Private Equity or More Financial Innovation
'Ey? Do we know any other fucking songs that we can do?
The WSJ has a scoop, How One Big Private-Equity Fund Makes Its Numbers Incomprehensible. The headline is a little confusing. Someone could read it thinking one PE firm makes its numbers incomprehensible, but in reality it's PE makes their numbers incomprehensible and here's how one fund does it.
"While private equity is synonymous with opacity, the tricks of the trade are taking on greater importance as the industry seeks to broaden its reach among ordinary investors. President Trump last week signed an order seeking to open up Americans’ 401(k) retirement accounts to private equity and other alternative investments.
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"Such funds should, at a minimum, allow investors to see how much each private-equity holding originally cost and compare that with its latest carrying value. Some funds are making this exercise difficult. This is particularly problematic in light of recent controversies over some of the industry’s valuation methods."
I do like how the Journal singles out PE, yeah, they're the ones with the valuation problem.
"The schedule of investments in the fund’s latest annual report listed 1,089 individual private-equity investments in a table that included the fair value and acquisition date for each. In a footnote to that table, however, it listed 1,095 different cost figures."
"That is six more cost figures than there were investments. The footnote spanned three pages, single-spaced.
"In other words, there is no way someone reading the annual report could determine which cost figure applied to which investment—and no way to gauge which investments might have fishy markups. A review of previous reports showed the Partners Group fund sometimes had done this before."
Funny stuff.
In what's conceived of as economics, accounting is the only science and in America in the 21st century, accounting is a bad sitcom. Then you could say for a largely innumerate culture, it's no great loss, just as long as everyone's entertained.
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