(HBR) Despite their reputation in the 1980s as corporate raiders, most private-equity firms attempt to improve the performance of their portfolio companies through better corporate governance. Historically their business model has been to create value by sharpening the focus and oversight of largely ignored business units inside conglomerates or poorly managed private companies, such as dysfunctional family-run businesses. But although the G in “environmental, social, and governance” has been important in the PE industry from the outset, the E and the S have been virtually nonexistent. The industry has been content to seek returns with little concern for the long-term sustainability of portfolio companies or their wider impact on society.
A huge opportunity for private equity—and for society—now exists. PE has moved far beyond its Wall Street niche to become a major player in the global economy. In 2021 the industry had $6.3 trillion in assets under management (compared with about $90 trillion for public equities) and close to $2 trillion in “dry powder” (funds raised but not yet invested). Those assets are projected to exceed $11 trillion by 2026. Roughly 10,000 PE firms worldwide oversee more than 20 million employees at about 40,000 portfolio companies. Some of the largest PE firms—Apollo, Blackstone, Carlyle, EQT Partners, KKR, and TPG—are now publicly listed themselves and therefore subject to the same pressures that all public companies face.
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