What is private equity? I feel like a lot of people are confused with this term (I was one). So here’s a breakdown of what it actually is.
I came across this tweet a couple weeks ago of Alexandria Ocasio-Cortez (AOC) talking about private equity.
At first, I didn’t exactly know what she was talking about when she referred to it.
But I agreed with her just because I had a feeling that it was about corporate corruption, which I am against.
But then I read a few of the replies to the original tweet and I just got confused.
See, if you don’t understand what private equity means, or what it is, you’ll probably think that it means private businesses. And if it is, then I wouldn’t agree with what Ocasio-Cortez said.
I believe that society needs a free market.
I believe that there should be private businesses; not every service should be funded and provided by the government.
However, they need to be regulated (heavily) so that they are unable to do things that should be illegal.
So, being a fan of AOC, I did further research to find out what this term actually meant because I had a feeling that I misinterpreted her.
There’s no way that she is against businesses (though there are many people out there who make her out to be a communist).
What AOC Said About Private Equity
I did some research and the first thing that I found was this video from The Young Turks breaking down what Ocasio-Cortez said:
This clip made things a little clearer for me.
It talked about what Ocasio-Cortez said, what private equity firms are, and how they affect America.
But I needed more clarification about what private equity firms do.
What is Private Equity?
So I found this article online from Investopiedia that defined it in layperson terms for me.
It says that what these firms do is invest in private companies (companies that are not on the stock market) or buyout public companies (companies that are on the stock market).
“Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity.
“Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet.”
What Private Equity Firms Do
Okay, cool. Everything sounds legal so far. So why are these firms and what do they do so bad?
According to an article from Bloomberg, these firms use loopholes in America’s legal system to pay the owners of these companies large amounts of money, while “bleeding” it dry, causing thousands of workers to lose their jobs.
“Some studies have shown that takeover targets shed jobs at a faster rate than similar firms, but then hire workers faster when the company is returned to health.
“Some lawmakers argue that private equity firms are exploiting a loose regulatory regime. U.S. Senator Elizabeth Warren, who’s vying to be the Democratic Party’s nominee to run against Trump, attacks the firms as ‘vampires’ that bleed companies dry to generate profits for wealthy owners.”
The owners (investors) make loads of money while the workers lose their jobs.
So that’s what private equity is. And it’s amazing to me how this system is legal in America. But what are your thoughts on it?
P.S. If you are interested in this type of stuff -stuff that talks about the unseen powers in society- then I think you’ll like sociology. Click here to read this article that talks about what this social science is.