The Empirical Arguments for Specific Benefits of Private Equity: Returns to Investors, Employment, and Tax

Abstract

Private equity finance can be viewed as a claimed solution to problems it helps to create and it can be viewed as a claimed solution that creates additional problems. Both these arguments rely on its relation to the overall environment: its relation to capital markets and its relation to the economy in general. Both are focused on the implications of the growth in scale of PEF as a historically developing phenomenon where there is an interaction between the potentials of the overall environment and the internal tendencies in PEF buyout behaviour. They are conditional arguments regarding the negative consequences that flow from those potentials. There is a great deal of ‘what if’ about them. They can seem overly complex and overly concerned. This is particularly so if one can counter in narrower ways that PEF creates specific benefits that offset any other concerns. These are specific empirical arguments. There are three main areas of such argument that have been important to the public relations role of the main PEF associations and that have been sources of dispute taken up in research on PEF. First, there is the claim that PEF funds are a source of high returns to investors in the funds. As such they are an important means by which pension funds, insurers etc. meet their obligations. Second, there is the claim that the image of PEF LBOs as primitive asset strippers is undeserved.