By chance I learned something new on National Public Radio yesterday about finance on the subject of Private Equity Fund (PEF). This is my takeaway:

PEF are pool of money assembled by a small group of people that manage and invest this pool of money for the participant (or share holders). In this sense they are not unlike public companies which sell stock for investors to participate in the venture. 

However unlike public companies which must operate according to rules and regulations designed to protect the public and prevent abuse, PEF is legally more like a private individual. Government has no business to regulate how an individual manages and spends his/her money.

Private Equity Fund (started in the 1970s) can thus behave just like private Individuals. and not subject to most rules and regulations. In the pass half century since the invention of PEF, they have grown to enormous sizes with the top 12 PEFs controlled some 15-20% of  the US economy as detailed in the book, “The problem  of the 12”  by John Coates

The US democracy operates with the checks and balances of three co-equal branches of the government - The courts, the Congress, and the Executive Branch. But with PEF 15-20% of our economy are controlled by the dictatorship of a very small group of people with no obligation to be transparent or answering to the public.

Many PEF operate only for 5-10 years with the only purpose of extracting money from the business venture to benefit their share holders. and then sell their ownership of whatever businesses to another private equity fund so that they can start another round of buying/selling. One can say this is authoritarianism/dictatorship permitted within a democracy. But like a dictatorship, who gave this small group of unelected individuals such enormous economic power to decide how a significant % of the economy of a nation are to be distributed among her populations. This is a problem I believe most of the population (including myself) do not realize its significance.