The Private Equity Apocalypse

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The Private Equity Apocalypse. Well, in a random act of journalism at Forbes Magazine. Now, Forbes Magazine is not the Forbes Magazine from the 80s and 90s. Let’s just leave it at that. Not the same thing anymore. Well, they did a piece and wow, I don’t know, maybe we’ll listen to the podcast here, something we’ve been talking about for years, something inevitable.

out there and that’s the private equity apocalypse. And guess what? You can benefit from this. There’s going to be some good things coming out of this and I’m going to explain. first, but first let’s talk about all of these private equity firms that are litter the country. We’ve gone over the numbers here on the program. The underperformance has been quite frankly extraordinary. I laugh.

Again, these firms oftentimes charge two and 20. Okay, 2 % of all of the assets that they manage, 2 % of all those assets. On top of that, once they hit a certain threshold, seven, 8%, then they take 20 % of everything off the top after that. Nuts. Nuts. And again, they’ve been

underperforming the bloody S &P 500 benchmark for some time. It’s more than that. It’s more than that. It really is. Again, it was a pretty quick way. know, the lure of, remember that song by Glenn Fry, Smuggler’s Blues? was Miami Vice back in the day. The Lure of Easy Money, the Smuggler’s Blues.

It’s like the allure of easy money. It’s the private equity blues. You get a lot of these, know, snot nose, snot nose right out of college, genius MBAs out there that have never run a business in their entire life. Never signed in front of a check, never came up with a marketing plan. Well, they’re all of sudden smart and they know how to run business. They’re gonna buy up one business after another. They’re gonna lower costs.

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and they’re gonna turn around and they’re gonna sell it. Uh-huh, uh-huh. Well, it’s a little more complicated than that. I have to have a lot of friends, clients that had certain businesses that sold to private equity and well, they’re getting phone calls now. Getting phone calls, you know, maybe come back, maybe consult because people don’t know what the hell.

they’re doing. And again, this is where I’m talking about an opportunity for people, especially young people, within the next five to 10 years, even sooner, you’re going to see many of these companies at some point, I’m going to have to cut them loose. And somebody competent is going to have to step in and actually run them. Because these private equity people are not doing a good job by any stretch of imagination. They’re having a very difficult time now, many of them.

because of the underperformance going out and raising new capital to start new funds, because that’s it. It’s always the money raising thing. A lot of them haven’t been collecting that 20 % on top of, know, once they hit a seven, 8 % threshold in performance, because they haven’t even hit that. But they’re still collecting that 2%. And once again, on what? Not on something that is liquid, it’s on something that

they’re placing a value on, they’re deciding what it’s worth. And I’ll use myself as a guinea pig in my company. But I’ve talked about this for the multiples that we’re being offered are obscene and I know that they’re obscene, they don’t make any sense. There’s, you know, I’ve explained here on the program, the only way, the only way the numbers that we are being asked where they could actually make it

work is if they’re laundering money for the mafia or if they decide to rip off all of our clients by flipping them into the private equity company that they are at an even higher multiple. if give me an example, I’m trying to tell it lays out here. So XYZ private equity comes and let’s say, you know, they’ll pick a wants to buy local HVAC business and offers a ridiculous multiple.

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10 times, 10 times its revenues. And let’s just say that it’s, we’ll say it’s a million dollars. We’ll do better. We’ll say it’s $10 million. Well, okay. Now that they bought that for $10 million, what do they turn around and do? Do they keep it on their books in their portfolio at a company that’s worth 10 times? magically, because they got so many handsome devils working there.

young men and women from all these fancy schools, put the valuation, let’s say 15.

Pow, look at that. Now it’s a $15 million company and the investors in that fund are paying 2%, 2 % on that 15 million and all of the other companies that they collect and put in that portfolio. It’s not based in any sort of reality, real world metrics by any stretch of the imagination. Many people are calling these

private equity companies, zombies, zombie private equity companies, because you know, they can’t flip out, they can’t sell the companies, they can’t find that greater fool at this point in time. Zombies not a very good word for it, because again, they’re still making a ton of money. And these things, they’re making a hell of a lot of money just on that 2 % that they are collecting, not to mention the fact that these funds have, with frankly, various different caveats on there, which prevent people

from completely exiting their position at any point in time. You can sell off a portion at a certain time over the course of a year, like every year you can take out a certain amount. So it makes it pretty tough, right? It’s like the Hotel California for investors. You really can’t get out. And that’s the thing is they want to get liquid. This is not.

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going to again, Wall Street does this, they rush into new businesses. And this was the new business du jour. Not new, but different. If you want to go back, you got to go back to the 1980s, where the head Colbert Kravis Roberts bought out our JR Nabisco. I forget how much it was for. But I was told inflation adjusted for today. It was would be close to a $70 billion buyout. I mean, that’s, that’s pretty massive.

quite frankly, different now. Different now you’re going around and you’re buying up small mom and pop shops, small mom and pop shops and you are taking away from them what made them popular and what made them a mom and pop shop. I remember they did a movie about the RJR Nabisco takeover was called barbarians at the Cape barbarians at the gate was with what’s his name there from the Rockford files air Garner. He was in it.

But KKR, I mean, they saw the type of waste. mean, was getting rid of corporate planes, all this stuff. I mean, there was a scene in the movie where they were, it was one of the corporate execs was flying his dog down to Palm Beach on a private plane by itself. Anyway, you know, they could make a lot of cuts there. you’re doing and dealing with the mom and pop business, it’s dealing with other people within, it’s not the same damn thing.

Now they packaged it as the same, but now they’re stuck. Okay, don’t cry for them, okay? They’re still getting that 2%, getting that 2%, even though they’re underperforming, but they wanna get out, they wanna get liquid. This goes back to the earlier parts of back in 2025, when the Trump administration declared a decree and I was very much against this, even though you had all Jim Cramer and all the,

The doofuses on CNBC say, it’s a great idea. Fantastic. Yeah. It’s good to democratize the finance. We’re going to allow average investors in your 401ks and IRAs invest in private equity. And I’m like, no, no. I that was their out. That’s what they wanted. They needed, they needed that. They needed that money. They want that 401k money to get liquid.

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they’re going to tell you that, you’re going to diversify. It’s in your best interest. You’re going to invest like the really wealthy people. Investing is to be fantastic. No, you’re not going to be investing like the wealthy people invest. You’re going to be taking out the wealthy people. You’re going to be taking out the wealthy people. You’re going to be buying what they already own that they don’t want anymore. OK? And you’re not getting any sort of sale or discount. You’re paying at the highs and you’re going to lose. It’s not a matter of if. It’s a matter of when.

Guaranteed so don’t do it

Don’t do it. And again, I’m seeing a lot of actual human resource departments and people like myself, other RAs out there saying, no, no, no, no, no, no,

Get people to part with their money. is private equity thing was a part of that as well. And it’s gonna get ugly. It’s gonna get ugly for a lot of wealthy people that are in these things. But again, it’s gonna also offer up an enormous opportunity for people to basically buy up their scraps. Buy up their, so buy up the scraps of what they screwed up. Those little businesses out there. Looking forward to it quite honestly.

Watchdogonwallstreet.com.