[Doug put this much more tartly in this week's issue of The Nation http://www.thenation.com/doc/20070716/henwood -- But I was thinking perhaps the appearance of this report today from Moody's was another sign reinforcing his suggestion that PE has reached its top.]
July 8 2007 Financial Times
Moody's slams private equity By Francesco Guerrera and James Politi in New York
Moody's, the credit rating agency, will on Monday launch an attack on the booming private equity industry...
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In its report, to be issued on Monday, Moody's takes issue with the argument that private ownership frees companies from the short-term pressures of the equity markets, enabling them to invest and plan for the long term.
The claim, often repeated by buy-out executives, is central to the industry's efforts to prove its activities benefit portfolio companies and the economy as a whole.
Moody's report says: "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 agency says buy-out funds' tendency to increase a portfolio group's indebtedness to pay themselves large dividends runs counter to their claim of being long-term investors. The report cites as examples of this trend the dividend received by Thomas H. Lee, Bain Capital and Providence Equity following their takeover of Warner Music in 2004 and the one paid to Blackstone after the purchase of Celanese.
The document also takes aim at private equity's claim that improvements in companies' performance are driven by more focused management teams rather than financial engineering and higher debt levels.
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Michael