by sarah burgess - seattle repertory theatre shines a light on “the 1%,” people who earn and...

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directed by MAryA SeA KAMiNSKiby SARAH bURGESS

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Dear Theatregoer,

Dry Powder is an unusual play. It shines a light on “the 1%,” people who earn and deal in millions of dollars and yet, it manages to make them relatable characters. It represents what might seem like the “dry” world of finance and yet, manages to be thoroughly entertaining.

What is most exciting to me about this play is to see the character of Jenny navigate (and excel) in a world so dominated by men. She is sharp, ruthless, and unapologetic, and has some of the funniest moments in the play.

I hope this play will spark your interest in a topic that may seem inaccessible, yet impacts us every day: the American economy and its financial systems. I hope you’ll laugh, think, and re-evaluate some of the assumptions we make when we think about finance and in particular, its relationship to ethics.

I know you will enjoy this sharp new production that examines the real price of success in a cutthroat world where it’s play or be played.

Warm Regards,

Arlene Martínez-VázquezEducation DirectorSeattle Repertory Theatre

Note from oUr EDUCATION DIRECTOR

HISToRy EconomIcS THEATREcIvIcSSocIAl STuDIES

P.S. Teachers, look out for links between each section of this guide with EALR & Common Core standards!

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Private equity is a type of investment, which is typically only available to people with many millions of dol-lars to invest. Investors give their millions to a private equity firm that then uses that money to buy entire companies. The private equity firm will try to improve the purchased company and re-sell it at a higher price after five to 10 years. If the private equity firm succeeds, the profits are distributed to the investors, and the firm takes a cut for its work. On the other hand, if the acquired company can’t be sold or goes bankrupt, the investors could lose a lot of their invested capital.

It is often only very wealthy people and highly profitable institutions that have the means to engage in this kind of investment as it is considerably riskier than other type of investing. But regular people can still benefit from private equity investments: Many of the largest investors in private equity take the form of university endow-ments, which help fund colleges, and pension funds, which provide payments to workers after they retire. For example, if a private equity firm can earn a major profit re-selling a company it has purchased, a college may receive more money to spend on its students, for example, and certain people may receive larger payments in retirement.

A huge number of companies are bought by private equity firms each year. Burger King, Hostess, J. Crew, Toys “R” Us, Sea World, Hilton Hotels, and even "American Idol" are, or have been, owned by private equity firms. Many private equity-owned compa-nies operate in about the same manner as companies under independent ownership. While the ownership changes, many of the basic practices stay exactly the same.

That being said, private equity firms have re-ceived a lot of criticism because some believe they are more likely to engage in ruthless, risky practices with the companies they ac-quire. This is largely because a private equity firm’s number-one goal is to make a profit off of the companies it buys. Many indepen-dently owned companies are different. For ex-ample, some companies, like Target, donate large portions of their profits to charity. Many others sacrifice higher profits in order to offer

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Infographic from The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything by Jason Kelly (2012).

What is “Private Equity”and why should i care?

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better wages and work environments for their employees or to fulfill some other mission besides profit.

When a private equity firm buys a company, it’s likely to put the company through some changes. These changes might be beneficial for the company, or they might be more ruthless. However, it can be difficult to label the changes as simply good or bad. Let’s look at two examples:

In 2012, the local grocery chain Metropolitan Market was bought by a private equity firm. The firm didn’t want to force Metropolitan Market into radical changes. In fact, it offered the company extra money that it could use to expand and build more stores in the Puget Sound region. The arrangement was beneficial for the grocery chain, its employees, and, of course, anyone who enjoyed shopping at Metropolitan Market! And if the chain continues to make money, it’s also favorable for the company’s private equity owners.

Hostess, the company that produces Twinkies, fell into financial hardship and filed for bankruptcy in 2013. All of its factories were closed, its 18,500 workers lost their jobs, and the Twinkie almost com-pletely disappeared from grocery stores and vending machines forever. But a private equity firm believed it could make Hostess profitable again, so it swept in and bought the remains of the company, saving the Twinkie from extinction. The return of the Twinkie was a huge success, and the private equity owner was able to sell Hostess for 13 times what it had paid, earning its investors over two billion dollars.

But there were additional stipulations to the deal. After Hostess’ bankruptcy and the layoffs that followed, the business plan put in place by the new private equity owners only required re-hiring around 1,200 of the work-ers who lost their jobs. These few jobs that remained paid lower wages and offered fewer benefits to the work-ers. For example, before the bankruptcy, employees of Hostess were guaranteed a pension retirement plan. However, the new private equity owners argued that the state of bankruptcy erased this guarantee, and they refused to reinstate such benefits, even though the success of the deal earned the private equity firm plenty of money to spare. The few workers that remained with Hostess benefitted very little from the company’s huge success. Instead, the billions in profits went straight into the pockets of the private equity firm’s investors.

Next time you buy a Twinkie, you can thank private equity. However, when you bite into that treat, think about the workers who made it. Will you feel guilty that they aren’t sharing in the profits from your pur-chase? Or will you feel comforted that you are helping to preserve 1,000 jobs that wouldn’t exist in a universe without Twinkies? Would you agree to pay more for your snack if that extra money would go to the workers? Or would you simply buy a different, cheaper snack instead?

At the end of the day, private equity firms have one job: to earn as much money for their investors as they can. Private equity’s most ruthless practices flourish when companies only care about earning a profit, even at their workers’ expense. And consumers encourage these practices when their number-one goal is saving money by buying at lower prices.

Further Reading:The New York Times, “Bottom Line Nation” article series: https://www.nytimes.com/2016/12/10/business/dealbook/how-the-twinkie-made-the-super-rich-even-richer.htmlEndeavour Capital website: https://www.endeavourcapital.com/ec/metropolitan-market/

Sources:Corkery, Michael, and Ben Protess. "How the Twinkie Made the Superrich Even Richer." The New York Times. The New York Times, 10 Dec. 2016. Web. 03 Mar. 2017.Jones, Jeanne Lang. "Metropolitan Market's Backer Has Other Seattle Ties." Bizjournals.com. Puget Sound Business Journal, 17 July 2012. Web. 03 Mar. 2017.Kelly, Jason. The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything. New York, NY: Bloomberg, 2012. Print.

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Understanding Personal FinanceWhat is your understanding of money? A comprehensive personal finance plan includes considerations of income, spending, and potential savings. Consider the following scenario and determine how you would spend your money if this situation applied to you:

You work a minimum wage job making $12/hour, working 40 hours a week, and you are creating a personal budget for one month.

1. Your rent is about a third of your monthly income. How much should you pay in rent? 2. Now, using how much you have left over in your month's budget, calculate how much you can spend in the following areas: i. Groceries ii. Transportation a. Do you have a car? •Doyoupayamonthlypaymentforyourcar? •Makesuretocalculatethecostofgas b. Do you take the bus/light rail? •Howmuchisyourbuspass,orhowmuchmoneydoyouneed to travel this month? iii. Bills a. Cellphone b. Water/sewage/garbage c. Electricity (this bill tends to go up during the winter) d. Entertainment (do you have cable internet? Netfilx, Hulu Plus, Amazon Prime?) iv. Leisure a. Are you planning to go out on weekends? What can you afford to do? v. Miscellaneous a. How often do you buy clothes? Shoes? Accessories? b. Will you need to buy household items? Plates, lightbulbs, pots and pans, etc.? c. Will you need to do maintenance on your car? d.Do you have regular medical costs to take into account? vi. Savings a. What happens if you unexpectedly lose your job? How long will you be able to survive before you find a new one? b. Set up a goal for your savings. Experts recommend people have three months’ salary in their savings account in case of an emergency. Calculate: •Howmuchyouneedtoputasideeverymonth •Howlongwillittakeyoutogetthere

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In Dry Powder Jenny, Seth, and Rick debate whether to purchase Landmark Luggage and, if so, how they should manage the company. Jenny and Seth propose two very different management plans. Seth’s “Growth Play” aims to grow Landmark Luggage into a more successful company. Jenny’s “Liquida-tion Play” aims to squeeze money out of the company, even if people lose their jobs or the company is destroyed. Jenny’s plan would earn more money and is less risky, but Seth’s plan would create a more effectively run company, keep and create jobs, and spare the private equity firm a lot of bad press.

Any person or organization that handles money for clients is bound by a principle called “fiduciary responsibility.” Fiduciary responsibility requires a private equity firm to act in the best interest of its clients or its investors. Assume you run a private equity firm and are bound by fiduciary responsibility. Consider the following questions: •OftheoptionsSethandJennypresent,whoseplanwouldyouchoose?•Inwhichcasesshouldaprivateequityfirmalwaystrytoearnthehighestpossibleprofitforits investors, regardless of the consequences? •Inwhichcasesshoulditnot?

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Growth Play vs. Liquidation Play

Sources: Investopedia Staff. "Fiduciary." Investopedia. Investopedia, LLC., 07 Oct. 2016. Web. 03 Mar. 2017.

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seth's growth play jenny's liquidation play

the firm earns 2.8-3.2 times its original investment. the firm earns up to 3.5 times its original investment.

After several years, the private equity firm sells Landmark to another company or sells

the company to the general public in an “IPo.”

Landmark may go bankrupt, and that’s okay. But if it doesn’t, it can be sold to another

private equity firm.

As Landmark grows in popularity, it builds more factories and warehouses, hires more

people, and earns huge profits.the private equity firm forces Landmark to take out a huge loan in order to pay back the firm.

Landmark implements a marketing campaign that shows off that their luggage is American-

designed and American-made. Landmark stops sales in the U.S. and only sells a small selection of luggage in China.

Landmark releases new designs and allows people to customize their own luggage. Landmark fires most of the workers in the

U.S. and moves its factories to Bangladesh for cheaper labor.

Landmark creates a new, advanced website. Landmark sells the private jet and the swanky office in Sacramento, As they are unnecessary luxuries.

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An Economic disAstERIn 2007, the world economy was crippled by the “Great Recession.” Smaller recessions are normal and oc-cur approximately every decade. During a recession, the economy essentially slows down. People and busi-nesses spend less money, and their decreases in spending leave everyone else with less money to spend, and so on. This cycle might continue until some event prompts the economy to begin growing again. During any recession, businesses cut down on their activity or close down altogether, and people lose their jobs. But the Great Recession was the most dire since the Great Depression. Nearly nine million people lost their jobs over the course of a few years. Investigations into the crisis have generally concluded that its primary causes were reckless and unethical practices throughout the banking industry and the failure of the government to regulate such activity.

During the early 2000s, the financial world experienced a huge influx of investment capital, and large in-vestment banks felt pressure to find ways to invest this money. Meanwhile, the U.S. government instituted new policies meant to stimulate the housing market. This booming housing market appeared to be the per-fect place to invest, so the banks engineered a series of never-before-seen financial policies that relied on the growth of the housing market. Almost everyone assumed that the housing market was extremely secure, so these investments were thought to be safe.

Unfortunately, these assumptions failed to take into account a number of new factors. A few people actu-ally did foresee the crash of the housing market, which in retrospect makes the banks’ investment deci-sions look more like gambles. Wall Street’s hunger for more places to invest in ultimately drove mortgage brokers and lenders at the bottom of the housing market to commit mortgage fraud; for example, allowing people with very little income to purchase expensive homes. In some cases, people were allowed to pur-chase several houses. Credit rating agencies, which were supposed to assess the complicated, untested financial policies created by the banks, succumbed to the pressure to give risky policies better ratings. The government, for its part, failed to regulate these financial policies and extolled the growth of the housing market, even though it was driven by fraud and other unsustainable practices.

The crisis technically began when a huge number of homeowners could no longer pay their mortgages. The banks had invested large amounts of capital in the housing market, and the value of these investments was for the first time plummeting. This deprived the banks of revenue that they were relying on and thus they ran into financial troubles. Because banks play such an important role in national and global economies, complete bank failures could send the world into another Great Depression. Banks are, in this sense, “too big to fail” without severe repercussions. Realizing this, the federal government “bailed out” the banks in October of 2008, handing them around $700 billion of taxpayer money to replace some of the capital they had lost to save them from bankruptcy.

Preventing Another

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thE PAssAgE of dodd-fRAnkIn 2010, President Obama and Democrats in Congress sought to create regulations that would help pre-vent another financial crisis like the Great Recession. Their solution, the Dodd-Frank Wall Street Reform and Consumer Protection Act, produced the most significant changes to financial regulation since the Great Depression. The act primarily aimed to prevent investment banks from continuing the same abusive practices that led to the Great Recession by introducing a wide range of new regulations.

The act created new government agencies and empowered them to monitor institutions, like the big banks, that were “too big to fail.” These agencies could even break up the riskiest institutions, in some cases. An important addition to the act strictly regulated how much investment banks could engage in risky investment activities, like private equity, and utilizing money meant to be kept safe for the people who deposit and con-duct business with the bank. Smaller regulations prevented mortgage lenders from exploiting home buyers and made it more difficult for credit card companies to deceive customers with complicated language.

donALd tRumP And dodd-fRAnk Dodd-Frank was enacted despite relatively few in-favor votes from Congressional Republicans and has been criticized by a number of Republicans since its inception. Today, with Republicans controlling the House of Representatives, the Senate, and the White House, they finally have the power to adjust the act to their liking. What might they do? President Trump has called Dodd-Frank “a disaster” and has pledged to “dismantle” the act. After meeting with a group of business executives, one of Trump’s first actions in office was to issue an executive order that laid the groundwork for major revisions to Dodd-Frank and its reforms, claiming that Dodd-Frank’s regulations are preventing businesses from taking out the loans they need to grow. He argues: “We expect to be cutting a lot out of Dodd-Frank because...friends of mine...can’t borrow money... The banks just won’t let them borrow, because of the rules and regulations in Dodd-Frank.”

Most policy-makers support the foundation of the act, even if they believe it could use some adjustments. A number of Republican legislators, and even members of the business community, have stated support for some of the key provisions of Dodd-Frank. When these people criticize the bill, they are often oppos-ing particular pieces of the legislation that are not essential to regulating the big banks and stabilizing the economy. For example, the original bill included a provision that required oil companies to report how much money they pay to foreign governments. Shortly after Trump’s inauguration, Republicans moved quickly to undo this provision, while leaving all the others in place. That being said, some of the act’s key provisions still regularly come under fire. Industry observers speculate that Republicans in Congress might move to dismantle the Consumer Financial Protection Bureau, one of the primary agencies Dodd-Frank created to regulate activity in the financial industry and protect consumers. Another main criticism of the act is that it regulates more than it needs to. Many Republicans, who tend to oppose government regulation, complain that compliance with Dodd-Frank regulations cost too much and unnecessarily cut into the profits of financial institutions. As a result, they argue that such regulations limit the growth of the economy and the creation of jobs. Some Democrats agree with these arguments, to a limited extent. One of the act’s primary authors, Democratic Senator Barney Frank, agrees that some regulations unfairly burden smaller, local banks, which are unlikely to engage in the same sorts of risky and unethical practices that landed the big Wall Street banks in trouble. However, Democrats would generally argue that over-regulation is playing on the safe side and would prefer banks earn a little less if it helps to prevent another financial crisis.

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oPPosing Points of viEw…Artists from across the political spectrum have used comic strips to portray varying views on Dodd-Frank reforms. These images are particularly powerful tools for expressing opinions, and some can even articulate an argument as clearly as an entire article. What is being communicated in the following images?

Further Reading:“The Giant Pool of Money” special for This American Life: https://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-moneyThe Big Short: Inside the Doomsday Machine by Michael Lewis, also adapted into a film (rated R for language and sexuality/nudity)Investopedia: http://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.aspThe Wall Street Journal: https://www.wsj.com/articles/banks-to-donald-trump-dont-kill-dodd-frank-1481194801

Sources:Blumberg, Alex, Adam Davidson, and Ira Glass. “The Giant Pool of Money.” This American Life. 09 May 2008. Web. 03 Mar. 2017.Investopedia Staff. "Dodd-Frank Wall Street Reform and Consumer Protection Act." Investopedia. Investopedia, LLC., 24 Jan. 2017. Web. 03 Mar. 2017.Rexrode, Christina, and Emily Glazer. "Banks to Donald Trump: Don't Kill Dodd-Frank." The Wall Street Journal. Dow Jones & Company, 08 Dec. 2016. Web. 03 Mar. 2017.

By Marshal Ramsey By Lisa Benson

By Matt Wuerker

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fighting Income Inequality People are angry about income inequality.

For over 40 years, the gap between the rich and the poor has steadily grown wider. What does this mean? This means that the richest people in America, and in the world, are using their enormous wealth to produce even more wealth for themselves. Meanwhile, the average American’s income has increased only slightly in the past 40 years. This accumulation of wealth corresponds to an increase in power, and a num-ber of people argue that the wealthiest, most powerful people and institutions are exercising their influence to help only themselves at the expense of everyone else. Concern about income inequality ramped up particularly after the Great Recession of 2007. In 2008 following the financial crisis—which most agree was caused in part by the reckless actions of big banks and their wealthy executives—the U.S. Government decided to save these banks. American taxpayers paid for this bailout, which cost around $700 billion. Many Americans became outraged when they learned that some banks had used some of their bailout money to pay their executives bonuses in the millions of dollars. Many argued “because of these bankers, I lost my job and my house. Why is my tax money being used to pay their bonuses?” It was around this time that many Americans and people around the world started to believe that the current political structure was not going to hold these bankers accountable or substantially fix the system. Around the same time, in January of 2010, a landmark court case “Citizens United v. FEC” reached the Supreme Court. As a result of the case, the Supreme Court decided that there were no limits to the amount of money that certain organizations could spend to support political campaigns, since spending counted as a form of free speech. This decision allowed wealthy people and organizations to donate as much money as they wanted toward political causes. This remains the law of the land, and a number of people are very critical of this status quo. They argue that all the money being funneled into politics allows the rich to heavily influence the outcomes of elections, which means their voices get heard while the concerns of others are drowned out.

occuPy wALL stREEtIn response to events like these, a group of people decided they needed to draw attention to these issues or else nothing would change. Out of this desperation, the Occupy Wall Street movement was born. On September 17, 2011, a group of protesters planned a long-term sit-in of Zuccotti Park, located near Wall Street in New York City’s financial district. Their protest was inspired by similar movements of the past, which utilized strategies of civil disobedience and occupation.

Civil disobedience is the refusal to comply with certain laws as a peaceful form of protest. Occupation is a specific form of civil disobedience, in which a group plants itself in a space in order to draw media attention and advocate for a specific cause. The location of the occupation is always symbolic. Occupy Wall Street chose

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a park in the financial district because most of their grievances related to the wealthy corpora-tions nearby on Wall Street and the people run-ning them. Because this cause resonated with so many people around the country and around the world, more Occupy movements quickly sprung up in other cities. NPR reported on October 15, 2011 that organizers had planned protests in over 951 cities across 82 countries.

What exactly did these protesters want? This question is actually the subject of much de-bate. The Occupy Wall Street movement was notoriously vague in its demands. The creators of the movement didn’t want the protests to be dictated by just a few people. In fact, this was one of the prob-lems the Occupiers were protesting: that a small handful of people in the country have too much power. So they allowed anyone to join the protest and to bring with them a wide range of related complaints. Thus, some of the issues the protesters wanted to fight included: greed and corruption in business and politics; the influence of money in politics; and economic inequality, in which a select few get rich at the expense of everyone else.

“wE ARE thE 99%!”The issue of social and economic inequality inspired one of the most memorable battle cries of the move-ment: “We are the 99%.” This statement drew attention to the differences between the people who earn incomes in the top 1% and everyone else: the 99%. As the protestors would argue, the top 1% of the rich-est people hold a great deal of the power in the country, either through their political influence or through the businesses they control. (Often these two factors are closely related, since money buys political influ-ence.) However, the policies enacted by the rich and powerful do not serve everyone else—the other 99% of people. Thus, these protestors claim to represent the vast majority of people who are being exploited and ripped off by a system that favors the wealthy.

The protestors often point to the income gap to support their claims. Studies show that the income gap in the U.S. is growing every year: the rich are getting richer faster than the poor. Between 1979 and 2014, the aver-age income for a person in the top 1% increased from $269,102 to $671,061, or 249%. Over the same 35

years, the average income for someone in the bottom 90% increased from $28,524 to $33,297, an increase of only 16.7%.

As more evidence that workers are not getting a fair deal: productivity—basi-cally how much work gets done—has increased by 130% since 1979. But worker wages, on average, have only increased by about 15%. If workers are getting more work done per hour, where is the profit from that work going? It certainly isn’t going to the workers.

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A highER minimum wAgEIn response to what many believe are unsuitably low wages for workers, a new movement has been grow-ing: A fight for a $15 minimum wage. Federal, state, and city governments can establish a minimum wage, which is the lowest rate an employee can legally be paid per hour. In many places, the minimum wage is $7.25 per hour, which is set by the federal government, but many other states and cities have set a higher minimum. Seattle recently passed a law gradually raising the minimum wage in the city to $15 per hour, one of the highest minimums in the country.

Proponents of a higher minimum wage argue that such laws help alleviate the huge income gap that has grown out of control since the 1970s. Many of the people who earn the minimum wage—millions of work-ers—live in poverty, and increasing their wages would improve their lives tremendously. In a place like Seattle, the cost of living has increased much faster than the average worker’s wages. An increase in the minimum wage helps workers to afford living in this very expensive city.

Those opposed to raising the minimum wage are often business owners who claim that a higher mini-mum wage will raise their costs and may drive them out of business. To account for these higher costs, they argue, they will be forced to raise their prices, replace workers with machines, or hire fewer work-ers altogether. These claims have been difficult for economists to substantiate. While businesses that employ many minimum wage workers, such as restaurants, often do need to raise their prices slightly, it has not been proven that a higher minimum wage decreases employment or makes it more difficult for businesses to operate. Economists have found, for example, that a higher minimum wage can lead to happier and more productive workers, which saves employers money that can offset the higher wage costs. Most economists predict that the country will know more about the effects of raising the minimum wage as more states and cities enact such policies.

Further Reading:“Income Inequality” studies and statistics, from Inequality.org: http://inequality.org/income-inequality/“Occupy Wall Street Inspires Worldwide Protests” from NPR: http://www.npr.org/2011/10/15/141382468/occupy-wall-street-inspires-worldwide-protests“Revolution Number 99: Report from Zuccotti Park” from Vanity Fair: http://www.vanityfair.com/news/2012/02/occupy-wall-street-201202Seattle Mayor Edward B. Murray’s website, explaining Seattle’s minimum wage, including research studies commissioned from UW and UC Berkeley:http://murray.seattle.gov/minimumwage/

Sources:Brady, Jeff, Philip Reeves, Larry Miller, Stuart Cohen, and The Associated Press. "Occupy Wall Street Inspires Worldwide Protests." NPR. N.p., 15 Oct. 2011. Web. 06 Mar. 2017.Dunbar, John. "The 'Citizens United' Decision and Why It Matters." The Center for Public Integrity. The Center for Public Integrity, 18 Oct. 2012. Web. 6 Mar. 2017.Mendelson, Aaron, and Marc Priester. "Income Inequality." Inequality.org. Institute for Policy Studies, Feb. 2016. Web. 06 Mar. 2017.Reich, Michael, Ken Jacobs, and Annette Bernhardt. Local Minimum Wage Laws: Impacts on Workers, Families and Businesses. Rep. Report Prepared for the Seattle Income Inequality Advisory Committee, Mar. 2014. Web. 6 Mar. 2017. <http://murray.seattle.gov/minimumwage/>.Rensi, Ed. "The Ugly Truth about a $15 Minimum Wage." Forbes.com. Forbes, 25 Apr. 2016. Web. 6 Mar. 2017.Sharlet, Jeff. "Inside Occupy Wall Street." Rolling Stone. 24 Nov. 2011. Web. 6 Mar. 2017.

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A glossary of termsfor the world of financeAssEts look for it in... scenes 1, 2, 4, and 6An asset is an item of economic value that is expected to yield future benefits. As a general rule, if it can be converted into cash, it’s an asset. Some examples of assets include: cash, inventory, real estate property, equipment, common stock, patents, and accounts receivable (money owed to a company by debtors).

cAPitAL look for it in... scenes 1, 2, 4, 5, and 7Capital is another word for money or wealth.

cAPitAL stRuctuRE look for it in... scene 4In a leveraged buyout (see definition below), capital structure refers to the various sources of funding needed to make the purchase. Usually, the capital structure of a deal includes capital from the private equity fund as well as debt issued by investment banks or other private equity firms that specialize in issuing debt for such deals.

cLosEd fund look for it in... scene 1A private equity fund officially closes when the final investors make commitments to the fund and no additional investors or commitments are admitted. A firm cannot begin investing a fund until it closes.

cost AnALysis look for it in... scene 4A cost analysis, also known as a cost-benefit analysis, is a systematic evaluation of possible alternatives to determine the optimal course of action.

dEBt-to-cAP look for it in... scene 2“Debt-to-cap” is an abbreviation for the debt-to-capital ratio, which is a description of the capital structure of a deal.

disintERmEdiAtion look for it in... scene 2Disintermediation is the act of removing middlemen (“intermediaries”) from a distribution channel. For example, moving a business online allows a business to sell directly to customers, removing retailers from the picture.

disRuPtivE itERAtion look for it in... scene 2A disruptive iteration of a business will occur when a business evolves its own business model in such a way that the old business model is obsolete or redundant.

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dividEnd look for it in... scene 4Dividends are the payments the company pays to its owner(s). Often, a private equity firm can force the companies it owns to pay dividends.

dodd-fRAnk look for it in... scene 1“Dodd-Frank” is the most commonly used abbreviation for the 2010 federal legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act.” The legislation aims to increase transparency and accountability in Wall Street’s financial institutions. The act is discussed more in-depth later in this guide.

dRy PowdER look for it in... scenes 2, 4, and 6Dry powder is the amount of capital that a private equity firm still has available to invest—that is, any money that has not yet been spent. The term originated on the battlefield: Wet gunpowder was unusable, so dry (gun)powder was ready to be used.

duE diLigEncE look for it in... scenes 2, and 4Due diligence is the process of collecting information that will aid someone in making a deal. For example, before buying a company, a private equity firm will hire accountants to investigate the company and ensure everything checks out.

EQuity look for it in... scenes 2, and 4In the world of private equity, equity is the capital in the fund that is used to buy companies. This equity is “private” because it comes from select, private investors; the general public cannot typically invest in private equity.

EXEcutivE comPEnsAtion look for it in... scenes 3 and 7Business executives are typically compensated for their work in a different manner from standard employees. While many executives earn a salary, most will also receive additional bonuses or non-financial compensation, like shares of the company’s stock, for achieving specific pre-determined goals.

EXPosuRE look for it in... scene 2Market exposure is the degree to which an investor and its portfolio are vulnerable to the risks unique to a specific investment type or industry. Most investors strive to “diversify” their portfolio to reduce exposure—that is, to invest in many different kinds of investments.

fiduciARy REsPonsiBiLity look for it in... scene 4Fiduciary responsibility is the obligation that professionals such as attorneys and financial advisers have to act in the best interest of their clients. Fiduciary responsibility is explored in an exercise later in this guide.

fREE EntERPRisE look for it in... scene 1Free enterprise refers to a legal system in which business activities are primarily regulated (or self-regulated) by means within the economy rather than by the government. Order arises organically when each individual who contributes to the economy decides how and where to spend his/her money.

hEdgE fund look for it in... scene 4Hedge funds are a distinct kind of investment vehicle different from private equity funds, but they share some similarities. Hedge funds usually invest in public equities like stocks, bonds, currencies, and commodities and typically do not buy out companies.

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iPo (or: “initial Public offering”) look for it in... scenes 2, 5, and 7An Initial Public Offering (IPO) is the process through which a private company sells or “offers” ownership shares in the company to the public, thus becoming traded on a public stock exchange. This process is also called “going public” or “taking a company public.” IPOs are lucrative exit strategies for private equity firms, so long as the company is an attractive enough prospect to the public.

LEttER of intEnt look for it in... scenes 2, 3, 4, and 7A Letter of Intent is signed by two parties to effectively finalize a deal, such as the sale of a company. Technically, the deal could still fall through if, for example, the buyer discovers new discouraging informa-tion through the process called “due diligence” (see definition above).

LEvERAgEd Buyout (or: “LBo”) look for it in... scenes 2, 3, 5, and 7When private equity firms buy out other businesses, they usually do not conduct these “buyouts” entirely with capital from their fund. Some of the purchase price is covered by “leverage,” or debt. Before a buy-out, a private equity firm can negotiate with banks and other entities to basically provide a loan that will help cover the cost of buying the company. With enough of this leverage, a firm can buy a $200 million company, for example, with only $50 million from the fund. However, any debt used in the buyout gets saddled onto the acquired company, so the firm must ensure the company can manage the debt and any necessary interest payments. The term “leverage” comes from an analogy to simple mechanics, where one can use a lever to magnify the effect of one’s effort.

LiABiLitiEs look for it in... scenes 1, 2, and 4A liability is any debt or obligation owed to another party. For example, when a customer has pre-paid for a service, that service counts as a liability because the company is now obligated to provide it. Other common examples of liabilities include loans and their interest, accrued payroll expenses owed to employees for their services, and accounts payable (such as an invoice from a supplier for goods delivered).

LiQuidAtion look for it in... scene 2In a complete liquidation, all of a company’s assets are sold off and its liabilities are resolved (by paying back creditors, for example). The company then ceases to exist.

LP look for it in... scenes 1, 2, and 4“LP” stands for “Limited Partner.” Limited partners contribute money to a fund for the private equity firm to invest. This investment “partner” has “limited” liability for what the firm does: An LP cannot lose more money than it contributed, and it cannot be held responsible for the actions of the private equity firm.

m&A (or: “mergers & Acquisitions”) look for it in... scene 1Mergers and acquisitions, often abbreviated as “M&A” are transactions that involve transferring ownership of companies or business units from one party to another.

PRoJEctEd REtuRn muLtiPLE look for it in... scenes 2 and 4A projected return multiple is a carefully modeled estimate of the amount by which a certain investment may multiply the capital invested in it.

Sources: Investopedia Staff. "Financial Dictionary." Investopedia. Investopedia, LLC., Mar. 2017. Web.PitchBook Staff. "Private Equity & Venture Capital Glossary." PitchBook News. PitchBook Data, 03 Sept. 2014. Web. 06 Mar. 2017.

next up at the rep

This revolutionary musical experience from David Byrne and Fatboy Slim transforms Seattle Rep into a dance party, where techno beats spin and tell the story of the People Power Revolution that inspired the world and changed the Philippines forever! EALR’s: Geography, History, CivicsGrade Recommendation: 10th grade and up Learn more at: seattlerep.org/Programs/education/Studentmatinees/HL

17

choreographed by annie-b parson

additional music by

tom gandey and J pardodirected by

alex timbers

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SEATTLE on stage april 7

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sEattlErEp.OrG 206.443.2222ON staGE startING aprIl 7, 2017

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