Private Equity 4.0: Reinventing Value Creation

8 The future of private equity

Executive summary

Private equity always found ways to reinvent itself in the face of adversity. This resilience can be traced back not only to the acumen and skills of its professionals but also to the very definition of the industry’s activities. Private equity is intrinsically opportunistic and evolves its business model to respond to short- or long-term value creation possibilities. It is highly competitive, internally and externally, permanently adjusting to the new requirements of capital and expertise providers. Finally, it operates under the highly flexible framework of private capital, i.e. whatever rules can be negotiated with its institutional investors. As long as it remains “free to roam”, private equity will find new ways to create value in markets that are inherently imperfect.

Private equity is here to stay, despite difficult market conditions that continue to affect the industry and force adjustments to its business model. The premises on which it operates, such as the positive impact of strong performance-based incentives, the discipline of finite-duration investment vehicles and the astute use of leverage, bring focus and alignment of interest to the industry.

After decades of high growth, private equity has reached a certain level of maturity in most developed countries. Inefficiencies and arbitrage opportunities are less ...