Dangers of vulture capitalism

Capitalism remains as one of the main forces that drive society forward. Investing in venture capitalism has become a staple way for individuals and consortiums to profit from the acquisition and investment of companies. However, capitalism is filled with loopholes, which makes it vulnerable to exploitation and abuse. Finance advisor Scott Tominaga claims that one of the most notoriously abusive practices in venture capitalism has made individuals spectacularly rich while leaving tens of thousands of lives in ruins. This practice is called vulture capitalism.

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As the name suggests, vulture capitalism takes advantage of dying companies. Investors do everything in their power to make the company’s market value go up, dismantle the company, and sell the rest to offshore buyers.

One prime example of vulture capitalism lies within the story of Delphi, a diesel fuel supplier with over 50 plants originally in the US. During its slump several years ago, a group of investors came in to bail the company out. But it turns out, they were only there to turn a profit. First, they laid off tens of thousands of employees and outsourced the jobs elsewhere where they didn’t have to pay for pension and insurance. This move raised the market value of the company, but only for a short while. Still, it was enough to secure buyers from other countries.

Before selling the company outright, they then fired all middle management to prevent other disputes. Out of the 50 plus original factories, only a handful remain. The venture capitalists also used the company’s bankrupt state to avail of government bailout money.

According to Scott Tominaga, several developed nations ban vulture capitalism. While it can enrich a few, it could leave tens of thousands of people jobless, their pensions cut, and their future devastated. PartnersAdmin LLC’s Chief Operating Officer Scott Tominaga has almost two decades of experience in the hedge fund and financial services industry. He has an extensive understanding of the middle and back-office, accounting, compliance, and administrative functions within financial services firms. For more insightful reads on finance, visit this blog.