How private equity killed the American dream

In his new book, Bad Company: Private Equity and the death of the American dreamMegan Greenwell, journalist and wired, tells the devastating impacts of one of the most powerful but poorly understood forces in modern American capitalism. Study, largely unrelated and focused incessantly on profit, private equity companies have quietly remodeled the American economy, conquering large pieces of industries ranging from health care to retail sale, often leaving the financial ruin in their wake.

Twelve million people in the United States now work for companies owned by private equity, writes Greenwell, or about 8 % of the total population employed. His book focuses on the stories of four of these people, including a Toys “R” US supervisor who loses the best job I’ve ever had and a Wyoming Doctor Who looks at his rural hospital by cutting the essential services. Their collective experiences are a harmful report of how innovation is replaced by financial engineering and on the ways in which the turn is paid by everyone except those at the top.

In a review of Bad company For Bloomberg, a long -date manager of private equity accused Greenwell of inevitably having sad stories “sad finals. “But the selected characters Greenwell do not sit and look at their communities as private equity.

Greenwell spoke with Wired at the end of last month of what private equity is and is not, how he transformed several sectors and what workers are doing to recover their power.

This interview has been modified for clarification and length.

Wired: What is private equity? How is the business model different from, for example, to risk capital?

Megan Greenwell: People always confuse private equity and risk capital, but it is absolutely reasonable that normal people do not understand the difference. Basically, the easiest way to explain the difference is that risk capital companies invest money, usually in startups. They are essentially taking a participation in the company and expect a sort of performance over time. Generally they are also playing a significantly longer game than private equity.

But the way in which private equity works, in particular with lever buyout, which is what I focus on in the book, is that they are buying companies openly. In the risk capital, put your money, you are entrusting it to a CEO and probably you have a place on board. But in the lever acquisition model, the private equity company is truly the owner and control of the decisiony of the portfolio company.

How do private equity companies define success? What types of companies or companies are attractive for them?

In the risk capital, the VCs are evaluating whether to make an agreement based exclusively on the fact that they believe that the company will be successful. They are looking for unicorns. Will this company be the next Uber? Private equity is trying to make money with companies in ways that actually do not require society to make money. It’s like the biggest thing.

So it’s less a bet.

It is very difficult for private equity companies losing money for offers. They are receiving a 2 %management commission, even if they are carrying out the company in the ground. They are also able to create all these tricks, such as selling the company’s real estate sector and therefore charge the company’s rent on the same land it possessed. When private equity companies take loans to buy companies, the debt from these loans is assigned not to the private equity company but to the portfolio company.