The economic impact of private equity: what we know and what we would like to know

Private equity and management buyouts have been the subject of considerable controversy. There have been recent calls for more systematic evidence on the impact of private equity and buyouts. Yet there is already an extensive body of scientific evidence stretching back over the past two decades that provides a platform for understanding the current context. This article summarises what we know about private equity from a comprehensive review of approximately 100 studies from around the world under the following headings: the returns to investors; profitability and productivity; the drivers of effects on profitability and productivity; the impact on employment and wages; growth and investment strategies; the extent to which high leverage is associated with failure; the generation of gains from asset disposals (asset stripping); the reselling of assets within short periods of time (asset flipping); and whether the effects persist after private equity firms have exited. This scientific evidence indicates that private equity and buyouts bring particularly important economic and social benefits. What we would like to know about private equity and buyouts is discussed under five broad headings: the difference between the second wave of deals and the first wave; the nature of the fund and its impact on returns; the distinction between secondary and primary buyouts; the failure rate of buyouts; and the tax implications. Implications for policy and practitioners are also discussed.