Private Equity

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

I just finished King Capital: The Remarkable Rise, Fall and Rise Again of
Steve Schwarzman and Blackstone, by David Carey and John E. Morris.  I
finished it on the beach in the Bahamas as I am on a short working
vacation.  The story of Steve Schwarzman and Blackstone is quite well known
to anyone who follows the capital markets and the private equity market in
particular.  The impact of private equity on the fates of publicly traded
corporations makes for an interesting beach read.  The impact of private
equity on the publicly traded corporation also makes for a lively dinner
debate – depending on whom your dinner mates are.

As I finished the book, listening to the waves run onto the beach, a thought
occurred to me – "What if risk management at each company was publicly
traded (perhaps through an equity carve-out).  What impact would a private
equity take-out have on the operations of such risk management
departments?"

I think it is an interesting question – one that I might get back to after
I finish the cocktail that was just brought to me.


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Duhhhh!

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

A good friend, and a fellow risk consultant, Steve Lindo sent me an email
this morning talking about a recent IMF report that was quoted in a recent
issue of Bloomberg Businessweek.  The report stated that rich people react
differently than poor people to economic incentives.  Steve's insightful
response was "Duhhhh!"

The results are the report are so obvious that Steve is correct to make light
of it, but if you think for a minute, do we not make a similarly insane
assumption when we create risk rules?  Namely, do we not assume that
everyone will react to the rules and regulations in the same way?  Banks,
and bank regulators make rules assuming that everyone has the same incentive
to make sure that they are followed.  Duhhhh – they don't.   Risk
managers make rules and regulations assuming that different functions of the
organization have the same incentive to enact the rules.  Duhhhh – they
don't.   Perhaps even as parents we make assumptions that our kids will
follow the same rules and guidelines as they grow up.  Duhhhh – they
don't (and won't).

Perhaps I ought to go read the report. 
http://www.businessweek.com/articles/2013-11-07/economists-discover-the-poor-behave-differently-from-the-rich
[2]  


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[2]
http://www.businessweek.com/articles/2013-11-07/economists-discover-the-poor-behave-differently-from-the-rich