March 31, 2023

DealBook: Examining the Ubiquity of Private Equity

Jason Kelly, as a reporter at Bloomberg News, has been chronicling the moves of the world’s largest buyout shops and their billionaire founders long before the private equity industry became a political football in the presidential election.

On Sept. 11, Mr. Kelly’s book, “The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything,” was published by John Wiley Sons. He spoke with DealBook last week about the book and the legacy of private equity. The interview has been condensed and edited.

At the beginning of the “The New Tycoons,” you describe a moment when you realized that private equity might be relevant to a broader audience, and not to just financial-journalist nerds like us.


I was at Legoland with my kids and realized that Blackstone owned it. The night before we had stayed at a Hilton hotel, which Blackstone also owns. We were driving around in a rental car from Hertz, another private equity-owned business. Even for someone who spends more time than I care to admit thinking about private equity, I hadn’t realized the extent to which these firms were embedded in our day-to-day lives.

It’s quite a coincidence that your book has come out at a time when private equity is in the spotlight.

It is. Neither Bain nor [Mitt] Romney is prominently featured in the book, although the Romney candidacy is why a lot of these guys and their business practices have been brought to the fore, like the issues surrounding their taxes and job creation or destruction. But the point of this book was not to be about Romney or about private equity in politics. It is really meant to illustrate and explain both the depth and breadth of the industry, its ubiquity, and some explanation of what these guys actually do.

I think that you should have considered putting Mr. Romney in your acknowledgments because surely his campaign will help you sell more than a few copies of this book.

That’s probably true. I guess that I am indebted to him.

You began covering private equity just as the leverage buyout boom was cresting. Most experts predicted dire outcomes for those deals, yet it hasn’t quite turned out that way.

Take Hilton for example. I always remember the date of the Hilton buyout — July 3, 2007 – the same day that K.K.R. filed to go public. It turned out to be the last big deal of the boom — a $20 billion-plus deal, a big, brand-name company, and a lot of debt used to buy it.

As the financial crisis deepened Hilton appeared to be in trouble, yet they were able to do some pretty clever financial maneuvers, fix their debt situation and restructure their balance sheet. The business has since improved and at this point it appears to be a fairly healthy company and one that they’ve said they’ll take public in the next couple years.

You spent time with a lot of the heads of these firms, including Stephen A. Schwarzman of Blackstone and Henry R. Kravis of K.K.R., David M. Rubenstein of Carlyle and David Bonderman of TPG.

Even as these firms have gotten bigger and bigger over the years, they are still very sharp reflections of their founders, and these guys are all now mostly in their 60s, closing in on 70, and are thinking a lot about their legacies having created what seem to be real lasting institutions at this point.

Private equity funds charge expensive fees and lock your money up for a decade or more. Are they worth it?

Their investors, especially public pension funds, are desperate for returns right now. In a zero interest rate environment and a situation where a pension needs to get returns of 8 percent on average, someone who is coming by and saying they can deliver upward of 20 percent is very attractive. But returns have suffered and we’re seeing investors start to push for more transparency and more clarity on fees, and it will ultimately be a less lucrative business.

What does the business looks like decades from now?

As the biggest of these firms have gone public, they have reduced their reliance on private equity. At Blackstone, private equity now accounts for less than 20 percent of the firm’s profit. They’re as much a real estate firm or a money manager who directs money to hedge funds or a credit investor as they are a private equity firm, yet they’re still best known for their private equity. It’s hard for me to imagine that 20 years from now we’re going to be thinking of them and K.K.R. and Carlyle as private equity firms.

Listen to the political rhetoric out there and you’d either believe that private equity is either a force for good or a force for evil. Your book seems to take a down-the-middle approach.

Part of the reason I wanted to write the book was to go beyond the headlines, which definitely tend toward heroic or villainous extremes.

As with so many things, the answers to the big questions aren’t neat and tidy, whether around jobs, debt or taxes, and people wildly and loudly disagree on a lot of those issues.

You have a quote in the epigraph of your book from John Kenneth Galbraith: “There’s a certain part of the contented majority who love anybody worth a billion dollars.” Why did you include that?

I was looking around for quotes related to billionaires — since all of the main characters fit that description many times over and I wanted to underscore the eye-popping wealth this industry has created.

That quote struck me as ironic to the point of hilarious, especially in 2011 and 2012. He had me at “contented majority.” Given what was going on down in the financial district and at places from Phoenix to Chapel Hill, all of which I happened to visit for one reason or another while I was writing, I also considered a lyric from the R.E.M. song “Welcome to the Occupation.”

What’s the lyric?

You are mad and educated
Primitive and wild
Welcome to the occupation
Here we stand and here we fight

I love R.E.M. and listened to their music enough while writing that I felt compelled to include them in the acknowledgments.

So you thank R.E.M. but not Mr. Romney? Let’s leave it at that.

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