“After decades of triumphalist money making”, the private-equity industry “faces a reckoning”, says John Plender in the Financial Times. Modern private equity traces its roots back to the “corporate raiders” of the 1980s, who took companies private via leveraged buyouts in order to restructure them and raise their value.
Today, leading private-equity names include The Blackstone Group, The Carlyle Group and KKR. Private equity typically requires investors to lock up their money for many years, with the investors expecting better returns than those available on public markets in return for the increased difficulty of liquidating their holdings. Ordinary investors are bit players in the industry, with most investment capital coming from large institutions, such as pension funds and the very wealthy.
The end of the boom
Ultra-low interest rates fuelled a long boom in private equity, say Andres Gonzalez and Pablo Mayo Cerqueiro for Reuters. Between 2012 and 2021, the annual amount raised by private capital (a wider category that also includes other types of private investment) almost tripled, peaking at $1.7trn in 2021. That figure has since dropped by a third. Higher interest rates make the traditional method of borrowing to fund leveraged takeovers less lucrative and riskier than it was.
Weak stockmarkets have also made private-equity funds reluctant to cash out of their existing investments, says Bloomberg. American private-equity firms bought or sold $871bn in assets in 2023, the lowest figure in seven years. A revival in dealmaking is unlikely until the US Federal Reserve begins to cut interest r
