Private Equity: if it isn’t broken...

"Which problems do you want to fix?" was James' candid answer when asked about the need for further private equity regulation. Having systematically rebutted Poul Nyrup Rasmussen's jabs at the industry, the Blackstone COO implied that further regulation would not only be unnecessary but also counter-productive: "You would be trying to superimpose the will of a government bureaucrat over the judgement of much more talented people."

James spent the best part of 90 minutes highlighting the "necessity" of private equity and its positive impact on the economy. Regarding job losses, he reminded the audience that the main goal of an investor was to grow its portfolio companies, which most of the time results in more jobs being created down the line. "Who shed jobs and went under during the crisis? General Motors, airlines, steel producers... none of them were owned by private equity," noted James.

He was just as unapologetic on debt levels, stressing that it was in the interest of industry players - investors, banks and bond buyers alike - to regulate over-leverage by themselves. According to James, the image of companies saddled with too much debt is a thing of the past, as most of the value creation is now derived from operational improvements: "Lots of available cheap credit is ultimately bad for private equity returns: the bonus goes to the seller since the price gets pushed up."

Blackstone recently closed its sixth buyout fund on $15bn. According to James, the firm didn't realise any losses during the financial crisis, with all of its funds remaining above costs.

 

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• Regulation
• Blackstone Group