Posts Tagged ‘Kurt Weill’
“We use the term risk all too casually, and the term uncertainty all too rarely”*…
How private-equity giants are overhauling the financial system, and its potential impact on pensions…
A decade or so ago private equity was a niche corner of finance; today it is a vast enterprise in its own right. Having grabbed business and prestige from banks, private-equity firms manage $12trn of assets globally, are worth more than $500bn on America’s stockmarket and have their pick of Wall Street’s top talent. Whereas America’s listed banks are worth little more than they were before the pandemic, its listed private-equity firms are worth about twice as much. The biggest, Blackstone, is more valuable than either Goldman Sachs or Morgan Stanley—and has the confidence of a winner. “It’s the alternatives era,” proclaimed the company’s ebullient Taylor Swift-themed festive video in December. “We buy assets then we make ’em better.”
This is not, though, the business that has recently boomed for them. Traditional private equity—using lots of debt to buy companies, improving them, and selling or listing them—has been lifeless. High interest rates have cast doubt on the value of privately held companies and reduced investors’ willingness to provide new funds. It does not seem to matter. Core private-equity activity is now just one part of the industry’s terrain, which includes infrastructure, property and loans made directly to companies, all under the broad label of “private assets”. Here the empire-building continues. Most recently, as we report this week, the industry is swallowing up life insurers.
All of the three kings of private equity—Apollo, Blackstone and KKR—have bought insurers or taken minority stakes in them in exchange for managing their assets. Smaller firms are following suit. The insurers are not portfolio investments, destined to be sold for a profit. Instead they are prized for their vast balance-sheets, which are a new source of funding.
Judged by the fundamentals, the strategy makes sense. Insurance firms invest over long periods to fund payouts, including annuities sold to pensioners. They have traditionally bought lots of government and corporate bonds that are traded on public markets. Firms like Apollo can instead knowledgeably move their portfolios into the higher-yielding private investments in which they specialise. A higher rate of return should mean a better deal for customers. And because insurers’ liabilities stretch years into the future, the finance they provide is patient. In banking, long-term loans are funded with lots of instantly accessible deposits; with private assets and insurance, the duration of the assets matches the duration of the liabilities.
Yet the strategy brings risks—and not just to the firms. Pension promises matter to society. Implicitly or explicitly, the taxpayer backstops insurance to some degree, and regulators enforce minimum capital requirements so that insurers can withstand losses. Yet judging the safety-buffers of a firm stuffed with illiquid private assets is hard, because its losses are not apparent from movements in financial markets. And in a crisis insurance policyholders may sometimes flee as they seek to get out some of their money even if that entails a financial penalty. Last year an Italian insurer suffered just such a bank-run-like meltdown…
Funding pension providers with private equity: “The risks to global finance from private equity’s insurance binge” (gift article) from @TheEconomist.
And lest we think that publicly-funded defined benefit pensions are less risky, see “Akin to Fraud” by Mary Willliams Walsh, an account of the sorry state of the public pension fund in New Hampshire (the state with the second-oldest population in the nation).
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As we rethink retirement, we might recall that it was on this date in 1728 that John Gay‘s The Beggar’s Opera premiered. A “ballad opera” (a satirical work with lyrics set to vernacular music), it was a huge hit– it has been called “the most popular play of the eighteenth century“– a watershed in Augustan drama.
The original idea of the opera came from Jonathan Swift, who wrote to Alexander Pope in 1716 asking “…what think you, of a Newgate pastoral among the thieves and whores there?” Their friend, Gay, decided that it would be a satire rather than a pastoral opera.
In 1928, Bertolt Brecht (working from a translation into German by Elisabeth Hauptmann) adapted the work into Die Dreigroschenoper (The Threepenny Opera) in 1928, sticking closely to the original plot and characters but with a new libretto, and mostly new music by Kurt Weill.
“Don’t let it be forgot, that once there was a spot, for one brief shining moment, that was known as Camelot”*…
Composer Frederick Loewe (left) and lyricist Alan Jay Lerner in a 1956 photo
In the preparation for the Broadway debut of Camelot— on the heels of their shared successes with Brigadoon, Paint Your Wagon, My Fair Lady, and Gigi— the relationship between the creative team Alan Jay Lerner and Frederick Loewe began to fray…
By the end of the week Fritz and I were seeing less and less of each other. Irritations and differences between us that had been long forgotten and were of little consequence at the time had now become the subject of questions by interviewers. Our replies traveled from mouth to mouth and by the time they reached us they were unrecognizable distortions. If we had stayed steadfastly and constantly together as we always had in the past we would have laughed, rowed, or shrugged, but in the end gone on about our business. We did not. I do not know why we did not. I may have thought I knew then but whatever I thought, I am certain I was wrong. I have a feeling the reason was far more insidious, something of which neither of us was aware and which affected each of us in different ways. I have a feeling it may have been too much success.
Success, as I mentioned earlier, can be a creative stimulant. It encourages reaching in and reaching out. But it can also take the concessions of collaboration and call them compromise. It can embitter as often as it elates and inflates and it can weaken as much as it toughens. It can magnify faults and unearth a few new ones and its only virtue is when it is forgotten. Perhaps I was too disdainful of the words of others and Fritz too vulnerable. Perhaps I misinterpreted our differences as lack of support and he misinterpreted mine as heroics. Perhaps. Perhaps not. I will never know. Too much was never said. In the end we were a little like the couple being discussed in one of Noel Coward’s early plays. “Do they fight?” said one. “Oh, no,” said the other. “They’re much too unhappy to fight.”
From the memoir of Alan Jay Lerner, The Street Where I Live, via the ever-illuminating DelanceyPlace.com.
* Alan Jay Lerner, Camelot
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As we contemplate collaboration, we might send dramatic birthday greetings to James Maxwell Anderson; he was born on this date in 1888. A playwright, screenwriter, author, poet, journalist, and lyricist, Anderson had a string of theatrical successes (e.g., What Price Glory, Key Largo, Bad Seed, Anne of a Thousand Days), adapted his plays and the works of others and created original works for the screen (e.g., All Quiet on the Western Front, Joan of Arc, Ben-Hur), and wrote the book for two of Kurt Weill’s productions (including Knickerbocker Holiday, the standout number in which, “September Song”, became a popular standard).
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