Warren Buffett: Private Equity Firms Are Typically Very Dishonest

Warren Buffett is well-known for promoting the clear success of value investing, but one lesser known attitude he holds is his disdain for private equity firms. In this video, Warren and Charlie explain why they dislike private equity and so-called "alternative investments".

[persimmontea]

Had a great dentist with wonderful clinic. He retired and sold it to his partners who flipped it to P.E. ... They got rid of the great staff, jacked up prices and started pressuring you to get unnecessary treatments. They wrecked it. Great dentists .... lousy staff and now empty waiting rooms .... and after 40 years I am leaving. It was so much better run by someone who cared about the patients.

[Joseph-zwsb]

Private equity sounds like a mechanism that extracts the most amount of value from a business, and transfers that wealth to the few general partners.
Everyone loses - the business, the employees, the local consumers, the tax payers.... except for the general partners!

[Maliceless]

Private equity firms *reduce quality* (of goods and services) *while raising prices* (for those goods and services).

[FortuneCookieLies]

They are absolutely right on private equity. They don't really add value to the companies they buy but instead use it to add fees to max out their pay and give a smaller than average return than if you owned the company outright.

[pranavmanie]

private equity is a classic "skin in the game" problem. their money comes from fees, but they are not hurt by how they manage or mismanage the firms they buy out. that is a massive incentive problem, because they take little risk for what seem to be ridiculous rewards.

[bl]

Having worked in a public sector pension in Canada, I can confirm Munger’s observation (4:02). One of the principal attractions of private equity, infrastructure and the like for a pension fund is nobody really knows what they are actually worth so values are smoothed out over time. This gives the illusion of stability vs public stocks whose liquidation value is observable in real time.

[timothywatson]

This is the generation to listen to, no beat around the bush BS nonsense, just straight up education on what is financially feasible.

[Trezker]

If you have money to manage, don't let other people manage it for you. Do your own investing.

[inertiaforce]

When it comes to investing I don't listen to Dave Ramsey. I listen to Warren Buffett.

[ronaldcole]

Anyone who claims they invest better than Warren Buffet is the exact person you want to avoid.

[skipkapur]

Buffett is as good as one can get in investing. Also good character. And a great teacher.

[BradColemanisHere]

It's a good point. He's too nice to come out and say it but yeah, private equity is about being a good salesman and playing with other people's money with no weight or collateral to that investment. I spent 7 years working for a company who built their culture as a private company, then while I was there they went public, went private again, and went public again! As an inside guy I can tell you it was all smoke and mirrors. They're still struggling to figure out who they are. I got bonuses in a LOT of options that were of negative value when it came time to exercise them.

[pm]

As someone having worked in a company transitioning from being privately owned to being owned by a private equity fond ...
They are not healthy ...

[joshuaturnage]

What I understand about private equity is that it's sole purpose is to take the money and run. They are not actually interested in growing the company long term.
Private Equity just destroys companies in the long term. Basically they run up debt to improve cash flow. Eventually the company gets so much debt they have to file for bankruptcy.

[moncorp]

Its going to be a worse place when these two geniuses are gone.

[elvismark]

Warren Buffett was right!!!!
At the beginning of the year, I have continued to purchase a few equities, but nothing significant. Why am I being so unkind to this? The fact that others in my field make six figures each piece, nevertheless, motivates me to want to be the first member of my polygamous family to earn a million dollars. I am fully aware of the expense of working more to get more money.

[tomclayton]

This is the main reason for our Housing market crisis. That and the Health sector. The costs to the public in both those markets has gone into orbit. OVERTURN CITIZENS UNITED!!!

[PamelaFrost]

Here in oz, the bigs Union run funds have large amounts tied up in private equity. It is seldom written down as there is no requirement to disclose these investments. There is plenty of talk about the situation, but there is no action as yet from our regulator!

[bodenao]

Private valuations that are not publicly released and there can be a significant dislocation to stock market valuations. The plummeting S&P and NASDAQ in 2022 has not yet been reflected in PE valuations and if it has, it may not be accurate. It wouldn't be a big deal if the PE world was limited to wealthy individuals and enterprises but pension funds get in on the PE action so John and Jane Doe are exposed unwittingly.

[marcrankin]

PE is a double dipping phenomenon. The investors put up 30% of their liquidity ( and in the case of purchasing a medical practice, is paid back by the doctors) the other 70% is debt they take on, often by tapping into public retirement funds. The investors not only make a profit from the business generated, but are given a paid position in the business they bought even though they don’t necessarily have expertise in that field.