World Economic Forum Findings on Private Equity
While the first WEF report looked at PE’s willingness to invest and impact on employment concerns and the second drilled down further into PE influenced management practices and impact on labor productivity, the third pulls all the way back to provide the broader perspective. It is interesting that they uncovered a few key facts that not only PE-backed companies grow faster, but entire industries grow faster with active PE investment. With was accomplished by taking 400+ observations in each of 20 “PE Industry” classifications, a “PE Industry” has at least one investment in a 5 year period, to examine prior and post-investment impact. This would make sense that all market participants are chasing the same business so that all participants must optimize operations to compete which led to an on average 0.9% performance improvement for the “PE Industry”. This is quite striking when it is noted that those industries also employed 0.4-1% more employees during the period of PE investment. Again, these are industry not company specific averages so do not draw this to be impact of PE investment at a specific company. To finish, the other side of the cyclicality investigation simply confirmed that PE investments made at the top of the market did not fare as well, again, no new information in that regard.
The other major section of the report looked at effect of Government investment and balancing that investment with venture capital which is a bit outside my area. However, feel free to take a quick look at the information, particularly in the executive summary where Infosys’ own N. Murthy’s famous founding investment is noted. The big take away from the findings to me was that sectors with moderate Government investment outperformed those with venture-only or extensive Government funding in terms of value and patent creation. However, results varied by country and I am not sure of the broad conclusions that can be drawn.
The other major section of the report looked at effect of Government investment and balancing that investment with venture capital which is a bit outside my area. However, feel free to take a quick look at the information, particularly in the executive summary where Infosys’ own N. Murthy’s famous founding investment is noted. The big take away from the findings to me was that sectors with moderate Government investment outperformed those with venture-only or extensive Government funding in terms of value and patent creation. However, results varied by country and I am not sure of the broad conclusions that can be drawn.
