Average private equity returns have underperformed the market. And the evidence suggests private equity firms mislead investors by overstating their profits.
The reports of private equity's death are exaggerated. More to the point, private equity is like a vampire. Cheap debt and money sloshing into the system means that tighter credit controls will not kill of private equity. Like a vampire, it will stay Undead, just waiting for the right moment to strike.
The private equity party seems to be coming to an end, leaving the buyout firms to take the money and run. The fallout from the subprime mortgage defaults are making the banks nervous and investors are turning to safer bets.
Company boards will be subject to tougher rules ensuring they manage conflicts of interest during private equity bids and leveraged buy-outs. But the new rules are not perfect and won’t stop conflicts of interest.
CEO turnover seems to have peaked but boards are becoming increasingly ruthless and are more prepared to give bosses the chop. And the latest figures show that the private equity boom is taking its toll on CEOs.
CFO job turnover is on the up and the latest figures show that private equity is driving the job churn. After a private equity outfit takes a firm, the CFO is always the first out through the door.
The International Monetary Fund warns that the private equity boom is creating new risks. It says the enormous appetite for overly-leveraged buyouts is driving up prices and will leave acquired companies saddled with debt. It also warns that some private equity deals will fail to deliver and that could be disastrous.
Leon Gettler is a blogger and senior business journalist at The Age, specializing on management issues. His latest book, Organisations Behaving Badly focuses on the forces that lead smart executives into making dumb decisions.
