Private equity and the concept of brittle trust

This paper focuses on private equity in the UK and is set in the context of debates about transformations in the City of London and the financial services sector specifically. The article focuses on a particular concept of trust as expressed by senior members of the private equity sector. The argument developed is based on interviews with five senior founding partners of private equity firms who talked to us about their background and education, their understanding of how private equity worked and the basis for successful money making and their relationships with those inside and outside the organisation. All interviewees strongly asserted the need for absolute trust between senior partners as an essential condition for the successful operation of their business. At the same time, their description of trust in this context was that while it is deep, it is also easily broken, and that once broken, the breach cannot be forgiven. We call this ‘brittle trust:’ asserted to be simultaneously strong while extremely fragile. The paper argues, drawing on Diego Gambetta’s work on the Sicilian Mafia, that this concept of ‘trust’ reflects a particular understanding of the practice of private equity as a high risk, tough and unforgiving business that nevertheless requires high standards of personal integrity. The study allows us to understand something more about the social ideals that were built into this financial sector by its founders, which we argue formed a crucial part of the transformation of the financial sector.Peer reviewe

A new business model?

The paper delivers an analysis of the “New Economy” focussing on the roles of new business models, the capital market and venture capital. The capital market created a double standard in the 1990s: A high return on capital was required from old economy firms whereas money was thrown at new economy firms which had a business idea that stimulated the fantasies of financial investors but no earnings. Through the gradual burst of the tech stock bubble since spring 2000 it has come to the eyes of the public that many new economy start ups were unable to recover their costs. This paper shows that business models related to the internet can only work under certain conditions. The sectoral distribution of power, for example, determines the prospects of the single firms to realise e-commerce in a profitable way. Digital technologies do not necessarily enhance profitability. On the contrary, they can increase competition and lead to lower profit rates. The limitation of competition appears to be a central condition of successful cost recovery. The venture capital cycle has been an important driving force of the new economy boom, but it can also be momentum of a longer crisis. Enormous amounts of money have been channeled to new economy start ups hoping that successful IPOs will one day give venture capitalists a high return. But the burst of the bubble has brought down the IPO activity and interrupted the valorisation cycle of venture capital. Financial investors have reacted to the crisis by shifting their capital to even riskier investments, as the come-back of hedge funds indicates. --

Manchester’s transformation over the past 25 years: why we need a reset of city region policy

Since the abolition of Manchester’s city region government by Margaret Thatcher in the 1980s, councillors and officers have been sponsoring the transformation of the city by private property developers. Peter Folkman, Julie Froud, Sukhdev Johal, John Tomaney and Karel Williams explain the unrecognised and unintended consequences of this transformation

A new business model?

"The paper delivers an analysis of the 'New Economy' focussing on the roles of new business models, the capital market and venture capital. The capital market created a double standard in the 1990s: A high return on capital was required from old economy firms whereas money was thrown at new economy firms which had a business idea that stimulated the fantasies of financial investors but no earnings. Through the gradual burst of the tech stock bubble since spring 2000 it has come to the eyes of the public that many new economy start ups were unable to recover their costs. This paper shows that business models related to the internet can only work under certain conditions. The sectoral distribution of power, for example, determines the prospects of the single firms to realise e-commerce in a profitable way. Digital technologies do not necessarily enhance profitability. On the contrary, they can increase competition and lead to lower profit rates. The limitation of competition appears to be a central condition of successful cost recovery. The venture capital cycle has been an important driving force of the new economy boom, but it can also be momentum of a longer crisis. Enormous amounts of money have been channeled to new economy start ups hoping that successful IPOs will one day give venture capitalists a high return. But the burst of the bubble has brought down the IPO activity and interrupted the valorisation cycle of venture capital. Financial investors have reacted to the crisis by shifting their capital to even riskier investments, as the come-back of hedge funds indicates." (author's abstract)"Die Autoren liefern einen Beitrag zum Verständnis der 'New Economy', indem sie die Bedeutung neuer Geschäftsmodelle, nämlich des Kapitalmarkts und des Risikokapitals, herausarbeiten. Der Kapitalmarkt operierte in den 1990er Jahren mit zweierlei Maß: Von Unternehmen der 'Old Economy' wurden hohe Kapitalrenditen gefordert, während Unternehmen der 'New Economy' es leicht hatten, Geld zu bekommen, sofern sie nur eine Geschäftsidee hatten, die die Phantasie der Finanzinvestoren stimulierte. Durch den Kursverfall der 'Technologieaktien' seit dem Frühjahr 2000 wurde deutlich, daß viele 'Start-up'-Unternehmen der New Economy unfähig waren, ihre Kosten zu decken. Die Autoren zeigen, daß Geschäftsmodelle, die sich auf das Internet beziehen, nur unter bestimmten Bedingungen profitabel sind. Die sektorale Machtverteilung entscheidet beispielsweise über die Chancen von Unternehmen, den E-Commerce in profitabler Weise zu nutzen. Digitale Technologien können auch die Konkurrenz verschärfen und zu sinkenden Profitraten führen. Die Begrenzung der Konkurrenz ist eine zentrale Voraussetzung erfolgreicher Kostendeckung. Der Zyklus der Risikokapitalinvestitionen war eine wichtige Triebkraft des New- Economy-Booms, aber er könnte sich ebenso als Moment einer länger andauernden Krise erweisen. Enorme Beträge wurden in der Hoffnung in die 'Start-ups' der New Economy gelenkt, daß erfolgreiche Börsengänge den Risikokapitalisten eines Tages hohe Gewinne bescheren würden. Seitdem die spekulative Blase an den Aktienmärkten geplatzt ist, gibt es kaum noch Börsengänge, so daß der Verwertungszyklus des Risikokapitals unterbrochen ist. Finanzinvestoren haben auf die Krise reagiert, indem sie ihr Kapital auf noch riskantere Investments verlagert haben, wie das Comeback der Hedgefonds zeigt." (Autorenreferat

Foundational economy and foundational politics

Non

Workers no longer welcome? Europeanization of solidarity in the wake of Brexit (Discussion Forum. Brexit: understanding the socio-economic origins and consequences)

Peer reviewe