Marc Andreessen posted a cute blog entry yesterday listing
14 questions any prospective investor in a private-equity fund should ask
of its managers. The main problem with the list is that any private-equity professional
should be able to deal with all 14 very easily: none of the questions are all
that tough. But they are germane.
Andreessen clearly has little time for private equity: if he wants leverage
on the S&P 500, he says, he can get that by buying call options, avoiding
huge private-equity fees, as well as the risk that the specific fund in question
will not be one of the 10% of funds which tend to make the most outsize profits.
It’s a good point.
And Andreessen isn’t above a little populist ribbing, either:
When one of your pet management consultants or operating partners walks into
the tire company you just bought, wearing his $3,000 Zegna suit, $400 Turnbull
& Asser shirt, $80 Pantherella cashmere socks, $600 A Testoni alligator
loafers, $5,000 Omega watch, $500 Gucci cufflinks, and $150 Hermes tie, what
exactly is he telling the general manager of that tire company about running
that business that the general manager didn’t already know?
The answer, of course, is that most companies aren’t, actually, run as profit-maximizing
machines. Think of yours. Is your whole working life devoted to making the absolute
greatest possible amount of money for your company’s owners? Maybe if you work
for a bank, it is. But in the old-school, often family-run industries which
private equity targets, there’s often a much more collegial atmosphere, where
managers and employees form a healthy team which looks after, rather than firing,
its weakest members, and which has an eye on happiness and legacy and corporate
longevity rather than growth and profit at all costs.
This, of course, is exactly why the French, among others, are so mistrustful
of private equity…