Private equity and the culture of value extraction

Workaround: In current version of Panels 3.8, it seems this body field needs to be populated in order for title above to appear. This note is hidden by custom CSS style. Jack Latimer.

  • Working Paper

    Private equity has become increasingly popular with investors seeking returns greater than those from publicly-traded equity. However, the industry has also been the object of increasing question and criticism, focused on concerns about over-leverage and potential instability, asset stripping, lack of transparency and the large rewards for senior fund managers. This paper presents an analysis and argument about private equity as a rearrangement of claims which allow value capture and value extraction for a relatively small numbers of principals. The paper contrasts the narrative of the industry, which emphasises the social benefits of private equity as well as the returns to investors, with the outcomes of increasing leverage. The paper concludes that private equity is not a new kind of capitalism. Nonetheless, it does have important implications as a consequence of the way that it helps normalise a culture of value extraction which increasingly views companies as bundles of assets and liabilities to be traded. 

    Keywords:

    Private equity, leverage, financial engineering, value extraction, model of capitalism.

    2007
    2
    31