How does private equity change the short-term mindset and enhance growth?
A. As a backdrop, it is important to understand one overarching truth about private equity: The entire investment hinges on improving the business and increasing its value. If the private equity firm fails to do that, it loses its own money, its investors lose their money, and its ability to raise future funds is undermined. The essence of private equity is the alignment of the interests and incentives of management with that of the owners. In a public company, the owners — shareholders — are largely separate from the management of a company. Private equity eliminates this disconnect. The owners often include the management (PE firms usually requirement management to invest their own money into the company so they have a vested interest in its success). This provides a sharper focus on how capital is allocated across the business — without the constant pressure of delivering quarterly results to public shareholders. Everyone has a single objective: Grow the company’s value. Thus, they
