Feature

Business columns: Private equity isn’t dead, but it should be

&ldquo;It&rsquo;s hard to imagine another industry that has suffered quite the unmasking that private equity has,&rdquo; said Jesse Eisinger in <em>Portfolio.</em>

Jesse EisingerPortfolio

“It’s hard to imagine another industry that has suffered quite the unmasking that private equity has,” said Jesse Eisinger. Private-equity moguls made vast fortunes during the boom years by buying troubled companies, then selling them for a handsome profit. That profit, they claimed, was directly attributable to their superior management skills. Except it turns out that private-equity firms are, in fact, “hapless stewards and gullible investors.” For proof, just look at the mess Cerberus Capital has made of Chrysler Corp. since taking it private in 2007, or TPG Group’s disastrous purchase of Washington Mutual just before it collapsed. Yet wealthy individuals, university endowments, and pension funds continue to commit billions of dollars to private-equity funds. Institutional investors have made unrealistic promises to their clients and beneficiaries, “and are now so desperate for returns, they’re going to buy into the private-equity story.” Why? Because the real skill of private-equity firms isn’t rehabilitating sick companies, it’s “finding believers.”

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