Kathryn Judge of Columbia University documents how financial intermediaries persistently impose high fees compared to the value rendered, attributes this to political influence, and suggests countervailing policy strategies, including stoking competition and enhancing disclosure to reduce excessive transaction costs. In this solicited comment, I concur with Judge's findings and prescriptions by adding a paired example: that of Berkshire Hathaway versus Kohlberg Kravis Roberts. In the field of corporate acquisitions, these rivals are opposites, Berkshire shunning intermediaries and generating virtually no transaction costs while KKR feasts on multiple and lavish fees. The contrast reflects broader differences between Berkshire and private equity on several dimensions, including not only direct fees but also indirect costs from their respective attitudes towards financing (Berkshire eschews debt that private equity uses maximally); management (Berkshire believes in autonomy wheres private equity practices intervention); and time horizon (Berkshire holds forever whereas private equity flips companies as rapidly as possible). Professor Judge is right: enhanced disclosure of the fees that KKR and other private equity firms charge would increase competition in this market and neutralize some of the excess.
GW Paper Series
GWU Law School Public Law Research Paper No. 2015-40; GWU Legal Studies Research Paper No. 2015-40
Cunningham, Lawrence A., Berkshire Versus KKR: Intermediary Influence and Competition (2015). GWU Law School Public Law Research Paper No. 2015-40; Appearing in University of Chicago Law Review Dialogue (2015) ; GWU Law School Public Law Research Paper No. 2015-40; GWU Legal Studies Research Paper No. 2015-40. Available at SSRN: http://ssrn.com/abstract=2669547