Today Tom Abate of the SF chronicle did a fine story on the overall impact of private equity firms on employment. A first read would indicate they are a positive force yet a closer look will reveal the obvious, they are nothing more than the LBO firms of the 1980′s repackaged, self evaluating their impact to the economy.
What results are significant losses to both long term investors and the economy in terms of unnecessary unemployment resulting from senseless consolidation. Let’s hope Congress finally requires these private equity firms to register with the SEC and disclose basic fundamentals, including where they are based and how they value their portfolio companies. Doing so will not only preserve millions of valuable jobs yet also help investors realize long term gains and companies reduce their reliance on excessive leverage.
Private Equity firms’ impact on employment assessed
Tom Abate, Chronicle Staff Writer
Friday, May 14, 2010
The 1,205 California companies backed by private equity firms employ an estimated 1.2 million Californians, according to a report from a trade group representing the largest of these buyout entities.
The Private Equity Council also estimates that 10.9 million Americans work for 9,473 companies run by the more than 1,500 such investment firms nationwide.
Private equity firms combine capital from general partners with investments from limited partners, such as pension funds, and use this capital to buy, reorganize and resell companies. Seagate Technology, the disk drive manufacturer with operations in Scotts Valley, is a local example of a company that went through a period of private equity control and re-emerged a publicly traded concern.
The council, whose dozen members include the Bay Area’s Hellman & Friedman and Silver Lake, based its findings on the activities of the broader private equity investment establishments of which its members are among the largest entities.
The council report comes at a time when critics, including AFL-CIO President Richard Trumka, have asked Congress to rein in the activities of private equity investors.
“They are unregulated and shrouded in secrecy, and they extract big profits, while the companies, their employees and many of their investors lose,” Trumka wrote in a recent opinion piece.
Oregon-based investment adviser Bill Parish, a critic of private equity firms, likened their investment style to the leveraged buyouts of the 1980s.
“Private equity is a euphemism for leveraged buyout,” he said.
The council report cited numerous studies that rebut critics and bolster its contention that private equity investors improve the companies they acquire and resell. These include:
– A 2008 study of 5,000 transactions over 25 years commissioned by the World Economic Forum and led by Harvard Business School Professor Josh Lerner that said private equity investment over time often slows or halts existing job losses and can drive job growth in new facilities.
– Two separate World Economic Forum reports in 2009 that said private-equity owned companies are better managed and reward employees for improved performance with higher wages, benefits and job security.
“Private equity investment over time strengthens companies, makes them more competitive and drives benefits to workers and investors,” council spokesman Robert Stewart said in a statement.