While the total percentage of private equity firms with formal ESG programs remains relatively modest, pressure from LPs promises to keep ESG issues on the radar of general partners. Patrick oversees all of the services that Deloitte provides to mutual fund, hedge fund, private equity and private wealth clients. Since the 1990s, the number of LPs seeking direct investments or co-investments or who dedicate capital to managed accounts customized just for them has increased dramatically. Deloitte refers to one or more of the companies Deloitte Touche Tohmatsu Limited, a private limited liability company (DTTL) in the United Kingdom, its network of member firms and its related entities.
In fact, companies often touted the benefits of private ownership and the long-term investment perspective that it entailed when they attracted public company executives. What is most disturbing is that Philipp Freise, co-director of European private equity at KKR, warned that the combination of the high prices paid by new acquisitions and the enormous debts generated by the industry is creating the risk that “the dot-com boom” will be combined with the financial crisis. Unlike the 1980s and 1990s, private equity firms today cannot live solely on financial engineering, despite an abundance of cheap credit. The industry seems to have made less progress in cultivating racial diversity in its workforce, although a small number of firms, including Carlyle and TPG, have helped establish programs aimed at attracting more minorities to private capital.
However, despite currency volatility and political and governance risks, private capital from emerging markets represents a growing proportion of investor portfolios. And, once it owns businesses, private capital has a history of worse working conditions, wage cuts, job losses that fall disproportionately on people of color, damage to the environment, business closures, and higher prices for consumers and small businesses. Private capital has become so enormous that, even in the context of the current boom in the mergers and acquisitions business of all kinds, it is becoming a dominant force. At their annual meeting in Berlin, known — without a trace of irony — as SuperReturn, the private equity magnates celebrated their expensive celebrations, with karaoke, five-course meals and a little surprising honesty.
While that is still the case at many firms, more women and people of color have overcome the glass ceiling of private equity leadership. The increase in this “shadow capital” is due to the fact that LPs, especially the larger ones, are increasingly focusing on the high costs associated with creating a large private equity portfolio with only mixed funds. The economy has improved considerably since then, and the emphasis of private capital on operational improvements and the use of operating partners remain a fixed element of the industry. Private equity has always focused on the important transaction, the big buying fund and, of course, the big payment.