David Moberg, In These Times
Bain's founders, including Mitt Romney, made "creating value" part of the company's 1984 mission. But it hasn't really worked out that way. (Getty Images)
(August 20, 2012) Private equity funds first emerged in the late '70s and '80s as part of an ideological shift toward making the most for shareholders, giving momentum to an early wave of banking deregulation and to changes in the tax code that made financial engineering more profitable. Firms like Bain Capital, spun off in 1984 from the consulting firm Bain & Company, benefited both from the elimination of old controls and from the new rules encouraging globalization and financialization.
Here's how it works: The managers of private equity firms create big investment funds in which they are “general partners.” They pool unregulated private money from a variety of “limited partners,” ranging from public pension funds to rich individuals (including, in the case of Bain, dubious Central American plutocrats operating out of tax havens such as Panama). The general partners then buy a business in what is called a “leveraged buyout,” using more limited-partner capital and a huge loan, but very little of their own money.