Whither Private Equity: American Pariah? Or Driving American Renewal?

Private equity employs roughly 7% of working Americans. Its practices are no longer esoteric or upstart but central to American economic and community life, and, given its outsized impact, the future of private equity depends on industry willingness to assume the responsibilities and views of leadership.

The firms and leaders that best claim this leadership role — making explicit commitments to American Renewal and Shared Prosperity — will find sustainable differentiation in culture, brand, talent, targets, and fundraising.

In this view, exceptional firms will stand for something and build stakeholder commitments deeply into core processes. Ownership Works, pioneered by KKR’s Pete Stavros, is the best example yet of this fundamental shift.

There are roughly three public views of private equity, call them The NY Times View, the Academic View, and the American Investment Council View.

The NY Times View is the dominant, if frequently erroneous, public understanding. From Pretty Woman and Barbarians at the Gate to recurring New York Times op-eds (“Private Equity is Gutting America” ) as well as policy stances on the Democratic Left (AOC , Elizabeth Warren here and here ), in this view, PE is exploitative and extractive, a major contributor to income inequality, regulatory capture, and the decreased economic vitality of American communities. There’s not much new here.

What is changing, however, is support for the NY Times View from the political right. We see this in pointed commentary from former Mitt Romney staffer, Oren Cass (“Private Equity Captures Rather Than Creates Value ”), as well as Sohrab Ahmari (here and here ). It’s conceivable that populist senators – JD Vance, Josh Hawley, Marco Rubio, Tom Cotton – could follow suit (even as their campaigns aggressively court PE dollars). Note Senator Vance’s 2023 collaboration with Senator Warren.

Perhaps surprisingly, we’re also seeing this view within the trenches, where PE insiders express increasing cynicism regarding PE differentiation, value creation, and sponsor-to-sponsor trades. (I will return in a later post to the question of insider cynicism, particularly among the young. Pls let me know if you’d like to share on this point.)

The Academic View is balanced. Private equity is heterogeneous in approach and impact. As one comprehensive paper from 2019 put it, “the effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout.” Notably, the research here underscores that buyout effects differ across groups and that these differences persist over time at the group level. (Also, those scaling AUM take note: “rapid upscaling in deal flow at the group level brings lower employment at target firms.”)

Lastly, The American Investment Council View (AIC) is the view held by private equity itself. The story there is of the beneficial allocation of capital to support American industries, communities, and pension plans. In this telling, bad outcomes are the exception rather than the rule, a necessary casualty of American-style capitalism. PE firms are justly rewarded for years of labor and risk.

This AIC view is given short shrift among the broader public. The Council launched in 2007 to defend the PE industry from increasing scrutiny and reads as it is, namely a lobbying effort working from a defensive crouch, though it remains the industry’s strongest advocate.

Given this public perception — indeed, over the holidays I was told that “PE ghouls” are responsible for the housing crisis, a view first promoted by JD Vance, and the Journal of the AMA published a study claiming PE ownership drives increased adverse events at hospitals, a claim happily magnified by the NY Times — and, though PE donates heavily to Congress (roughly $40M per election cycle), can we nevertheless imagine Elizabeth Warren teaming with Vance and the ascendant populists to gain traction for something like her industry-killing 2021 Stop Wall Street Looting legislation?

Can we imagine younger generations turning their back on the industry: too much work, too little and increasingly uncertain upside, too little purpose, too much criticism?

An alternative future is available to private equity – almost a throwback to certain noblesse oblige views of finance – whereby firms make explicit commitments to American Renewal and shared prosperity.

My view is that those who best claim this mantle will find sustainable differentiation in culture, brand, talent, targets, and fundraising.

(The jingoism of “American Renewal” is deliberate: if finance is perceived as bi-coastal, elite, and extractive, opinion will shift only when we bear witness to the hardship in our communities and align explicitly to a better path forward.)

What might this look like?

Venture Capital has long sought to distance itself from PE in the carried interest debates. In recent years, they set themselves further apart by playing an increasingly public role and asserting a vision of the future. General Catalyst is perhaps the best example, pledging that “Change Starts Here” and committing to alter the status quo by way of a robust Responsible Investing model. (Many others are charter members of the Responsible Innovation Labs .) We see it also at andreesen horowitz with the happily sophomoric and hubristic Techno-Optimist Manifesto as well as the American Dynamism effort.

If VC firms propose to lead and contribute by way of creative disruption and transformation, PE, by virtue of its model, must enact a theory of change that is incremental, inherently conservative (measured, organic, built on the past) in method, and necessarily if tacitly anchored in specific values and purpose. Though it may not grab headlines, this kind of change is essential, impactful, timely, and demands sustained leadership and commitment.

The scaled PE players have stepped in this direction with their impact funds, including KKR’s Global Impact (2018), committed to the U.N. Sustainable Development Goals, and TPG’s Rise Funds (2016), broadly dedicated across climate, education, food, health, and financial inclusion. These efforts are admirable and should be supported, however they represent less than ~10% of total AUM, and, by targeting limited sector-specific interventions, avoid questioning or shifting the tacit commitments and functioning of the industry.

Existing firm-wide and fundamental PE commitments are comparatively sparse and mostly peripheral. Far and away the best effort that I’m aware of is Ownership Works , pioneered admirably by Pete Stavros at KKR where an Ownership Culture and “shared success” have become part of the firm’s positioning. This program is much more exciting than impact fund efforts in that it represents a fundamental repositioning of the industry. In a country where 10% of the country owns 90% of the stock market, distributed ownership is a transformational pivot and a boon to the communities in which KKR operates. (I’ll return to this in later posts. KKR’s Henry Kravis says it’s one of the best programs they’ve ever come up with.)

Blackstone’s Career Pathways is an interesting model, too, in its commitment to both career access and advancement.

Most if not all firms make some commitment to ESG and DEI, some as signatories to the UN Principles for Responsible Investing. None of those efforts, however, amount to credible claims regarding the firms’ purpose or fundamental commitments. And, beyond that, the divergences in PE firm positioning and commitments largely amount to tinkering with the operational model or end-market focus.

Put otherwise: differentiation in private equity exists largely only by way of scale, access or relationships, and depth or intensity of focus. Operational models differ in degree and quality, not kind, and while real differences may exist, it’s hard to spot from outside. (I believe my old firm, Gryphon Investors , operates an effective and difficult-to-replicate integrated deal-ops model. And, I’ve always admired the alignment and concreteness of AIP ’s operational approach.) In the middle market, lack of scale and resource constraints limit what’s feasible across all these levers.

Conversely, distinctive purpose and distinctive culture are levers with immense potential. Coming generations of business owners and PE deal leaders will demand stronger socio-economic commitments, as will the public at large and the legislators behind them.

In this view, an exceptional firm will stand for something and build stakeholder commitments deeply into core processes. Some may take a strong stand for DEI principles, for example, while another promotes classically liberal principles in a tacitly anti-woke framing. Both could succeed but would obviously draw from different talent, target, and LP pools. (Despite all the ink spilled recently over Harvard and Bill Ackman, I think PE commitments, like KKR, ultimately need to focus on shared prosperity. Identitarian commitments won’t move the needle of public perception – they’re too easy.)

Other commitments might be related to job creation and quality (e.g., compensation, career pathing, safety, agency or autonomy, continuing education), environment, politics, or otherwise, but they can’t be simple boilerplate minimums. No one is inspired by that. That won’t create “pull” from talent or the deal markets nor will it drive sustained, aligned action on the team.

A powerful purpose and culture will always be distinctive and uncompromising. For some, such a culture will not be a fit; they will experience discomfort and opt out. The trade-off is that the best people will opt in with vigor and commitment. They’re already seeking it.

In the coming months, I will develop a view of this kind of differentiation, hopefully in dialogue with you.

Let me know what you think. And please share in the comments stories about firms that are leading the charge here. I’m sure there are many I’ve missed.

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