The ‘Repair Shop of Capitalism’

Those seeking a clear-cut definition of private equity will be disappointed. Even in this most basic of requirements, the asset class resists neatness and order — a trait it shares with other so-called ‘alternatives’. This may seem nothing to lose sleep over, but how investors conceptualise and categorise private equity fundamentally affects their assessment of its risks and rewards. Private equity is not even necessarily ‘private’, nor is it always just ‘equity’. For instance, publicly listed private equity is regulated, mezzanine is closer to debt than to equity, securitisations of private equity funds offer access to the bond markets, and secondary transactions are viewed by some as a solution to overcome the asset class’s illiquidity. Moreover, other institutional investors have recognised that the core skills of private equity firms — governance and operational engineering, incentives and financial structuring — create value, and so they increasingly imitate private equity’s modus operandi.