Forbes magazine has a dishy diss of the private equity business in the current issue. It is long, but still worth reading in its entirety. The criticism that caught my eye most directly was one directed toward large investors in private equity funds themselves:
“I can’t think of an industry structure that’s more screwed up,” says one manager of a midsize buyout firm. “The biggest suppliers of capital”–the pension funds–”are the most thinly staffed and underpaid,” he says. State plans with a few employees oversee billion-dollar investments and report to “political entities–their boards–relying on consultants whose business is mostly about marketing and politics,” he says.
They aren’t any match for the buyout guys–who already are anticipating a coming correction and are preparing to profit from it. Some of the biggest names in buyouts–Blackstone, Carlyle, Apollo Advisors–now are raising “distressed investment funds” (read: vulture funds). Feeding on big discounts, they will buy the equity and debt of companies their brethren helped get into trouble.