[LightBug1]

Nah, private equity is a different beast than "any company".

1) Normal business: how can we innovate such that we maximise profit off the back of a decent product.

2) Private equity: how can buy this company with as much debt in its own name while extracting as much resource as we can via dividends.

[rhaway84773]

(2) isn’t private equity. Private equity simply means funds investing in private, not public, firms. In fact, if you look at other comments people post about how companies are terrible because they have to please shareholders, private equity actually solves that problem.

What you’re talking about is LBOs (leveraged buyouts) which are a certain kind of private equity investment.

[Aeolun]

> private equity actually solves that problem

Private equity firms still try to please their shareholders, they’re just not beholden to a public stock price.

[1_1xdev1]

(2) is how private equity tends to operate.

You’re correct about the definition.

And, no, lbos are the buyer borrowing a lot to buy another company, while using the assets of the acquisition as collateral. The debt is still in the buyer’s name AFAIK (may be wrong)

[xg15]

> private equity actually solves that problem.

How does it solve that problem?

[snake_doc]

Private equity owners often have less short term incentives because their funds are usually 10 years long.

On average, an investment from purchase to exit may take ~5 years.

Whereas a public company with large institutional owners will have to respond to market feedback in real-time, i.e they are more likely to follow the herd if institutions (pension funds) demand a shift in industry trends (ie ESG). Whereas, private equity have no such concerns.