Key Takeaways
- • Private equity underwent explosive growth in the 2010s following the 2008 financial crisis, as regulatory pressure on investment banks created a structural advantage for PE firms like Apollo, Blackstone, and KKR to consolidate power in global finance.
- • The PE business model centers on raising capital from institutional clients (pension funds, family offices), acquiring assets with significant leverage, and extracting returns through value creation or financial engineering before exit—with PE firms capturing management fees and profit participation.
- • Post-2008 conditions—including low interest rates, favorable political climate, and abundant capital from institutional investors—systematically benefited private equity relative to traditional banking, according to Bloomberg Businessweek's 2019 analysis.
- • The primary source frames a broader debate about whether private equity should be held responsible for negative outcomes in acquired companies, or whether systemic factors and management decisions bear equal responsibility.
Summary
The Nation's review of Megan Greenwell's *Bad Company: Private Equity and the Death of the American Dream* examines whether private equity deserves the broad criticism leveled against it for deteriorating business performance and economic outcomes. The article situates this question within the historical context of private equity's dramatic rise following the 2007–2009 financial crisis.
Private equity's fundamental business structure is straightforward: firms raise capital from institutional investors such as pension funds, deploy that capital to acquire businesses and real estate assets (typically using substantial borrowed funds), improve asset valuations, and exit for profit. Investors receive returns after PE firms deduct management fees and performance-based compensation. However, the sector remained relatively contained until post-2008 regulatory shifts dramatically altered the competitive landscape.
The watershed moment occurred when regulators worldwide, responding to the financial crisis, imposed stricter controls on investment banks—particularly firms like Goldman Sachs and JPMorgan Chase that had dominated global finance. As Bloomberg Businessweek reported in 2019, these regulatory constraints created an opening for private equity competitors. Apollo, Blackstone, and KKR "won the financial crisis" by capitalizing on favorable structural conditions: ultra-low interest rates that reduced borrowing costs for leveraged acquisitions, a supportive political environment, abundant institutional capital seeking returns, and a regulatory framework that left PE firms comparatively unencumbered. Nearly every post-2008 macro condition tilted decisively in private equity's favor.
The article frames a central analytical question: whether private equity itself should bear responsibility for negative outcomes in acquired companies, or whether the critique oversimplifies complex dynamics involving management decisions, market forces, and systemic economic factors. This framing suggests Greenwell's book engages with both structural critiques of PE practices and broader questions about causality in economic harm, particularly regarding employment, community impact, and asset deterioration.
Private equity's fundamental business structure is straightforward: firms raise capital from institutional investors such as pension funds, deploy that capital to acquire businesses and real estate assets (typically using substantial borrowed funds), improve asset valuations, and exit for profit. Investors receive returns after PE firms deduct management fees and performance-based compensation. However, the sector remained relatively contained until post-2008 regulatory shifts dramatically altered the competitive landscape.
The watershed moment occurred when regulators worldwide, responding to the financial crisis, imposed stricter controls on investment banks—particularly firms like Goldman Sachs and JPMorgan Chase that had dominated global finance. As Bloomberg Businessweek reported in 2019, these regulatory constraints created an opening for private equity competitors. Apollo, Blackstone, and KKR "won the financial crisis" by capitalizing on favorable structural conditions: ultra-low interest rates that reduced borrowing costs for leveraged acquisitions, a supportive political environment, abundant institutional capital seeking returns, and a regulatory framework that left PE firms comparatively unencumbered. Nearly every post-2008 macro condition tilted decisively in private equity's favor.
The article frames a central analytical question: whether private equity itself should bear responsibility for negative outcomes in acquired companies, or whether the critique oversimplifies complex dynamics involving management decisions, market forces, and systemic economic factors. This framing suggests Greenwell's book engages with both structural critiques of PE practices and broader questions about causality in economic harm, particularly regarding employment, community impact, and asset deterioration.
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