Private equity funds were based on the premise that the public markets are stupid and short sighted, plus the fact that debt is very cheap now.
They are flippers. The business model is similar to real estate flippers, except that they’re smarter at requiring cash flow to cover debt. They take debt, buy company, do some cosmetic resurfacing and sometimes some amputations, wait a bit, and sell out with great marketing.
For them, selling their companies off in public is their “exit strategy’, how to get paid.
When people with this attitude sell their own company public, what do you think that means?
Do you think their own valuation ideas are suddenly different now when it comes to their own business? Or maybe they are even more sharply focused on “Sell when the public can be fooled for the maximum price” when they are getting 100% of the transaction capital instead of their 20% skim off the top.
Berkshire Hathaway firstly is much more open, and secondly, they don’t have an ‘exit strategy’. They buy to keep a business because it is good. They sell when they think they made a mistake.
Berkshire Hathway thinks it loses money on transaction fees and so it is prudent and cautious about transactions, and keeps cash when it can’t put it to work in the way it feels to be a good investment. It invests its own money.
Blackstone etc—more specifically the ultra plutocratic partners—get PAID quietly and opaquely jiga-simoleons for each transaction—done by financing with Other People’s Money, debt or equity.
Blackstone revels in high leverage—cold cash is distributed to their partners humongous paychecks the moment it hits the bank account. Heads they win, tails somebody else loses.
And finally, Warren Buffet is unusually honest and ethical.
It seems that in just about every way that matters Berkshire Hathway is entirely different from Blackstone.
