The influence of private equity is everywhere, writes the author of The New Tycoons. Is this something to be feared or embraced?
The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything
£23.99, Bloomberg Press
Private equity always seemed like a business outside the grasp of mere mortals, even to a reporter covering the industry.
Part of it was the name: “private equity” conjured up images of dark-suited men behind closed doors making complex decisions about matters uninteresting to everyday folk.
It took a family vacation to the UK to open my eyes to the truth. After visiting the Legoland Windsor theme park (co-owned by private equity houses CVC and Blackstone) with my wife and sons, I realised that what such firms own is in front of us practically from the moment we wake up – the Weather Channel, the London Eye, Toys R Us.
Together their assets under management – the combination of their funds and the value of what they own – exceeds $3trn. By virtue of what these firms control, they’re the ultimate bosses of millions of workers worldwide, which gives them even more influence over our daily lives.
The bulk of money committed to private equity funds comes from public pension schemes. Those pensions, desperate for returns, are increasingly turning to private equity, real estate and hedge funds to make their money grow faster.
All of this led me to my underlying thesis: these businesses matter – not in an oblique academic way, but in the context of all our daily lives. So what do they actually do when they buy a business?
Dollar General, a US retailer specialising in isolated rural markets, serves as a powerful example. In 2007 private equity firm KKR took the struggling Tennessee company, which had fallen out of favour with public investors, and transformed it, hiring a new chief executive – a man who questioned everything down to the amount of shelf space devoted to candles in each store.
When KKR took Dollar General back to the public market two years later, the stock price had more than doubled, reaping huge profits for all investors.
More important, KKR argues, the new owners revived an ailing business and enabled it to expand, create jobs and generate sustainable profits.
Private equity isn’t always pretty. In the 2012 US presidential election, Republican candidate Mitt Romney, former CEO of private equity firm Bain Capital, was assailed by critics for closing factories and slashing payrolls.
Many remain sceptical that private equity has anyone’s interests at heart beyond its own. Yet even some trade unions that once decried the industry as cold-hearted have chosen to work with private equity rather than fight it.
That’s in part because the influence of private equity is only growing. As its key players look beyond buying and selling companies, they’re lending to businesses, building infrastructure projects and even buying foreclosed homes.
Everywhere we look, there they are.