Private Equity's Impact on Employment (relevant to Obama-Romney bickering of late)

[Slowhand]

Stumbled across this working paper while doing some research for a term paper for a graduate econ class I'm taking. It's unrelated to my paper (Privatization in the UK under Thatcher and since the Labour Party Took Over), but I found it to be pretty relevant given the upcoming election and one of the main talking points for the left.

I'm viewing it on a university database, so I'm providing a link to a summary with a supposed link to the full paper (55 pages), but I'm not sure if its download link works as it looks somewhat sketchy.

Simple summary with potential download link:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1107175

UC Press-Release type deal with some figures:

http://www-news.uchicago.edu/releases/08/080125.davis.shtml

My two-cent summary:

University of Chicago report from 2008 (25 years of data) on the employment impact of Private Equity firms finds that said impact is pretty much neutral. Jobs are lost in the short term, but new jobs are created thereafter resulting in long term employment.

What does this say about the Obama campaign's charges about Romney's career at Bain Capital being one of shedding American jobs? A particularly deceitful half-truth

What does this say about the Romney campaign's response citing his career of net job creation? Overblown as well, but I'd call it much less deceitful.

However, given the nature of private equity firms and the fact that they often deal with distressed firms (certainly the case with Bain Capital as evidenced in another thread by Tyrone Bigshoelaces), employment levels netting out before and after a PE deal is actually fairly impressive and one could consider it a success in many cases (but clearly not all). At the end of the day, however, that's not exactly the goal of any given PE deal.

[Slowhand]

Nobody interested in empirical data? There's been a lot of bitching and moaning about the bitching and moaning about Romney's business record in here recently, and this largely goes to support his case. Rhetoric it is, then.

[slow99]

Not only troubled companies - consider that PE situations are largely "trim the fat" (LBO) deals or VC deals with very low hit rates for success.

The vast majority of people here don't even know what Private Equity means, lmao.

[Slowhand]

Not only troubled companies - consider that PE situations are largely "trim the fat" (LBO) deals or VC deals with very low hit rates for success.

The vast majority of people here don't even know what Private Equity means, lmao.

Troubled is the wrong word. Underperforming?

[slow99]

Troubled is the wrong word. Underperforming?

"Could benefit from an 'enhanced' capital structure"

Yeah, maybe half of the LBO deals could fall under that ... strictly an educated guess on my part.

[Broncojohnny]

Fact is capitalism is all about promoting efficiency, the nonsense against private equity is really an argument in favor of the idea that everyone has a right to a job. IE, that employment is a human right.

That's just a bunch of horseshit, just like the idea that free medical care is a right.

[stinginstang]

I don't know if I buy the assertion that jobs are created in the long term but I will read it. my experience has been PE companies come in and trim things to an unsustainable level then cash out. Oh, and it's a miserable place to work....

[slow99]

I don't know if I buy the assertion that jobs are created in the long term but I will read it. my experience has been PE companies come in and trim things to an unsustainable level then cash out. Oh, and it's a miserable place to work....

You're talking about LBO, there are also VC PE firms.

[Slowhand]

I don't know if I buy the assertion that jobs are created in the long term but I will read it. my experience has been PE companies come in and trim things to an unsustainable level then cash out. Oh, and it's a miserable place to work....

Anecdotal evidence is great and all, but all it explains is small macro-events. I'm working part-time right now for a company that's gone through the hands of two different PE firms (and perhaps a 3rd soon), and I've asked them about their experience and they've had nothing negative to say whatsoever.

[stinginstang]

2 times in how many years? Maybe they're doing something wrong.

[Forever_frost]

There should be nothing negative to say. Without the influx of capital these equity firms bring, the companies would go under. They are streamlined, everything evaluated against profit and those unprofitable are let go. It's brilliant.

[Slowhand]

2 times in how many years? Maybe they're doing something wrong.

20 years. It's all been VC growth stuff and not buyouts, though. Perfectly healthy firm, just need the capital for growth.

[stinginstang]

You're talking about LBO, there are also VC PE firms.

What is Blackstone and what's the difference?

[slow99]

If the company isn't publicly traded - the capital comes from somewhere. It's amazing to see all the companies I visit in Silicon Valley on a weekly basis. These guys ALL at some point were (or still are) funded by PE. The kind of technology/innovation the world might not have is astounding.