The benefits of private equity are about to get tested

Private equity has grown ever more popular in recent years. But its touted benefits are set to be tested, says John Stepek.

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Private equity – put simply, investing in companies that aren’t publicly listed – has grown in popularity as an asset class over the last few years. Advocates point to the fact that private equity returns are simultaneously at least as attractive but less volatile than stockmarket returns (in other words, investors endure fewer ups and downs). Detractors note that this is purely down to the use of borrowed money, a lack of liquidity, and the absence of “mark-to-market” accounting, not to mention a more recent trend towards certain funds effectively re-selling assets to themselves at favourable terms and prices.

Cutting through the debate, however, one thing is hard to dispute. In an environment in which we’ve gone from frenzied boom to painful bust for “growth” companies, and in which interest rates and inflation are both rising, it’s hard to imagine any realistic scenario where private company valuations haven’t suffered too.

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.