Hacker News Reader

Comment by darth_avocado | Hacker News Reader

The unfortunate reality of PE is that regardless of your opinion of them, your money is probably tied to them.

Seems like that’s literally not true considering that most people can only invest in public exchange tradeable funds.

Not directly. But pension funds, investment groups, insurance companies — organizations who everyday investors rely on — give them money.

And thanks to the current administration you will soon be able to direct 401k money to them.

The real problem here is the lack of accountability. We invented a huge pile of regulations forcing public firms to be transparent, largely because the lack of transparency was easy to abuse and small investors don’t have the resources to do their own investigatory work. Now those regulations are being undermined by this new backdoor approach, and so even public and regulated investments are becoming more risky. It’s a bad trend and it will only reverse when people inevitably follow the incentives and there’s a big crisis.

>Now those regulations are being undermined by this new backdoor approach, and so even public and regulated investments are becoming more risky. It’s a bad trend and it will only reverse when people inevitably follow the incentives and there’s a big crisis.

It's hardly "backdoor" when pension funds and other institutions could always have bought private companies. If anything the recent shift to ETFs and passive investing is a move in the opposite direction. In the past such institutions would have managed their portfolios in-house, ie. private equity.

I feel like it adds a huge layer of opacity. If you buy a private company, you have to monitor its financials and potentially report them. If you buy a private fund, you have to report the valuation of the fund. If the valuation of the fund just tends to go up (as many such funds do), you won’t necessarily know if this actually reflects the prospects of the underlying companies or just the impression of other investors. The impact of adding these layers is not necessarily efficiency (each layer of management adds more cost), but it is increasing distance from the messy short-term ups and downs of real businesses.

Also banks. The second order effects of a mass collapse of PE market will ensure the public securities market will also see negative effects.

Of which, some of that is PE funds. KKR for instance is publicly listed.

Reply on news.ycombinator.com