaths. All | due to the monopolies these managed corporate practices enforce. | I expect a lot of human medical concentration also occurs. To be | true, the thicket of insurance paper work engendered by the | intersection of the AMA, Big Insuro, big Pharma, and big Hospo | are part of why Americans have the same (on average) age at death | as Cuba, 30-35 places down the list of longevity as listed by | wiki | https://en.wikipedia.org/wiki/List_of_countries_by_life_expe... | baby_souffle wrote: | Is there a formal way to confirm if a practice has been bought | out? | aurizon wrote: | Examine the receipt, there should be some details about LLC, | Ltd, Corp or Inc that can be accessed online for provenance | details? | JumpinJack_Cash wrote: | This is the sort of stuff that happens when you entrust your | savings to someone else. Some 2000 firms and CIOs are doing the | capital allocation which should be done by 350M people, many of | them have been brainwashed or forced to part with their hard | earned money using the lie that they are too inept to save and | invest on their own. | | Private Equity is an industry that is only standing thanks to | investments from pension funds which act as their LPs. | no_wizard wrote: | One critical thing to think about here: Often (though not | exclusively always) PE firms are backed by leveraging debt to | rollup up companies. This creates a big cycle of: | | - Acquiring massive debt against the new rollup entity | | - Using that debt for short term expansion, maybe even | subsidizing the business model in some cases | | - Payouts to executives at the PE firms. There are instances | where larger PE firms actually borrow from themselves via another | entity so the debt payback goes solely to the PE firm under | favorable terms to the PE firm. | | - Then, squeezing as much of the market as possible to service | this debt via localized monopolies and/or cost cutting measures. | Typically higher prices and worse service follows in short order | | - Finally, if they can't continue to service the debt, the debt, | since being held by the new entity and not the PE firm directly, | the entity declares bankruptcy to restructure the debt (or in | some cases, absolve it entirely) | | PE firms can then rinse and repeat on this, over and over again, | with little oversight or repercussions. | | Sometimes I feel like I'm in the wrong business | alexpetralia wrote: | And who is on the losing end in the bankruptcy? Who keeps | underwriting these deals? | | It used to be syndicated bank loans (often repackaged into | CLOs), but now it is jumbo private credit funds. The banks | ended up losing (which is why they are retrenching from this | space), but I don't believe private credit is (yet). | | https://www.ft.com/content/8962a5cc-2c4c-4e18-801c-9ad4e342f... | | https://www.wsj.com/finance/fed-rate-hikes-lending-banks-hed... | renewiltord wrote: | So there's a bunch of sucker lenders here who are giving money | away. That's fine, I suppose, so long as the sucker lenders | aren't governments and their banks. | robust-cactus wrote: | The praise for the public market in this article is a little | disingenuous. Yes it has some nice properties but it's also a | mess: 1. Algorithmic trading and the rules by which the big | organizations play in the market make it rough for both companies | and individuals 2. Margin trading seems to be making company | stoke prices way more volatile 3. Overall corporations constant | need to appease the shareholders (aka maximize profits) by law | causes them to act like sociopaths at times. | smeeth wrote: | I've seen a lot of lamentation about PE eating the world, but | very few people discuss *why* PE got so huge. | | PE is popular for one reason and one reason only: taxes. PE | generally makes money on a trade called a leveraged buyout (LBO), | where they take out a massive loan to buy a company. Because | interest on debt is tax-deductible, going debt-heavy increases | the take-home profits of the company (this is called a "tax | shield"). Because the profits are higher, the value of the | company is higher, and the PE firm makes money on their trade. | | What this means in practice is that if you run your company | sustainably (low debt, lots of assets). You become a target for a | PE firm to attempt a hostile takeover of the company, all while | claiming (defensibly, actually) to be doing whats in the best | interest of the shareholders. So good companies will try to ward | off these attacks by taking on lots of debt and going asset light | to minimize the value gain a PE firm might have. | | In short, both PE ownership and the brittle, debt-heavy nature of | the American economy today can be traced to the tax advantaged | nature of debt. For reasons I can't quite understand, nobody | seems to be advocating for revoking this tax deduction. I can | only surmise this is because everyone hates taxes. | | Thank you for coming to my TED talk, your take home exam is a | short essay on what you think the mortgage interest tax deduction | (started in 1913) did to household debt. | onlyrealcuzzo wrote: | > For reasons I can't quite understand, nobody seems to be | advocating for revoking this tax deduction. | | Why can you not understand why the US would prefer people to be | invested in the future of the US? | | That's essentially what putting your money into US debt means. | | You are in the interest of the US not exploding in the middle | of the night. | | I do think that the typical 90% debt to 10% equity LBO ratio is | toxic and should be regulated down. I can see this | incentivizing the types that would put in 10M _now_ to get 100M | _now_ - spending that on coke & hookers _now_ , and then | hoping the US collapses and they don't have to pay anything | back. | pjmorris wrote: | > Why can you not understand why the US would prefer people | to be invested in the future of the US? | | I can understand investing in the future of the US. I add an | interest in investing in the present of the US, e.g. wages | that support the consumption needs of the populace, including | but not limited to food, shelter, health care, and education. | onlyrealcuzzo wrote: | US wages dwarf _almost_ every non-tax haven in the world | adjusted for taxes and the cost of living. | pjmorris wrote: | I'd be interested to see where you get your numbers. To | my eye, wages for the median worker haven't gone much of | anywhere in 20-30 years, while asset prices and other | costs have gone up. I'd be happy for clearer vision. | onlyrealcuzzo wrote: | Where are you getting your data? | https://fred.stlouisfed.org/series/LES1252881600Q - | according to the Fed, real median weekly earnings are up | almost 10% over 30 years. | | And why does it matter if they're going up? | | They dwarf everywhere else. US productivity per worker is | arguably going down - mainly because actual working hours | are going down. | tim333 wrote: | Presently I believe if you have a company making $1m profit | and the company is owned by investors holding bits of paper | classified as debt the whole $1m gets paid out. If they hold | bits of paper classified as equity, 21% tax is deducted | before paying out. | | Investing in US enterprise is good but favouring one type of | paper over the other is dubious. If anything you might think | the government would want to favour equity holdings as that | makes the whole set up more stable in downturns. | danielmarkbruce wrote: | This is only one quarter right. Public companies can also take | on a lot of debt. | | The bigger reasons are twofold: 1 - the biggest one is that | pension funds etc get to avoid the constant vol in stock | prices. They get to stick their head in the sand and imagine | asset prices not moving around. 2 - the annoying parts of being | a public company can be avoided (public eye, some sec regs, | constant need to "grow" rather than generate cash). | marcosdumay wrote: | > PE is popular for one reason and one reason only: taxes. | | Well, I'd say it's zero interest rates. | | Any extra cost will reduce your profits. It doesn't matter if | it's tax-deductible. The reason PE can get so big is because | that extra cost is minimal. | | The PEs that insist on antagonizing their customers and depend | on being large will be bankrupt soon enough now that being | large is expensive. | pjc50 wrote: | For some reason I don't understand, the debt ends up on the | balance sheet of the _purchased_ company, not the buyer. That | 's why the debt repayments can be used as a sort of tax-free | dividend. | jeffreyrogers wrote: | Because is secured by the company and serviced by the cash | flows from the company. Since the debt only exists if the | transaction (acquisition of the target company) goes through | it is really the company funding its purchase through the | issuance of debt. | | Btw you can get an SBA loan to purchase a small business. It | works exactly the same way, and there are people who raise | equity capital plus get an SBA loan to buy and run small | companies, in effect they're running a very small PE deal and | installing themselves as CEO. | jeffreyrogers wrote: | Hostile takeovers are a very small fraction (single digit | percentage) of PE buyouts and have been for a long time. | | And if taking on debt were so advantageous in and of itself you | would think the executives of these companies that solicit PE | buyout offers would just issue the debt themselves and enjoy | their increasingly valuable options packages. | gamblor956 wrote: | Interest payments reduce profits on both a tax and accounting | basis, so the profits are _lower_ with increased debt. | Otherwise, for example, Twitter /X would have been massively | profitable after Musk acquired it with debt financing. (The | _interest_ on that debt is over $1 billion /year, and is a | large part of why Twitter/X is struggling.) | | When finance bros talk about "interest shields" they forget to | include the interest payment in calculating the total cost of | the shield. For example, if two companies are identical except | that one has equity financing and the other has debt financing, | the one with debt financing will always end up in a worse | position after accounting for taxes _and debt service_ even | though they will pay less in taxes. For companies that wish to | remain a going concern, cash flow is more important than | effective tax rates. It 's possible to survive for decades with | a high effective tax rate, but negative cash flow can kill a | company in months. | | That being said, I agree that allowing for corporate | acquisition-debt to be deductible is the factor that | artificially props up the entire private equity scam, since | they use it to shield debt-funded "distributions" from the | their victims and they generally load up their victims with | more debt than is actually serviceable (see for example, Toys | R' Us). | j7ake wrote: | Also many retail investors are passive, relying on ETFs. | | This means private companies take all the profits, and when there | is sign of trouble, can dump their stock to the stock market, get | it bundled into an ETF, and a passive retail investor will buy | some through their monthly contributes to a popular ETF. | RobotToaster wrote: | Isn't capitalism great? | hartator wrote: | I wonder how it affects a BogleHead strategy to retirement. | | If the Sp500 (VOO, or VTI, VT) is less and less representative of | the U.S. market, there is a case to be made that it's becoming | disconnected more and more of the "real" economy. This is kind of | undermining BogleHead strategy to just buy the full market as the | full market is less and less accessible. | nintendo1889 wrote: | Buy bitcoin and forget the debt, if possible. Preach to the next | generation do not go to school (public school is marxist- | originated gov't propaganda at it's core; if not then why does | the law require you to go to school in some areas _), do not | acquire debt. Learn real skills and trades. Tune in, turn on, and | drop out. | | _ I was home schooled until 4th grade. I finished my schoolwork | in 2 hours and then played outside and read the encyclopedia the | rest of the day. | jmyeet wrote: | This is the private equity model: | | 1. Borrow a lot of money; | | 2. Buy some company that is somehow deemed "cheap"; | | 3. Cut costs and raise prices; | | 4. Load up the company with arcane debt that will blow up some | time after the PE investors have cashed out; and | | 5. Based on the surface-level financials from (3), re-list the | company to exit before it blows up. | | I'm not worried about PE because this isn't sustainable, for two | reasons: if debt isn't cheap, it doesn't work and the debt burden | only works so long as the SEC doesn't take a hard look at it. | | Remember the investors have to be able to cash out and pay back | those loans. If no one buys the junk they create then this | business model falls apart. | | I'm more concerned with the short to medium term effects of this | such as the extortion of housing of our poorest and most | vulnerable [1] (which people should absolutely go to prison for), | buying up all your local vet clinics [2] and buying up medical | practices [3], to name a few. | | All of this is just rent-seeking. This is what capitalism is. | This is what capitalism does. It's the only thing capitalism | does: intermedidation and rent-seeking. | | [1]: https://www.newyorker.com/magazine/2021/03/15/what- | happens-w... | | [2]: https://www.thenation.com/article/economy/private-equity- | pet... | | [3]: https://www.nytimes.com/2023/07/10/upshot/private-equity- | doc... | slotrans wrote: | Hard to believe there are ZERO mentions of Sarbanes-Oxley in this | whole article. | braza wrote: | One forgotten aspect of this PE taking over established | businesses is that are the employees. | | I saw some cases where the company gave stock options for | employees and kept everyone hanging due to a promise of an IPO | and when the whole thing scrubs, the founders sells to the PE and | the first measure is to expire all the options from the employee | pool [1]. | | Honestly I think the whole thing about options with the rise of | PE and this brutal aspect to get best financial resources is over | for any person joining wanting to have a more outsized exit. | | [1] - https://news.ycombinator.com/item?id=28561054 | sam345 wrote: | Compliance costs and exposure to political risk is the primary | driver of going or staying private in the US. A company | immediately becomes a target for governmental and NGO political | pressures once it becomes public. Now it no longer can focus on | designing, producing, and selling the best products and services | at a good profit for its shareholders, it must devote a | substantial percentage of its efforts on hiring lawyers, PR | specialists, and lobbyists. More recently the SEC has morphed | from an agency whose primary goal was transparency of investment | risk, to a cudgel for enforcing preferred political goals. Nobody | wants a target on their back if they can avoid it. A company only | goes public when it has no choice when it runs out of investors | or shareholders need liquidity. Pretty ironic IMO that same | voices that identified public corporations as the enemy are now | lamenting their demise. | cushpush wrote: | Nursing homes and care centers suffer tremendously in the shift | to private equity holdings. Corners cut, costs cut, staff | released, everything is a skeleton crew, and then they want you | to bring Grandma in.. | Damogran6 wrote: | Retirement is 8-10 away. I was considering 'do I own my home | outright' or do I 'buy a new home with a mortgage I never expect | to fully pay off' | | This kind of BS makes me think owning the property would be safe, | so I don't wake up one morning with a mortgage I can't pay. | typedef_struct wrote: | Working as intended | happyjack wrote: | After reading Thomas Piketty's theories on "Capital in the 21st | Century," a lot of these issues have really come to light. | | Capital grows about 2-4% each year in real terms, while the | economy (labor) in general grows 1-2%. i.e. if you own stuff | (shares of companies, property (real or intangible), land, etc. | etc.) your worth grow twice that of a working person. Compounded | over 60 years (time after WW2), capital has grown ~100% more than | labor. There is real generational wealth in America & the rest of | the OECD world, and this wealth is growing at absurd rates. I'm | not to lobby or claim that I have a solution or that wealth | should be distributed. All I'm saying is there is a giant monkey | in the room. And this isn't just and Elon or Bezos or Ivy League | elite problem. There are even small $1-$10M blue collar | businesses that no one could possibly start today even if you had | the skills & knowledge with how money it would take to buy | equipment, have a shop space / real estate, cash burn in the | first few years, etc. | | I do think it is worrisome that businesses and its capital are | largely going private. Public companies have much more scrutiny | with the SEC, big labor, and has more checks & balances. It's | also a vehicle for normal folks to invest money into a retirement | plan; you can throw tens of thousands of dollars and actually own | parts of major companies. | | I also think the economy of scale for PE is very worrisome. Many | folks here have talked about Vet clinics, medical clinics, etc. | When PE gets together, they can buy buy buy and bleed bleed bleed | money until the competition is out, and then they can jack up | prices to make the difference up. | | Thoughts / 2 cents. | kwere wrote: | A solution to this situation could be to force structured | businesses with a certain base of revenues and employees to | freely allow their employees to invest in the company and sell | those shares in a public secondary market. Most countries have | already complex accountacy regulations and public registries | even for smaller businesses. | happyjack wrote: | What size, though? Are we talking 10 employees, 1000? Just | curious. | gamblor956 wrote: | I used to have a number of private equity clients when I was | still working at a firm. | | Private equity's business model is to profit from the destruction | of people's livelihoods. PE partners are the most immoral people | I have ever met (and for comparison, I used to work as a public | defender representing murderers and sex offenders). If they could | make a dollar by murdering a baby, most of them would do it with | a smile. | | Yes, there are the occasional accidental success stories like | Staples. But they _overwhelming majority_ of PE stories are | viable companies being ripped apart for their "valuable assets" | or saddled with crushing debt to fund the acquisition of the | company and/or dividend payouts to their new PE owners. | onewheeltom wrote: | Because stock market "show a short term profit" every quarter is | insane. The rationality of a 2 year old on cocaine (as I was | told). | zeruch wrote: | PE could be "fixed" with one simple change, make them fiduciaries | all the way down. | | (I mean, it would likely also nuke the PE domain, but I consider | that a feature not a bug). | | PE is a pox that focuses on short-term, debt-riddled 3 card monty | games, and should be annihilated. It's like the fecal byproduct | of something Milken and Gekko would sire. ___________________________________________________________________ (page generated 2023-10-30 23:00 UTC)