Public ownership or private equity?

The superior returns achieved by private equity investors in recent years has attracted greater flows of capital from institutional investors and significantly increased the importance of this sector of the UK and European economy. Against a backdrop of intense debate about the role of private equity, generated by the increasing size of deals and high levels of leverage, this paper reviews the pros and cons of this form of corporate organisation. According to its advocates, private equity is a means of making companies more efficient. Its detractors, on the other hand, claim that private equity firms lack transparency in comparison to their publicly listed counterparts and that they often generate returns from asset stripping rather than from genuine operational improvements. We review both sides of the argument and consider the limited empirical evidence about the relative merits of public and private equity.