The question anyone reading this analysis should ask is: if private equity is so benign, where do the returns come from?

The unlock, which these papers don't understand, is the extractive nature of P/E that is hidden.

A few clues: 1. A .5%-1% increase in prices is meaningful (Overall industry prices rise after buyouts, but again the price increase is on average very modest.) Retails margins routinely are measured in fractions of percentage points (bps). As an example, even if overall hospital prices stayed similar, P/E firms have been caught jacking up prices on people who need it most. Research on "Surprise Billing" in emergency rooms spiked immediately after PE firms took over staffing groups. Are you surprised?

2. Equity multiples are "effectively" a form of stealing from retail / pension plans: this is where the real 'theft' happens (if you want to call it that). If you reraterevenue from 6x (private) to 15-20x, someone is now paying 2-3x more per dollar to have that company in society. The key is the P/E OWNERS reap that value, so even if there are no job cuts, the wealth being created aggregates 'money supply' to the owners. This has downstream impacts on inflation.

3. Independent of aggregate effects - local effects are quite devastating. This is not P/E's fault, but closing down plants can kill towns for good. The question here is ownership - a family feels some tie to the community to attempt to help their friends and neighbors. P/E absolutely destroys this tie - the subtle but measurable effects compound.

Finally, even if you like P/E as a VEHICLE (which - I would argue it hasn't been a 'good' ones since like the late 90s), you can't ignore the fact that it's returns have largely been eaten by fees.

You're right to say that P/E is just playing the market. That doesn't mean that its impact on society has been good - the entire reason we're in the current political and economic situation we are today are by following the 'laws of the market' which have hollowed out the middle class and created a pretty large affordability crisis despite the world having achieved record levels of wealth.

The transfer from 'doers' to 'owners' has been a net negative for American society, and one of the primary reasons we don't 'build' things anymore - it's just not capitally "efficient"

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JumpCrisscross 3 days ago | parent [-]

> if private equity is so benign, where do the returns come from?

“During the last 10 years PE on average did not outperform the public markets in aggregate” [1]. (Individual firms overperform, some of them consistently.)

> even if you like P/E as a VEHICLE (which - I would argue it hasn't been a 'good' ones since like the late 90s), you can't ignore the fact that it's returns have largely been eaten by fees

Yup! Though nitpick: we often stop calling it PE when it works. VC is PE. So are Berkshire Hathaway and founder-led “take private” transactions.

> transfer from 'doers' to 'owners' has been a net negative for American society

PE is often an exit vehicle for small builders. Particularly in the space that deals with SBA loans.

[1] https://www.hbs.edu/ris/Publication%20Files/24-066_cc5a53f4-...

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epsteingpt 3 days ago | parent | next [-]

What are you arguing then? That a growing asset class that increases prices, destroys communities because of lack of ties, and shifts wealth from builders to owners that doesn't outperform public markets in aggregate is a good thing? Hard to argue this is 'good for society!'

> VC returns as an asset class (outside of a handful of firms) have underperformed in the past 20 years. I don't even count it here.

> PE as an exit for small builders Agree. But again, it's the builders who have built over multiple decades who profit (great!) one time. The employees - typically - don't. Search can help this (because searchers are usually more dependent on employees) so this is a good example of "micro-PE" being generically better than larger scale PE.

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JumpCrisscross 2 days ago | parent [-]

> That a growing asset class that increases prices, destroys communities because of lack of ties, and shifts wealth from builders to owners that doesn't outperform public markets in aggregate is a good thing?

You added a bunch of stuff in front which isn’t substantiated as being an effect of private equity or unique to it.

Most complaints about PE tend to boil down to complaints about, in the extreme, private ownership, and in the specific, leverage or non-local control. Those are legitimate complaints that attach to PE. But not necessarily. And in some cases, not in most cases.

> it's the builders who have built over multiple decades who profit (great!) one time

Sure. They get the multiple. They can now build more.

	▲	epsteingpt 2 days ago \| parent [-]
		Yes, the stuff I added is anecdotal, but pretty well established from my discussions and observations of high level operators and related service providers (Bain, McKinsey, etc.) LMK if you've ever seen a slide deck in their post-acquisition plans that says "Impact on Community." The PE complaints are mostly unsophisticated from 'the community' but actually have a very reasonable underpinning - as discussed above. Finally for builders - this is great. Probably the single best application - but again, cost benefit I'm pretty sure it's not only economic drag, but social drag as well. Again - the asset class has expanded massively. It's due a reckoning - curious how many firms are actually solvent were they required to sell their holdings in market.

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mbesto 2 days ago | parent | prev [-]

Everything you've said so far has been pretty spot on, however the Bain report says the average fund IRR does outperform the market: https://www.bain.com/globalassets/noindex/2025/bain-report_g...

IRR comparisons admittedly get a little fuzzy since the lack of liquidity and pegging values is difficult.

You're also correct to say that VC is a subset of PE, technically speaking, colloquially it's not really. If you put VC into the whole mix, then yes the asset class sucks versus the public market. PE is often synonymous with an MBO.