Reading these forums I can see almost complete ignorance about private equity firms. I don't give a hoot about Romney. He's just another politician. But I do care about private equity firms. All Americans and citizens of all capitalist countries benefit from them. I thought a primer might be in order. Let's begin with the most important aspect of capital. All the wealth in a capitalist economy results from business profits. Every single nickel of it. Business profits are truly the lifeblood of a capitalist economy. It doesn't come from government. Government is a net spender of wealth. When an entrepreneur wants to establish a new company that he or she intends to make into a large corporation, there is a need for money. The entrepreneur normally goes to a private equity firm which is in the business of supplying money in return for majority ownership in the company. The goal of the private equity firm is to take the new company public when it is ready and make money by selling its stock on the exchange. Along the way it helps the company manage itself effectively to reach that goal. It is a very risky business. Most startup companies fail and, those that succeed, rarely get to the point of going public. Only a few end up as public companies and the reason the private equity firm has a profitable business model is that the payoffs on going public are enormous. A good example of a successful company going public is Facebook. The founders, many of the employees and the equity firm made lots of money on IPO day. Many other people will benefit because that wealth was created. Remember, the equity firm funded a bunch of failures along the way. Another example of the role of equity firms is the turnaround. Some companies get into trouble financially and want to fund a plan to turn the company around to a profitable state. Again, that takes money. The equity firm trades money for ownership and helps the company get profitable again. Again, very risky. Most troubled companies fail. The equity firm loses most of the time but, often enough, there is a successful turnaround that leaves the equity firm owning a viable, profitable company that it can keep or sell or develop into a public company as it sees fit. A successful startup like Facebook ends up making profits which are the source for the wealth of our society and it creates jobs along the way that didn't exist before. The successful turnaround goes from a declining company to viable one with the same results. That is how wealth is created and how jobs are created. Why is this important? The U.S. is still a wealthy country and a good place to live. Compare it to a poor third world country where people don't have computers and the time to chit chat on internet forums. The difference is all business profit. The very standard of living of a captitalist country lies in business profit. And private equity firms are the source of many companies. Almost all public companies were involved with a private equity firm somewhere in their development. There may be others but the only one I can think of off hand that didn't is Hewlett Packard. Everyone who works for a public company owes his or her job to some extent to private equity. The reason you drive around in a late model car on smoothly paved roads and have money for shopping, recreation and vacations is the standard of living of the country in which you live and that all comes from ...... let's hear it now.....business profits. Sorry, it's the truth. The reason you have a job, unless you work in government is .......let's hear it again. You get the idea. And private equity firms were a part of building many of those profitable companies. Has Bain Capital had failures? You bet. Most of its ventures were failures. But there were enough successes to make Bain a successful company. By the way there is also public equity. it is about the same thing except the money comes from government rather than the private sector. A couple of recent examples are Solyndra which was a startup and, like most startups, didn't succeed and General Motors which was a turnaround and was successful. Public equity is very common in Asia, for instance. Some giant companies like Mitsubishi, Sony and Toyota all began as business/government startups. I'm not advocating public equity. I'm just explaining it in context with private equity. The only difference between the General Motors turnaround and a Bain Capital turnaround was the source of the money. Hopefully that helps some understand the whole thing a little better. Feel free to continue to hate and mock private equity firms but at least do it with a tiny bit of understanding.
