介绍： TEA茶阅
EPUB电子书(current)
Private Equity: The barbarian establishment
Private equity has prospered while almost every other approach to business has stumbled. That is both good and disturbing
From The Economist 20161022

Audio:

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THIS year Henry Kravis and George Roberts, the second “K” and the ...

介绍： TEA茶阅
EPUB电子书(current)
Private Equity: The barbarian establishment
Private equity has prospered while almost every other approach to business has stumbled. That is both good and disturbing
From The Economist 20161022

Audio:

0:00




THIS year Henry Kravis and George Roberts, the second “K” and the “R” of KKR, celebrated their 72nd and 73rd birthdays, respectively. Steve Schwarzman, their equivalent at Blackstone, turned 69; his number two, Hamilton James, 65. In the past few months David Rubenstein, William Conway and Daniel D’Aniello, the trio behind and atop Carlyle, turned 67, 67 and 70. Leon Black, founder and head of Apollo, is just 65.

These men run the world’s four largest private-equity firms. Billionaires all, they are at or well past the age when chief executives of public companies move on, either by choice or force. Apple, founded the same year as KKR (1976), has had seven bosses; Microsoft, founded the year before, has had three. On average, public companies replace their leaders once or twice a decade. In finance executives begin bowing out in their 40s, flush with wealth and drained by stress.

The professional longevity of the private equiteers—whose trade is the use of pooled money to buy operating companies in whole or in part for later resale—is thus rather remarkable. But do not expect to see a lot of fuss made about it. Since the uproar over a lavish 60th birthday party for Mr Schwarzman on the eve of the financial crisis (guests were entertained by his contemporary, Rod Stewart), such celebrations have become strictly private affairs. At KKR there has been little fuss over the company’s 40th anniversary—a striking milestone, given the fate of the institutions that previously employed the big four’s founders: Bear Stearns (gone), Lehman Brothers (gone), First National Bank of Chicago (gone) and Drexel Burnham Lambert (gone). The company has announced a programme encouraging civic-minded employees to volunteer for 40 hours.

Out of the private eye

There are good reasons for this low profile. The standard operating procedures of private equity—purchasing businesses, adding debt, minimising taxes, cutting costs (and facilities and employment), extracting large fees—are just the sort of things to aggravate popular anger about finance. Investors in private-equity firms (as opposed to investors in the funds run by those firms) have their own reasons to withhold applause. All of the big four have seen their share prices fall over the past year; Blackstone, Carlyle and KKR are all down more than 20%. Apollo, Blackstone and Carlyle trade for less than the prices at which their shares initially went public years ago (see chart 1). First-quarter earnings were bleak, though things have picked up a little since.

A chief executive in any other industry with challenging public relations, poor profits and a depressed share price would have a list of worries. There would be a restive board, a corporate raider, and possibly—ironically enough—a polite inquiry from a private-equity firm. Perhaps in the deep corporate waters such concerns are percolating; there may even have been a redundancy or two. But on the surface, things seem placid. There has been nothing like the rending of garments that would be seen if an investment bank were going through a similarly rough patch. The unusual design of private equity makes it resistant to all but the most protracted turbulence; its record redefines resilience.

It is not just that old private-equity firms persist; new ones continue to spring up at a remarkable rate. According to Preqin, a London-based research house, there were 24 private-equity firms in 1980. In 2015 there were 6,628, of which 620 were founded that year (see chart 2). Such expansion looks all the more striking when you consider what has been happening elsewhere in business and finance. In America, for which there are good data, the number of banks peaked in 1984; of mutual funds in 2001; companies in 2008; and hedge funds, probably, in 2015. Venture-capital companies are still multiplying; but they are effectively just private equity for fledglings.

Private equity’s vitality has seen it replace investment banking as the most sought-after job in finance. This is as true for former secretaries of the treasury (Robert Rubin departed the Clinton Administration for Citigroup; Timothy Geithner the Obama Administration for Warburg Pincus) as it is for business-school students. Some investment banks now pitch themselves to prospective hires as gateways to an eventual private-equity job. If banks resent their lessened status, they respond only with the kind of grovelling deference reserved for the most important clients. The funds made deals worth $400 billion in 2015 (see chart 3). The fees they pay each time they buy or sell a company provide a fifth of the global banking system’s revenues from mergers and acquisitions.

The growth of private equity has been so strong it has a bubblish feel. “The existing number of private-equity funds won’t be topped for 20 years, if at all,” predicts Paul Schulte, head of a research firm in Hong Kong that carries his name. His sentiments are shared, if quietly, by many in the industry as well as outside it, and there is good reason for them. But there is also good reason to believe that the expansion will continue, at least for a while, if only because it is very hard for the money already in the funds to get out.

Private-equity investments are sometimes liquidated and investors repaid. Firms can even be wound down. But investors in private-equity funds are called “limited partners” for good reason, and a key limitation is on access to their money. The standard commitment is for a decade. Getting out in the interim means finding another investor who wants to get in, so that no capital is extracted from the fund. That usually comes with off-puttingly large transaction costs.