Private Equity Is Not Capitalism: What Happens When Financial Engineers Take Over Your Investments

The Private Equity Playbook Nobody Talks About

I have been warning about this since November 2006 when I wrote a piece called “Financial Parasites vs. Gordon Gekko.” Nearly two decades later, the situation has only gotten worse. Private equity now controls over 3,600 companies across America, and right now they are desperately trying to exit those positions. That desperation should tell you everything you need to know.

The model is simple, and it is brutal. There are two primary ways private equity extracts value from a business:

• Slash and burn cost cutting. Acquire a company, gut expenses as aggressively as possible, dress up the balance sheet, and sell it at a higher valuation. Customer experience and employee welfare are not part of the calculation.
• Debt loading. Acquire a company, often a healthy one with little or no debt, and then borrow massively against the company’s own balance sheet. The company now has to service that debt. Over time, that debt drains the life out of the business.

Eddie Lampert did exactly this with Sears. He made himself a fortune. Sears is gone. That is the math.

This Is Not Capitalism

I want to be very direct here. Just because someone is making money does not make it capitalism. There are plenty of wealthy people in communist countries. Wealth extraction is not the same as value creation, and the private equity model is almost entirely about extraction.

Gordon Gekko’s famous speech at the Teldar Paper shareholder meeting gets misread constantly. Gekko’s actual argument, buried under all the theatrics, was about accountability and efficiency. What we have with modern private equity is the opposite. It is a system where financial engineers with Ivy League degrees and zero operational experience take over companies they do not understand, load them with debt they cannot service, and then look for the exit before the whole thing collapses.

I call these people the Kendall Roys of finance. If you watched Succession, you know exactly what I mean.

It Is Happening in My Industry Right Now

This is personal for me. Private equity is aggressively targeting registered investment advisors. I get the pitches constantly. “Chris, take some money off the table. Your valuation is strong. This is a smart move.” My answer is no.

When you sell a portion of your firm to private equity, you are not just selling equity. You are selling your clients’ experience. You are selling your independence. You are selling your last name. Some advisors are taking those deals because the numbers look attractive in the short term. But I have seen how this ends, and it does not end well for clients.

Here is what you should know as an investor:

• Ask your financial advisor whether their firm has taken private equity investment or been acquired by a PE-backed platform.
• Understand that incentives shift when PE enters the picture. The pressure moves toward fee extraction and asset gathering, not client outcomes.
• Watch for service degradation. When private equity takes over, the customer experience almost universally declines. I have yet to find a single example where it improved.
• Be skeptical of rapid consolidation in any industry you depend on, whether that is healthcare, veterinary services, financial advice, or retail.

3,600 Companies and a Desperate Exit

The fact that private equity is now in exit mode on thousands of portfolio companies is a significant signal. They loaded these businesses with debt during a low interest rate environment. That environment is gone. The debt is still there. The exit windows are narrowing.

For investors, for employees, and for consumers, this matters. Companies under PE ownership stress cut corners, raise prices, reduce headcount, and eliminate the very things that made them worth acquiring in the first place.

This is not a partisan issue. It is not a left versus right issue. It is a fundamental question about what kind of economy we want. Value creation or value extraction. Real capitalism or financial parasitism. I know which side I am on.