The ruthless private equity sector is well known for achieving superior returns. The formula for success is to hire a small number of skilled and highly motivated executives who can focus on getting the job done without all the governance and transparency distractions associated with running a public company.
However, an increasing problem with the model is the need to exit after three to five years because it is, inherently, a relatively short-term horizon. This is in stark contrast to genuinely long-term investors such as Warren Buffett or superannuation funds, which are continuing to grow their asset base over time (such as Australia’s industry funds).
And so we get to the problem of consumer finance business Latitude, which has clearly failed to find a trade buyer and is now pursuing a public float via the public markets run by the Australian Securities Exchange (ASX) for its private equity owners to monetise their purchase of the old GE consumer finance business.