Wednesday, March 29, 2023

If this weren't a family-friendly blog, we could have a lot more fun with this one

 Matt Levine gives us a great example of the sometimes Orwellian world of business names.

 Ethical Capital Partners! Yes look if you are setting up a brand-new private equity firm with five of your lawyer/cannabis-investor buddies for the sole purpose of buying a porn company, you will be tempted to name it, like, Porn Capital Partners, or We Bought a Pornhub LP, or 69/420 Capital Partners, or, I mean, I’m sure you have worse ideas. But “Ethical Capital Partners” is a much better idea. Just a thin but necessary layer of deniability there. Your public-pension-fund limited partners, at their board meetings devoted to environmental, social and governance issues, can be like “and this quarter we allocated some funds to Ethical Capital Partners,” and the directors will be like “ah yes that sounds very ethical, what exactly do they do again,” and then there’s an awkward silence and the investment team is like “well they do porn.” But if they don’t ask then it’s great.

It's a dirty little non-secret that investors will pay a huge premium for businesses that are cool, sexy, and/or are adjacent to the next big thing. By the same token, investors will often initially shy away from companies with negative class connotations (both in the economic and in the broader sense of the word). The legendary Peter Lynch made many fortunes by seeking out hopelessly uncool businesses with sound fundamentals then waiting for the market to turn efficient. 

If you own one of these enterprises and you don't want to wait for investors to come around, you can try to move into one of these hot fields (usually a bad idea) or you can just create the impression that you did and the easiest way to do that is a name change.  Let's say you owned a low-end shoe lace in 1960. You might change your name from Acme Laces to Lacetronics. In the early eighties, you might have tried Bio-Lace. And, of course, would have been the default option a few years later. Cashing in on ESG by calling a porn company 'ethical' is par for the course (and considerably less embarrassing than trying to work in 'block chain').

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