Part I. The Private-Equity Explosion
Leveraged buyouts barely existed in the 1970s. In 1976, investors had put less than $1 billion into them. Venture capital was at least four times bigger. By the 1990s, buyout funds held $150 billion. In 2019, the total reached $1.4 trillion invested, three times larger than the total for venture capital.
In 1984, Time magazine reported breathlessly that, “last year there were 36 [leveraged buyouts] worth $7 billion, compared with only 16 in 1979.” In 2020, there were close to 3,000 deals worth almost $600 billion. While this represented a decade of extraordinary growth, the total was still lower than its level in 2007, when the last financial crisis struck and the industry contracted sharply.
Companies owned by PE firms now account for about 5% of U.S. GDP and employ nearly 9 million people, a workforce many times larger than the federal government or the active-duty U.S. military, or even the entire construction sector.
The PE firms that make and manage these acquisitions are the most popular landing spots for graduates of the most prestigious business schools. In 2020, more than one-third of the graduating classes at both Harvard and Stanford entered the finance industry and in both cases PE was the top destination therein.