More on shareholders balking at buyouts

Alan Murray writes today about the brewing shareholder revolt against private equity. He says that's misguided, noting the favorable governance private equity can bring: more incentivized managers with bigger ownership stakes, and owners that are more active and knowledgeable and with better incentives. Murray also notes the irony that

"Pension funds are paying hefty fees to private-equity firms -- which generally charge 2% of funds under management, plus 20% of the profit -- to make investments that the pension funds used to make by themselves.

Murray concludes:

Shareholders are right to be concerned about this trend. But the fault lies less with a private-equity market that is generating superior returns than with a public-company market that is generating lousy ones. Investors would be better off if public companies could clean up their own houses, and get rid of the high-priced middleman.

But as I recently noted, the problem is inherent in the publicly held corporation form, at least as it has come to be configured today – including but not limited to the regulatory environment. It's not the fault of the investors and managers that they can do less good for the company in that form than after it's taken over by private equity. It's all about the incentives imparted by the structure of the private corporation and its private equity owners, as I've argued.

Comments

[save_the_rustbelt]

I'm waiting for the first big private equity accounting scandal -
it should be interesting.

I'm also waiting for the first pension that get burned big time, and the resulting backlash.

Beyond that, I'm just wondering what it takes to consistently get the "superior returns." Do executives suddenly become brilliant, or does regulation matter that much, or are the companies being stripped for dumping later.

Stay tuned!!

[save_the_rustbelt]

And I note that TIAA-CREF has some private equity investments.

I can't wait until one of those deals melts down, there will be a crap storm, even if the amount is immaterial to the total portfolio.

Hmmmm.