CURMUDGUCATION: Private Equity's Destructive Tendencies

CURMUDGUCATION: Private Equity's Destructive Tendencies

Private Equity's Destructive Tendencies

This article ("Why Private Equity Keeps Wrecking Retail Chains Like Fairway") has been sitting on my desktop since late January, which is now, of course, roughly ten years in our collective past, but it's still worth a look. It's not about education, except that, given the deep and abiding love that hedge funds have for charter schools, this is absolutely about education.

Jordan Weissmann at Slate opens with

The list of retailers that have been bought and wrecked by private equity firms keeps on growing. This week, the beloved New York grocery chain Fairway filed for its second bankruptcy in less than four years and announced plans to sell off its stores, thanks to a disastrous run of mismanagement by a series of buyout shops. It’s on a list of casualties that now includes Toys R Us, Payless Shoe Source, and Sports Authority, among many others. That’s on top of financially troubled names like Neiman Marcus that have managed to avoid Chapter 11 or liquidation (so far).

Since January, Neiman Marcus has lost its bid to avoid bankruptcy. So add them to the list of retailers who died, not because they lost some sort of imaginary battle with Amazon.com or other online retailers, but because they were owned by hedge funders who had far less interest in running a business than they had in draining its resources. Even when you find a retailer who has gone under because of failure to keep up with the competition, like Sears/K-Mart  (Oh, look! There goes J C Penney's), it's useful to look more deeply at why they can't compete-- like, say, investors draining the resources that could have been used to keep the business current.

Weissmann proposes three reasons that we keep seeing these stories, and the reasons tell us plenty about how the hedge fundies behave.

Theory 1: Sometimes, private equity firms really are just looters.

In other words, one way to make money is to just smash and grab, to perform the corporate CONTINUE READING: CURMUDGUCATION: Private Equity's Destructive Tendencies