Evan Davis (BBC) on Private Equity
BBC NEWS | The Reporters | Evan Davis
Evan Davis writes on his blog about private equity and the perceived pros and cons of the industry. He does a great job of explaining how the financing of buyouts works which is well worth a read:
Private equity is quite simple. Investors borrow money (from banks); they usually add a little of their own and use the cash to buy companies. Often the companies they buy were publicly-owned - in the sense that a large number of relatively anonymous shareholders buy and sell shares in them on the stock market - and once bought, they become privately-owned, in that their shares are no longer traded.
Evan goes on to explain the tax treatment of these new private companies and the problems many people have with it.
More pertinent is his closing remark:
So, the worry about private equity is that at the more extreme end, it has just turned into a piece of elegant financial engineering that has succeeded in exploiting gaps in contracts and legal arrangements.
And this is the area I am more interested in…where do we draw the line in the exploitation of our insolvency and contract laws without limiting valuable risk-taking and preventing efficiency gains? Something to think about, but in the meantime I highly recommend reading Evan’s article!
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2 Responses to “Evan Davis (BBC) on Private Equity”
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Not just a comment on private equity I am afraid!
I followed your link from Evan Davis’s blog and I am impressed with your blog. I was thinking of doing something like this, and I am interested to know how you attach this blog to a normal address, rather than blogspot.com or typepad.com etc, as they usually are.
My own interest is primarily macroeconomics, and while I think that the legal aspects of private equity are interesting, I doubt that these have changed much in recent years. I would attribute the rise of private equity more to a general increase in risk tolerance. Narrower spreads make debt financing cheaper and private equity firms have no problem raising large amounts of money from passive limited partners. This is consistent with the fact that much of the growth of private equity has been in large buyout funds, rather than small venture capitalists.
Evan Davis is brightening up Today on BBC Radio 4…
evandavis bbc todayprogramme radio4 …