Private Equity Demystified For over two decades, from the early 1980s, the developing private equity industry largely flew below the radar of public scrutiny. In 2007 the private equity industry came under intense public scrutiny including a House of Commons Select Committee enquiry. This third edition examines further developments in private equity, as many western economies again experience economic growth. The European Commission’s Alternative Investment Fund Managers Directive which covers private equity funds is also being implemented. A burgeoning body of academic evidence also continues to provide systematic insights as to the impact of private equity.
What’s reshaping private equity, international business investment and deals? ICAEW asked the experts – including the authors of the new edition of Private Equity Demystified, John Gilligan and Mike Wright.
In this third edition two major innovations are particularly notable. First, as the industry has become increasingly international and have extended the coverage of the trends in private equity beyond the UK; Second, as the economy and the industry emerge from recession, there is a new section revisiting the accusations laid at the feet of private equity by its critics at the height of the last boom in 2007.
Drawing on the increasing evidence now available, it shows that many of the criticisms of private equity were misplaced. It is argued that in contrast to the forecasts of the critics, private equity has acted to contain risk, not disseminate it; has created alignment between managers and shareholders, not a misaligned bonus culture; and provides important models for corporate governance and risk management that have a wider applicability. Nevertheless, some challenges remain regarding the relationships between private equity firms and their investors, notably regarding fees and the valuation of unrealised investments.
Structure of a typical PE fund.
John Gilligan is a Corporate Finance Partner in BDO LLP. He has worked in the private equity and venture capital industry for over 25 years. He started his career in 1988 at 3i Group plc as a financial analyst. Prior to BDO he was a partner of Deloitte. He is a non-executive director of Big Issue Investment Fund Management, one of the largest social impact investors in the UK. He has a degree in economics from Southampton University and an MBA in financial studies from Nottingham University.
Professor Mike Wright is Professor of Entrepreneurship and Head of the Innovation and Entrepreneurship Department at Imperial College Business School. He is Director of The Centre for Management Buy-out Research which he founded in 1986 and has been Associate Director of the Enterprise Research Centre since 2013. He has written over 50 books and more than 400 papers in academic and professional journals on management buy-outs, venture capital, habitual entrepreneurs, corporate governance and related topics. He served two terms as an editor of Entrepreneurship Theory and Practice (1994−1999) and of the Journal of Management Studies (2003−2009) and is currently a co-editor of Strategic Entrepreneurship Journal. He holds a BA (CNAA), MA (Durham), PhD (Nottingham) and honorary doctorates from the Universities of Ghent and Derby. He was the winner of the Academy of Management Entrepreneurship Division Mentor Award in 2009 and was chair of the Division in 2011/12. He is also an Academician of the Academy of Social Sciences.