A Glimpse Inside The Industry That Owns Everything

Tyler Durden's picture

From Jason Kelly, author of The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything - an excerpt


Standing in Legoland in Carlsbad, California in 2011, fulfilling a promise to my then eight-year-old son William, it hit me. I was strolling around a Blackstone-owned property. We'd woken up in a Homewood Suites, owned by Blackstone-backed Hilton. We'd driven to the park in a rental car from Hertz, owned by private-equity firms Carlyle and Clayton, Dubilier & Rice. Practically every time I'd opened my wallet that day, it had been to a company owned by private equity. Even on vacation, I couldn't escape.

A few months later, I had dinner with Greg Brenneman, who'd held top positions at Continental, Burger King, and Quizno's, all private-equity-owned at the time he was involved. Brenneman is now the chairman of CCMP Capital, whose investments have included 1-800-Flowers.com and Vitamin Shoppe. We talked at length about the ubiquity of PE ownership -- my J. Crew sweater, the Dollar General store in my wife's hometown in the Catskills. I started a running list on my BlackBerry that quickly grew to dozens of examples. Brand names piled up, from Toys "R" Us to Petco. The more I looked, the more I found it.

The numbers are staggering. Private-equity firms globally and collectively had almost $3 trillion in assets at the end of 2011.1 The companies they own account for about 8 percent of the U.S. gross domestic product by one estimate.2

Contemplating how they got all that money in the first place triggered another thought, a memory of a colleague mentioning that her mother was a teacher in suburban Toronto and had her retirement account in the hands of the Ontario Teachers' Pension Plan. I'd profiled that pension for Bloomberg Businessweek in early 2010 -- they were pursuing a strategy of buying companies directly, like vitamin retailer GNC. Thousands of other pensions, endowments, and government funds, from California to Singapore, were committing hundreds of billions to the likes of Blackstone and KKR. I thought of my in-laws, each with a pension. They, and millions of folks like them were, usually unknowingly, owners of dozens of companies on my ever-growing BlackBerry list.

While the business of buying and selling companies is far from new, the emergence of these players was relatively sudden. What began as a cottage industry known as bootstrapping and leveraged buyouts in the 1970s and 1980s, had blossomed in the 1990s as a handful of small players started to grow rapidly and others, eyeing a huge opportunity, hung out their own shingles. Somewhere toward the turn of the twenty-first century, the more genteel "private equity" became the chosen descriptor. The name may have changed, but the basic business model was the same: collect money, pair it with debt, and buy a company with the intent of selling it down the line for a profit.

The period from 2000 to the present changed everything. Small private partnerships accustomed to rounding up a few hundred million dollars suddenly were raising funds well in excess of $10 billion, accepting huge sums of money from pensions and endowments eager for investment returns topping 20 or 30 percent a year. Wall Street became an eager lender, developing new ways to provide the debt financing in order to get the associated fees. Big investment banks took to investing alongside their clients.

All that money meant that almost nothing was out of bounds for private equity, and 2005 to 2007 saw a spate of deals for companies deeply entrenched in the infrastructure of our everyday lives, from hospital giant HCA to credit card processor First Data to hotelier Hilton.  My own introduction was a baptism by fire; I began covering the industry in February 2007. During my first week, news leaked of the biggest-ever takeover, the leveraged buyout of power producer TXU.

What happened next was a different sort of education. Deal making came to a screeching halt with the credit freeze of 2007 and 2008 that triggered the broader global financial crisis. The private-equity managers generally hunkered down, and tried to soothe their own anxious investors pummeled by the public markets -- investors who also were worried about what they owned through their buyout funds. Unlike hedge funds, where a bad trade can mean huge losses, an ill-conceived private-equity deal can linger. When the dust settled, private-equity firms still owned all of the companies they'd bought in the boom.

Emerging from the crisis, existential questions abounded. My Legoland epiphany demonstrated just how embedded private equity was in our everyday lives. What seemed like an arcane corner of finance when I arrived was actually central to all of us and very few people actually knew who they were or what they did.

Reporting and writing about business, especially finance and especially in New York, can sometimes feel like a demented sports beat, simply keeping score and tracking rich people getting richer or marginally less rich. But in this case, that's just scratching the surface. What these guys are doing matters to all of us in some form or fashion.

Private equity by its nature and design, is secretive, a breathtakingly wealthy corner of the world where the names only occasionally escape the business pages, names like Stephen Schwarzman, David Bonderman, and David Rubenstein. The relatively small firms they've created, by virtue of what they were able to buy with those ever-growing pools gave them outsized influence as owners and employers. Blackstone, Schwarzman's firm, alone counts almost a million employees through companies it controls. They are modern day Wizards of Oz -- the men behind the private-equity curtain.

The best way to understand these men is to look at what they've created, and it's startling how much each of the largest private-equity firms are mirrors of the founders themselves. There's an egotism at the center of the whole exercise. After all, each of these men, some more willingly than others, ditched successful careers because they deeply believed they saw something that only a handful of others did. And then they went a step further. They decided to build what have become massively influential institutions meant to outlast them.

To understand what they created and what it means to have them so entrenched in our lives, I decided to follow the money to reveal through their words and actions the implications of their activities to fix actions. The trail begins in the sanitized meeting rooms of public pensions, moves to palatial suites in skyscrapers with top-of-the-world views, and on to discount stores and pizza chains and hotels, before it comes all the way back to those same vanilla pension offices and eventually to the retirement checks of teachers and firefighters and, in one of several twists, even some workers of the companies owned by private-equity firms.

Along the way, that money finds itself augmented by debt and pushed into companies that may thrive, implode, maintain, or simply fade away. The money befuddles Washington lawmakers and regulators, in a debate sharpened by the presidential candidacy of Mitt Romney. His private-equity career has brought the industry into the public consciousness in a never-before-seen way, prompting its largest players to explain themselves with at times surprising candor.

Their contemplation stems not only from a bright spotlight but from their own personal situations. Having created unbelievable amounts of wealth for themselves, they're mulling their own legacies, in terms of the empires they've built and what they'll ultimately do with their riches.

With all the talk of retirement, it's easy to forget the relative youth of the industry. I've come to think of private equity as a teenager with a lot of potential, but still struggling with adolescent tendencies -- at times unresponsive, rash, selfish, and fluctuating between arrogance and self- doubt. By virtue of some hard work and a lot of luck, it's ended up in a position to potentially be an upstanding member of society. To ignore it or wish it away is foolhardy. It's here and the influence is growing. And whether it's the price of your morning cup of coffee, your bed sheets on a business trip, or the size of your retirement check in the mailbox, you're involved.

1. Paul Hodkinson, "Logjam Gives Buyout Firms $1.2 Trillion Hangover," Financial News, March 19, 2012. http://media.e?nancialnews.com/story/ 2012-03-19/logjam-gives-buyout-?rms-hangover 

2. Katie Gilbert, "New Green Portfolio Program Could Change Private Equity," Institutional Investor, September 6, 2011. www.institutionalinvestor.com/Article/2895315/New-Green-Portfolio-Program-Could-Change-Private-Equity.html

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steveo77's picture

Just type these words into Google


police fatally shoot october 2012


now try setpember 2012, August


get the idea?

Western's picture

Yet the sheeple are continuing to drink the coolaid that there are average citizen psychopaths (non-police, non-govt) roaming the streets waiting for new people to kill. CSI, Miami Vice, NCIS.. I wonder how many shows are on TV currently that show citizens killing citizens. I could whip up a police killing citizen show/sitcom/film script within a few hours, of course an anti-terrorism liquidation team will break down my door within seconds of hitting CTRL-P. Why would my door get unconstitutionally busted down? Because judges are a captured organ within national borders...


If you don't know your rights, you don't have any rights. Anyone telling you otherwise is a _____________________ .

NewThor's picture

So they own the Louisiana methane sink hole, the BP spill (bleeding again) and crafted H.R. bill 6566?

ok. makes sense.

GetZeeGold's picture



Capitalism - we haven't seen that spirit here since nineteen sixty-nine.


Welcome to the hotel California...Jerry Moonbeam is STILL in charge. Not much changes around this place.


imaginalis's picture

"You can check-out anytime you like, but you can never leave."

The Eagle's were singing about the psychiatric hospital near Camarillo. Known as The Hotel California.

The building was converted into a library for the Channel Islands University

Thomas's picture

This was all described (foreshadowed) in lurid detail in Kevin Phillips' "American Theocracy'. The financialization of the economy is the death rattle of an empire.

BigJim's picture

"Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take away from them the power to create money and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money." 

– Sir Josiah Stamp, Director of the Bank of England... (Said to be from an informal talk at the University of Texas in the 1920s, but as yet unverified.)[3]

A Nanny Moose's picture

CSUCI! Affectionately know to locals as C-Sucky. Nice campus if you are a single unemployed mother looking to borrow money for that nursing degree.

That "Hotel California" is about former Camarillo State, started somewhere in the rumor mill. From Wikipedia:

Don Henley called it "our interpretation of the high life in Los Angeles

Sorry for the threadjacking.

oddball's picture

Fuckin' C-sucky.  I hear they have a good mathematics department.

Monedas's picture

Capitalism gone wrong is Socialism !

falak pema's picture

like a nun gone wrong who gets shagged by her confessor is atheism; you're being a brain dead priest who only believes all evil comes from the opposite of his own intimate beliefs; not factual reality. 

Ideology is like super glue, it clots the neurones.

rayduh4life's picture

Actually at best it's facism. 

CH1's picture

This, my friends, is Capitalism gone wrong.

No, my friend. That is Fascism. BIG difference.

markmotive's picture

We're living in a world of ever-shrinking freedom and opportunity.



Gully Foyle's picture


That is bullshit.

Freedom and opportunity have always been what an individual can claim and maintain.

See your future be your future.

No one stops someone from succeeding except the person trying.

mercy's picture

Such well-sounding ideology.


Nevertheless naive.

Gully Foyle's picture


I'm glad you have chosen to be a whiney little bitch.

Meanwhile crack dealers are creating their own future with much more will power than you have.

And they are poor, uneducated, and have a much more limited socio-economic background than you.

It's people like you that make ZH the new happy place for losers and unsuccessful piss and moaners.

Why bother to think your way around a problem when it's much easier to blame everything and everyone else for your failure.

LawsofPhysics's picture

I'd hardly hold up a crack dealer as an example of "successful opportunities". Gully.

Be very fucking careful what you wish for.

I have run a bususness for 20+ years.  I can't afford to pay a lobbyist like Monsato, but we are supposed to compete on the same terms while Monsanto buys washington and trys to sue me because their bullshit hybrid seeds get carried by the fucking wind onto my crops?!?!?

wake the fuck up you ignorant shit.  In what fucking universe is that a "fair market"?  I repeat, Monasanto can sue me because I can't control Nature?!?!?!

What the fuck Gully?  Wake the fuck up!!!!!!!!!

The kleptocracy owns washington and then says if you don't rescue are bankrupt ideas and bailout our failed business models they will "fire everybody".  They are holding the fucking worker hostage you dumb shit.  If they can't do that they do what Monsanto does in order to "stay competitive".  Go ahead fire everybody, guess what, costs come down assets values come down and the banks (holding those assets) are suddenly no longer solvent, they die, we start over, this would be a real fucking market dipshit.

Let the bad business models fucking die already, end lobbying, execute the perpertrators of fraud.  Are you fucking kidding me, your example of successful free markets is a crack dealer? LMFAO!!!  Yeah a pot grower-dealer is a good example to then, now how many of those guys are in jail again?

Ha ha ha ha ha!  God you are a stupid fuck.

Ima anal sphincter's picture

Let the bad business models fucking die already, end lobbying, execute the perpertrators of fraud.

+100 Excelent

monkeyboy's picture

Ha! Response of the day from Gully Foyle.

Re: Crack dealers what are the benefits like? A decent 401 plan? Sounds like a great future ahead ;)

20-20 Hindsight's picture

Do you think that putting your entire text in bold makes your drivel seem more relevant?

saturn's picture

You must be a politician..

Oh regional Indian's picture

This is so not new or News.

I wrote this back in 2008: 

• We always speak of six-sigma as a statistically improbable outcome in anynormal distribution. I firmly believe, we don’t live under the same bellcurve that all our assumptions are based on. We live in a four or even five sigma world from our current code assumption set. Worthy of pondering.
v Macro economic trends: The US Dollar is under severe, sustained pressure. If true impact of “Real” inflation is accounted for, the canary has already fledthe coal mine. 

• China is staggering under its own curious set of circumstances of a largepopulation set “herded” into rapid “development” mode, much like India. Mostof the “gains” are hype. Credit, cheap and plenty until recently (private equity had moved it into the right hands in preceding years), being the soledriver (flogger?) of growth.



This is how they will swallow it all back in. PE loaned the Tata's th emoney to buy Jaguar Land Rover.... and Corus Steel. Laxmi Mittal's rise has been based purely off PE. The Indian Airline industry flew off on the back of PE (now some key players are struggling and guess who is coming in to buy low???)...



MillionDollarBogus_'s picture

Last Wednesday night Romney said he would deregulate Wall Street financial institution.

If he wins, the race to the bottom accelerates.

May be a good thing.


LawsofPhysics's picture

Really don't see how he can "deregulate" things any further.  So Wall Street will outright steal everyones 401k and drive interest rates to negative infinity?!?!?!?

That is all that is left, then comes world hyperinflation.

Yeah, that ought to turn out well.

Details?  Romney is a robber baron, just like Obama, they both represent a money class that would love to see a return to the dark ages.

A Nanny Moose's picture

Really don't see how he can "deregulate" things any further.  So Wall Street will outright steal everyones 401k and drive interest rates to negative infinity?!?!?!?

Are you calling what we have, deregulated? Ummm....

Why is money in 401K's in the first place? Who requires a social security number to get a job? Who created the 401K? Who created the corporation? Who created The Fed?

moonstears's picture

"Talking his book" (literally! literature! sounds neat, though)

Western's picture

Blackstone owns everything? I thought it was GS. Who gives a fuck, they are both petty psychopaths on the road to death by pitchforks and torches. I recall Finky said "my mom depends on CALPERS" after he fucked over a number of pension funds... I lol'd for days. As if his mom doesn't leech on his personal fortune. Nobody was touched by his statement, something about psychopaths just doesn't make me feel empathic for their dilemmas.


Fun fact: "State" is a shortened form of the word "estate". Meaning, when you talk about a nation or state, it is simply the ESTATE (an entity's property, entitlements, and obligations) of that particular corporation. Makes sense.

conspicio's picture

I like the the fun fact. Here's another. State is from the latin word status, meaning...uhhh...status. That's it, that's all I got.

knukles's picture





Thank the Lord these fuckers have no political influence.

albanian's picture

Stephen,David & David?

LTCM_L.P.'s picture

"Who gives a fuck, they are both petty psychopaths on the road to death by pitchforks and torches."

Exactly... To take back some of their clout, one could always be responsible for their own retirement and invest it themselves....god forbid; especially if your employer doesn't match. Mine doesn't and I've contributed exactly $0.00 since joining them. Also own exactly 0 shares of FB...hahahaha Doing better than their 30%/year since so see no need to pay these tool bag paper pushers inflated salaries to do something that isn't all that hard. Also nice to have immediate access to cash when needed without having to explain to someone why I need MY money.

DoChenRollingBearing's picture

WE own the Korean bearing import business in Peru.  So what?

On the other hand, we built our business slowly, without much debt, over 21 years to get to where we are now.


john39's picture

they, the cabal, control the printing presses.  they will own everything unless they are stopped.  pretty simple really.

DoChenRollingBearing's picture

Well, we will see.  We are privately owned.  Our THREE biggest bearing suppliers (all manufacturers) are all privately owned (family owned, in all three cases).  The cabal IS dangerous, but, predicting the future is pretty hard...

GetZeeGold's picture



but, predicting the future is pretty hard...


Buy gold.




You're still here? It's over....go home.


DoChenRollingBearing's picture

+1  Good advice: "Buy gold."

I already have  :)   |;.!

Urban Redneck's picture

But being privately owned, do you really care what your hypothetical market capitalization is (if you were to flip the business or take it public)? Or do you care the more about the net cash flow generated (from assets that you aren't interested in flipping for fiat)?

There seems to be a correlation between the fear of the cabal mentality and the cash is king mentality.


DoChenRollingBearing's picture

+ 1 for perceptive reply.

No, of course we can't go public nor are we shopping out our business.  So, you are right, we do not care about any hypothetical market capitlization!

We are now MAKING MONEY, after a long learning curve.  I do not (much) fear any cabal because we have so few debts and a decent business.  

And I hold the gold, hardly anyone I know gives it value.  In one or two ways, we are ready for them "to bring it on".  But, "bring it on" means the SHTF, and trust me, it would be better to solve our problems a more rational way than go through an ordeal.  But, I still do NOT see any relatively easy ways out for America.  The 1% will do fine.  The country will suffer enormous pain.

falak pema's picture

Don't confuse small business and Oligarchy business; their models are totally different. 

One is pure business, the other is power, corruption and monopoly, or oligopoly control.

Their power threads are MIC, Money, oil, big pharma, big Agro etc. Its been a forty year construct. 

spentCartridge's picture

You missed out the part about drug & gun running.

lakecity55's picture

Hey! If they would let us have legitimate business, we would not have to run drugs and guns.

---The CIA

The New, Open CIA:

CIA Spies R Us: Find that cheating spouse with hi-tek.

CIA Autos: Tailor-made Aston Martins.

CIA Passport Photos and Copy Shop.

falak pema's picture

MIC = drug and gun running, govt proxy business par excellence, since Kuomingtang days after they got kicked out of Commie China and US psy-ops of those days helped them set up in golden triangle of then Indochina run by the French. Its just been one big dope fest since with the CIA involved all the way as it funded R&R, in Nam then, in Afgh/Irak subsequently, as in SOuth Central America. 

Santikhiri - Wikipedia, the free encyclopedia

Golden Triangle (Southeast Asia) - Wikipedia, the free encyclopedia 

Air America (airline) - Wikipedia, the free encyclopedia

illyia's picture

That is why I read ZH.

Bicycle Repairman's picture

Definitely a feel-good article.

yabyum's picture

So give me the names of the companies,  I will take my buisness elsewhere. Unless I need a quick burger and a I pad.

BigDuke6's picture

Growing your own produce will become a sign of defiance in the coming years