Private equity funds

The Locusts Return

Zypern - Heuschrecke
Like a locust, private equity firms in the past have attacked in swarms and eaten entire sectors bare.
  • Why it matters

    Why it matters

    Private equity firms, which have a history of asset stripping, can seriously damage economies.

  • Facts

    Facts

    • In 2006 and 2007, equity funds drove takeovers worth almost $700 billion per year worldwide.
    • In 2013, five years after the crash, the figure was $230 billion, roughly the same as in 2005.
    • Equity funds currently manage $3.8 trillion in capital, with $1.2 trillion ready for investment.
  • Audio

    Audio

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It’s been ten years since Franz Müntefering, the chairman of Germany’s center-left Social Democratic Party, used the term “locust” to describe financial investors with short-term, profit-maximizing investment schemes.

He was taking particular aim at private equity funds. These are groups of investors who collect money from pension funds, insurance companies, government funds and wealthy families and then use it to buy controlling interests in companies.

At the same time, they leverage their investments with multiple loans and let their newly purchased companies carry the debt.

The objective of private equity investors is to make companies more profitable through better management, financial optimization and strategic acquisitions, and to then to resell the interest for the highest possible profit. If they’re successful, private equity funds play a beneficial role in the economy.

But in the private equity boom between 2006 and 2007 — just prior to the start of the global financial crisis — many funds shifted their strategy to making a fast buck.

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