A Lesson On How Private Equity Works

Mitt Romney's management of Bain Capital has been used as his rationale for managing the US economy as President.  That has drawn a lot of attention to how private works.  This study by the NYT provides insight into how the game is played.  Its a game in which private equity firms rarely lose even when the firms in which it invests go bankrupt.  Sometimes Bain fees and borrowing by the firms in which they invested contributes to their losses.  Many of the firms borrowed money in order to pay dividends to Bain after it gained control of the firm.  The dividend payments were used to give Bain a fast return on its invested capital even as it increased the risk of insolvency to the firm.