This week, the Financial Times published a brief video which explains what private equity is all about. I first learned about private equity in the autumn of 1988, while I was studying the corporate finance course at Stockholm School of Economics. During that autumn, Kohlberg-Kravis-Roberts & Co (KKR) bought the huge conglomerate RJR Nabisco Inc. in a leveraged buy-out, in competition with nearly all of the major private equity players of the day, including Morgan Stanley, Goldman Sachs, Salomon Brothers, First Boston, Wasserstein Perella & Co., Forstmann Little, Shearson Lehman Hutton, and Merrill Lynch. Most of those firms do not exist any more, although KKR remains and is one of the most successful.
We used the on-going drama as a case study at the SSE, and it was later captured in the excellent motion picture Barbarians at the Gate. Many times since then, we have been involved in work with private equity firms and their holdings, including our long collaboration with Musa Capital in South Africa. Private equity firms have come of age since their corporate raider days and are increasingly vying for retail investors’ cash. But what do they do? And what risks do investors face? John Authers, Financial Times senior investment columnist, explains.
Private Equity Made Simple
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