The Economist’s issue on October 22nd 2016 discusses how the Private-Equity Industry has prospered, while almost every other approach to financial business has stumbled. Its 4 page article sums up a. o. the competitive advantages of Private-Equity funds (abbreviated “P-E funds”) in an era of low-interest levels and structural changes - partout. The article highlights an almost stealth growth. For the low-profile P-E funds there are good reasons. The business-approach is simple: Acquire a stake big enough to change leadership, add debt, minimize cost and taxes – while charging substantial fees. A part of the income “trickles down” to limited partners in search of high yields. Therefore, they condone the extraordinary successes of the principals; namely, the General Partners (GPs) and managers of P-E funds, who apply Other People’s Money (OPM).
Cf. the writing of Louis Brandeis (1913) about historical bankers - and how they used Other People’s Money.
Leaderships of P-E funds have become extremely powerful and rich. “Creative destruction” is their slogan. Recent research shows that although they do not live up to the characteristics of real creativity, their destruction still benefit them personally.
During- and after the COVID-pandemic the Barbarian Establishment of Private Equity should be met by Financial Innovation with Social Impact
That can be achieved by pro-active resistance from the potential prey of P-E funds during the pandemic as well as afterwards – e.g. Small- and Mid-sized Enterprises (SMEs), hereunder family-owned enterprises, without “Names” in media and markets - as well as regional Basic Infrastructure Activities (BIAs). Many of them risk to be put in play.
Together SMEs and BIAs can- and should require fair play reforms of taxation and financial markets. They can protest against malpractices of the financial industry – for example cross-selling strategies stimulated by internal bonus schemes – as well as insane compensation of corporate leadership and fund management, including so-called “carried interest” as a tax advantage.
SMEs and BIAs can assemble, spread risk and build capacities to facilitate e.g. single-role Pro-Active Restructuring and Reorganization (PARR)-services by CVNs for effective Impact Investing. They can search for access to affordable value workshops offering independent expertise – and demand role-divided financial value chains.
Illegal favoring of the financial industry's incumbents and the "Names" of financial markets may continue. Then, the GAP between the financial- and the real economy will widen - both during- and after the COVID-pandemic.
Corporate regimes of growing financial economies are harmful to themselves and everybody else
“To rock the boat” is long overdue - and the COVID-pandemic can help nudge a vital focus on the needs and behavior of the real economies - Worldwide - for example in maritime regions, where needs of owners/enterprisers and investors are similar everywhere.
The viability of any SME and/or Regional Basic Infrastructure Activities are inter-linked. In other words – a poor regional basic infrastructure is like a hole in the immune system and will cause misery. Owners/enterprisers and investors - assisted by altruistic legislators - should demand that the structure- and services of the financial industry must also benefit the real economy. And stakeholders of the financial industry should take stances - for example on the practices of the Barbarian Establishment of Private Equity - as well as on Multi-Role Financial Group’s cross-selling strategies stimulated by internal bonus schemes. Both result in collusion and network corruption.
Note: The financial economy has been- and still is embraced by politicians, who are supported by influential macro-economists. Therefore, the latter can exercise so-called “financial stability” according to their narrow criteria based on their historic data. It is no wonder that politicians and macro-economists alike are surprised by unforeseen events and resulting financial- and/or other crises – over and over again.
The Economist Magazine has shed light on the Barbarians in their caves. Now it is up to others to bring them out in daylight. Remember an old Norse Myth: A Troll will burst in daylight.