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Private Equity players having to actually run businesses - Comment 2.0

Last summer, I thought it hilarious that the CEO’s of private equity firms were being marveled over – that they actually had to run their companies to create value rather than simply engaging in financial engineering. 

Well, we seem to be witnessing a full-fledged trend.  Business Week, reporting on the recruitment by a private equity firm of one of GE’s top players, Lloyd G. Trotter.  One of his new partners, Arthur H. Harper, has suggested that private equity is entering a “third era”.  As he reports (January 21, 2008 edition of Business Week)

The first era was about “the deal guys, where the buyers were more sophisticated than the sellers.”.  Then it was about financial engineering through highly leveraged, cheap capital. “Now it’s about bringing in operating folks who know how to run companies and make them productive on a global scale,” he says. 

One of the reasons I find this so interesting is that as a faculty member at Columbia Business School, our students have tended to show a lot less interest in the actual running of companies than in the financial engineering that allows one to make fortunes from changes in ownership and investment strategies.  Should this private equity trend materialize, wouldn’t it be interesting to see our students take a turn toward understanding “operating folks who know how to run companies…”

It probably also suggests a big increase in demand for executive education, as those private equity firms need their management cadres brought up to date on the latest thinking – fast. 

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