Can We Blame Private Equity for Everything?

"A segment of the finance sector long shrouded in myth and controversy, private equity is at its core a straightforward business: A firm raises money from clients (such as pension funds) and uses it to buy businesses and other assets (such as real estate), usually adding a large chunk of borrowed money to the mix. The PE firm aims to increase the value of the acquired assets and then sell them at a profit."

"Though private equity has been around since the 1970s, its growth went into overdrive after the global financial crisis of 2007-09. Until that point, banks-especially investment banks like Goldman Sachs and JPMorgan-had been the most powerful players in the world of global finance. Yet banks were widely held responsible for the crisis, leading regulators in the United States and a host of other countries to clip their wings."

"As big banks became "more heavily regulated and scrutinized," Bloomberg Businessweek reported in 2019, private-equity firms like Apollo, Blackstone, and KKR moved decisively out of their shadow. "Almost everything that's happened since 2008 has tilted in [private equity's] favor. Low interest rates to finance deals? Check. A friendly political climate? Check. A long line of clients? Check.... Private equity managers," the Bloomberg Businessweek report concluded, "won the financial crisis.""

Private equity involves firms raising capital from clients, buying businesses and assets—often using significant borrowed funds—to boost asset value and later sell at a profit. Clients receive returns after fees and managers take a share of gains. The sector grew slowly since the 1970s but accelerated after the 2007–09 global financial crisis as banks faced heavier regulation. Low interest rates, favorable political conditions, and ample institutional clients supported rapid expansion. Major firms such as Apollo, Blackstone, and KKR gained prominence and produced substantial compensation for employees and executives, reflecting the sector’s profitability.

Read at The Nation