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I don't understand why people keep repeating this story. Bain Capital had to provide huge amounts of collateral (upwards of a billion dollars), all of which was lost in the bankruptcy. Do people really believe that PE firms will write of a loss of hundreds of millions in order to make a few million in management fees?

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The PE fund's capital is partly other people's money too. In particular, fund limited partners (the fund investors) put up most of the initial money. The PE firm itself also puts in money but not nearly that much. This makes it easier for the fund managers to make a profit themselves quickly, even if the fund investors end up losing.

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