Global Compact International Yearbook 2015

Agenda
Financing Sustainable Development
database. I do not deny that there are a couple of dozen or
even more cases where the private equity formula has been
poorly applied and companies have been left looking as if the
locusts have been through.
But this is the exception, not the rule. If you look at the
thousands of transactions that you can study empirically, the
average impact on the companies is very likely to be positive,
by all the evidence we see – and I am choosing my words carefully
here, because absent general disclosure requirements for
private equity, we just do not get a full picture of everything
that is going on. So from a scientific standpoint, I can’t say
we have the answer, and that private equity is all good or all
bad. But the evidence we do have points in a positive direction
and certainly does not confirm any of these locust metaphors.
A study done by a colleague of mine at Harvard a couple of
years ago looked at the long-term performance of companies
that were owned by private equity for a couple of years and
then sold on the stock market. These companies outperformed
the rest of the stock market over a three- or five-year window
after they had been sold in an IPO. Even after the departure
of the private equity firm, then, there seems to be some positive
impact, where the company that the private equity firm
used to own then outperforms its peers on the stock market
more generally. If this were only about locusts sucking the
lifeblood out of companies, I would have no way to explain
my colleague’s finding.
The little I know, however, tells me that they are extremely
different. They can go long, they can go short; they usually
go in with a very short-term focus, and they do a completely
different thing with the target companies. The unfortunate
aspect is that hedge funds and private equity themselves are
both set apart from other asset classes, so they somehow get
put in this “Alternative Asset” or “Other Asset” category and
people end up conflating them. They couldn’t be more wrong.
I don’t know whether hedge funds are locusts. Hedge funds
do a lot of different things, I would assume, both good and
bad. But what I can say is that applying this criticism to private
equity is entirely wrong. Around the time of this event,
I was doing an expert assessment for the European Union
Parliament on private equity, and someone else was talking
about hedge funds. We both often faced the same ideological
criticism because of the lack of information out there. Since
private equity is confidential and is not disclosed (it’s called
“private” for a reason), what people see are the extreme cases:
in some cases, investors getting extremely rich, in others, acquired
companies going under. The discussant of my expert
assessment in Brussels invoked a couple of dozen horror stories
about private equity that some workers’ council representatives
had told him about. I have no reason to disagree with
this testimony: I study private equity on a large scale, and by
now I have accumulated about 20,000 transactions on my
Thank you very much for the interview!
Dr. Oliver Gottschalg is Associate Professor in the Strategy Department at
HEC Paris and the HEC Academic Dean of the TRIUM Global Executive
MBA. He directs the HEC Private Equity Observatory and teaches courses
on PE strategies and management buyouts.
Gottschalg is Head of Research at Peracs Ltd., a specialized advisory
firm providing advanced private equity fund due diligence and
benchmarking services. He has frequently served as an advisor to
policymakers at the national and European levels in the context of the
ongoing debate about the possible need for regulation of the private
equity industry.
He graduated from the University of Karlsruhe and holds a
Wirtschaftsingenieur Diploma, an MBA from Georgia State University,
and an MSc and PhD degree from INSEAD.
The interview was conducted by Dr. Elmer Lenzen.
Global Compact International Yearbook 2015 51