Lessons from Private Equity Research

A few days ago I wrote about a meeting that I missed on my way back from the Nigerian Embassy in London. The meeting was with an ambassador at One Young World, she's part of a team at #NSFMNextGen who are doing an interview about me for their Impact Influencer Series.

As part of the interview, I tried my best not to mention Mr Schwarzman and his perceived "flaw" in the Private Equity research recently released by Harvard Business School. The fact is, PE creates a net job loss. I wrote about this ages ago on my previous blog, which somehow I have managed to delete from the web.

Here's a link to the research - Schwarzman, being interviewed by Pitchbook, seems to think that a flaw exists in the average time length of a Private Equity deal, which he believes is not two years.

Schwarzman: "The average life of a private equity deal isn't two years. And the reason is that in two years, you haven't established enough growth, because just reducing people count does not add a lot of value. You always get a company that has more jobs at the end of five years than you started with after the first year or two, because that's how you make money."

It's phenomenal how many PE fund transactions were actually used for this research model, over 9,500 buyouts. What does it tell us about jobs and recruitment in tech? It tells us that a potential exit for a modern tech firm leads provisionally to tighter spend on salaries and more accurately, a 4.4% job loss ratio. The caveat is that this effect is only resonant in publicly listed companies, private limited companies demonstrate a 15% lift in jobs after a two year PE transition.

Sounds logical, right?