The Jury Is Out
Feel the tremors? Private equity giants like Kohlberg Kravis Roberts, Blackstone Group, Carlyle Group, and Texas Pacific Group are seismically changing the landscape of industries from semiconductor producers to hospital operators. And they’re just getting started. In 2006, private equity firms bought $628 billion worth of companies around the globe. Bankers estimate they have amassed $2 trillion more buying power. Is this a good thing? To the firms’ investors, many of which are pension funds and endowments, the returns that private equity firms produce—in excess of 20%—are manna. Buyout shops are achieving stellar yields by making more operational improvements than ever before to the companies they own. Still, some companies owned by private equity firms are ending up worse off. About 64% of buyout firms’ returns still come from what Wall Street likes to call the “financial engineering” of companies. Now the burden is on the private equity players not to get carried away with their zeal for big bucks.
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