The public perception of private equity is of large, anonymous, unaccountable investors who buy mature businesses (such as Asda, Morrisons and the utilities), largely financed with debt, and do little if anything to improve performance. Their investment return comes almost entirely from generating operating returns higher than the cost of debt.
If that were universally true, last year would have been a terrible one for listed private-equity funds. The rising cost of borrowing would have eaten into current and future profitability, reducing valuations while operating earnings at best stagnated in an economic downturn. The result would be a doom loop for the sector. That share prices have plunged to huge discounts to net asset values (NAVs) shows that investors have been fretting about this scenario.
Instead, to the intense dismay of the sector’s many critics, 2023 was an excellent year for the sector, with private
