Private equity
Buying companies outright, usually with borrowed money, away from public price discovery.
The invention
The problem. Public markets would not fund unproven companies, and public shareholders would not tolerate long restructurings.
American Research and Development Corporation, founded 1946, was the first institutional venture fund. KKR followed in 1976 with the leveraged buyout — acquiring a company using its own assets as collateral for the debt that bought it. The structure is genuinely clever and the incentives genuinely asymmetric.
Photographs, Naval Aircraft Factory
1917 · Library of Congress · Public domain
Where it has failed
Not a list of disasters. A pattern library.
- 1989New York
RJR Nabisco
A $25bn buyout, then the largest ever, that became the case study in leverage and ego.
Deal size correlates with cycle position. The biggest transactions cluster near the top.
- 2007–2009Global
The buyout hangover
Deals financed at peak valuations with peak leverage went through bankruptcy across retail and media.
Leverage is a bet on continuity. It performs beautifully until revenue pauses.
- 2020sGlobal
Marks that do not move
Private valuations declined far less than comparable public assets during drawdowns, because they are appraised rather than traded.
Low reported volatility can mean low measurement frequency. Smoothness is not the same as safety.
In your ledger
Increasingly present in pension and target-date funds. Worth knowing that its reported stability is partly an artifact of how rarely it is priced.
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