As investment in private equity becomes more widespread, the industry will face more questions about its environmental, social and governance standards
OVER THE PAST year bankers and lawyers who arrange mergers between companies have been working overtime as private-equity firms buy up companies listed on stock exchanges at an unprecedented rate. Buyout groups have announced 6,298 deals around the world since the beginning of January, worth at least $513bn, according to Refinitiv, a data firm. British companies are the most popular targets. At least 13 listed ones there have been approached by private-equity outfits since the start of the year.
So why are they now spending so much? One cause is interest rates, which are at historic lows. These make debt cheaper to take on and service, swelling potential profits. They also mean that big institutional investors, such as insurers and pension funds, are searching for better returns than those available on safe assets, such as rich-world government bonds, which are almost zero.
Private equity may soon lose some of its attraction, however. Returns could fall if fund managers cannot find enough profitable opportunities. A recent paper by Josh Lerner of Harvard Business School and others shows that private-equity returns in America, its biggest market, have been on a downward trend over the past decade. Returns better than other asset classes in the past may not be a good predictor of future performance.
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