Edited by Jon Cruddas and Jonathan Rutherford, The crash: A view from the left offers an alternative perspective to the dominant economic paradigm. Contributors analyse and explain a range of issues related to the current economic crisis, including the credit crisis, the housing disaster, secrecy jurisdictions, the practices of private equity firms and the intellectual failure of orthodox economics. While some of the issues they address are UK-specific, the ideas proposed - including a new kind of agriculture to ensure food security, a People's Post Bank, and a Green New Deal for tackling global warming - are of relevance to Ireland as we try to chart our way out of recession. Contributors include Jon Cruddas, Clive Dilnot, Bryan Gould, John Grahl, Colin Hines, Adam Leaver, Toby Lloyd, Lindsay Mackie, Robin Maynard, Richard Murphy, Carlota Perez, Ann Pettifor, Michael Prior, Jonathan Rutherford and Göran Therborn. Adam Leaver's piece on 'Private equity and the credit crunch' offers a particularly illuminating take on the private equity industry:
"The best way to understand the industry is as a series of commitments and rights based on three ratios: ’70:30’, ‘2 and 98’ and ‘2 and 20’. Before the credit crunch of 2007, private equity funds would buy out firms with a mixture of equity and debt. Roughly 70 per cent of the purchase price was debt, and 30 per cent was equity (this is the 70:30 ratio). The debt raised for the buyout was loaded onto the company’s balance sheet, and so responsibility for repayment lay with the bought-out company, not the private equity fund. The ‘2 and 98’ ratio refers to the fact that approximately 2 per cent of the 30 per cent equity stake is generally committed by the GP, while the remaining 98 per cent is provided by the LP. Despite the relatively small equity commitment, however, the private equity GP is politically positioned to take disproportionate rewards. This is because of the ‘2 and 20’ fee structure: the private equity GP receives a non-performance-related management fee of approximately 2 per cent on funds invested, and a performance fee of 20 per cent of the profits from the divested".
The entire book is available for download as an e-book.
"The best way to understand the industry is as a series of commitments and rights based on three ratios: ’70:30’, ‘2 and 98’ and ‘2 and 20’. Before the credit crunch of 2007, private equity funds would buy out firms with a mixture of equity and debt. Roughly 70 per cent of the purchase price was debt, and 30 per cent was equity (this is the 70:30 ratio). The debt raised for the buyout was loaded onto the company’s balance sheet, and so responsibility for repayment lay with the bought-out company, not the private equity fund. The ‘2 and 98’ ratio refers to the fact that approximately 2 per cent of the 30 per cent equity stake is generally committed by the GP, while the remaining 98 per cent is provided by the LP. Despite the relatively small equity commitment, however, the private equity GP is politically positioned to take disproportionate rewards. This is because of the ‘2 and 20’ fee structure: the private equity GP receives a non-performance-related management fee of approximately 2 per cent on funds invested, and a performance fee of 20 per cent of the profits from the divested".
The entire book is available for download as an e-book.
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