Moody’s Savages Private Equity Borrowing Practices

Jul 9 2007 | 12:46pm ET

Moody’s Investors Services has issued a scathing attack on private equity firms, trashing the industry’s claim that companies are better off in private hands.

“The current environment does not suggest that private equity firms are investing over a longer-term horizon than do public companies despite not being driven by the pressure to publicly report quarterly earnings,” the report concludes. Moody’s is especially critical of the p.e. practice of borrowing to pay their own dividends, increasing rather than paying down a company’s debt.

“They’re taking capital out over a short period of time, providing themselves with a dividend in the first three years,” Moody’s analyst and report author Christina Padgett told Bloomberg News. “That’s not an investment; it’s a dividend.”

Padgett’s report goes on to accuse p.e. firms of fudging numbers to show an improvement in portfolio company performance, arguing that any uptick in performance is likely due to using debt to inflate returns, rather than the efforts of new, p.e.-installed management teams.

Unsurprisingly, the p.e. industry isn’t buying Moody’s’ analysis, with Douglas Lowenstein of the Washington-based Private Equity Council telling media outlets that p.e. ownership “can and does liberate management to focus on long-term growth.”


In Depth

JOBS Act Propels Real-Estate Crowdfunding Platform

Oct 21 2014 | 2:57am ET

If D.J. Paul were a real estate development, he would be described as “multi-use...

Lifestyle

Strippers Accused Of Robbing Hedge-Fund Manager Face Jail

Oct 20 2014 | 9:20am ET

A group of alleged stripper-thieves—whose victims include a hedge-fund manager...

Guest Contributor

PAAMCO: European Equity Exposure - Challenging Year, But All is Not Lost

Oct 16 2014 | 4:12am ET

European equity hedge fund managers have had a tough time so far this year. The...

 

Videos

Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…

 

Futures Magazine

October 2014 Cover

Deeply flawed risk benchmark

Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.