An excellent article about how a poorly executed PE strategy resulted in less reliable emergency services.  I want to applaud the writer for the nice piece and the investigative work. It is this kind of articles that raise awareness and provides value. Although I like the piece and agree with the article on many issues, I would like to point out that private equities (PE) are not evil beings from hell and that they do bring for value. Or else they would not exist in this competitive and relatively efficient market.

First, PEs provide relatively absolute returns agnostic of market conditions. Of course, this has not been the case recently but despite many PEs’ underperformance, there are many good PEs that do provide superior returns.

Second, PEs provide disciplining role to public companies. Takeovers are a real threat to underperforming public companies. KKR showed that if you do a bad job, they will come and takeover and make changes. Of course, there has been many bad acquisitions with too much debt but still many PEs do make good acquisitions and play a disciplining role.

Third, emergency care is a public good yet it is not run well or effectively. A good PE can and does bring up efficiency. However, it is hard to balance profit and public health. This is why many emergency care firms fail even with our without the PE. The issue is that there is too much regulatory burden where there are price caps and overall underinvestment in the area. PEs cannot necessarily get around the price caps and that is why they are probably failing in their investments; however, they are providing value by investing in areas that underinvested. So what can be done? Well, PEs first have to be better at operating this emergency firms. They have to realize that they are hard to manage and profits can be capped. The government can also help the PEs by doing a joint venture and alleviating some risks.

Overall, PEs bring value to the economy. Of course, there are bad apples and everyone agrees that they had good times with excessive fees. But PEs provide relatively good returns to investors such as pension funds, discipline public firms, and make investment in underinvested areas.

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