Private Equity and Public Investment

I see that apparently the SEC is going to be delving into the business practices of private equity firms.  This seems like a wise idea, if only because the biggest investors in PE funds tend to be big institutional investors like, you know, pension funds, sovereign wealth funds, and generally exactly the sort of boring staid institutions you’d be least likely to associate with the cutting edge of capitalism.  Which is odd if you think of causality going that way. On the other hand…those big institutional investors tend to have huge piles of cash AND (since they’re managing other people’s money) are likely less sensitive to the huge management fees private equity firms demand.

If you assume that money management naturally tends to devolve into rent maximization, one would naturally be inclined to focus a lot of attention on private equity firms.  The combination of extremely wealthy clients,  sky-high management fees, and limited regulatory scrutiny seems like it should make it a natural haven for scoundrels.  Just saying.


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