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Business schools have a symbiotic relationship with private equity. Colleges provide investment firms with access to young, energetic graduates, while connections to those firms raise school prestige and funds. Nobody at the career fair questions it.
Private equity controls roughly a fifth of all corporate equity in the United States. A PE firm raises money from investors: pension funds, university endowments and wealthy individuals, using it to then buy companies outright. Private equity typically purchases private firms which aren’t yet listed on the traditional stock market.
Other times, they will buy control of a publicly traded company and remove it from the stock market. The firm rarely pays for the company with its own money. Instead, it borrows most of the purchase price and puts that debt on the company it just bought, something known as a “leveraged buyout.” The acquired company pays interest on its new debt, plus annual fees to the firm that acquired it, regardless of whether the business is thriving.
Private equity uses every available tool to maximize resale value, not necessarily to run the business better. These strategies frequently use creative accounting to extract value without reinvesting anything. Private equity will have companies take out additional debt, just to pay themselves special dividend. Another popular practice is selling the land a store is built on to another subsidiary, then charging rent. PE firms can pocket both the value of the land and the rental fees.
Private equity is always hunting for new talent. Before students even graduate, firms view them as disposable resources to be recruited early, overworked and cycled out quickly. Once trained, private equity leverages those same students to acquire and dismantle other companies. Breaking businesses apart is the point. Business schools have a choice: teach students how to build something, or supply an industry built on “creative destruction.”
In recent years, private equity has gained an infamous reputation: whether from a headline about Blackstone purchasing single family homes, bankrupting hospitals or just ruthlessly cutting costs.
When private equity acquires a healthy, profitable business, the goal isn’t to make it better; it’s to make it run cheaper. Staff are cut, benefits trimmed and investments delayed. These cuts don’t have to be sustainable; they just have to attract potential buyers.
When private equity acquires a struggling business, the strategy flips. Instead of cutting costs, the firm extracts what’s still valuable: real estate, brand licensing and patents, while shutting down the rest. The company is only valuable as pieces to be sold off.
At their best, business schools give students the tools to build companies, employ communities, and innovate. But ask most freshmen why they enrolled, and they’ll simply say “the money.” 52% of business majors are studying finance or real estate, fields which specialize in buying, leveraging and reselling what already exists. Indiana University’s Kelley School of Business trains students to extract rather than create.
The industry has spent the last several years building recruiting pipelines straight into undergraduate campuses. The PE firm Kohlberg Kravis Roberts launched its first formal undergraduate analyst program in 2020. The acceptance rate for the program is around 2%, more selective than Ivy-league colleges. Firms aren’t waiting for students to come to them; they’re reaching into schools like Kelley to compete for inexperienced but talented students.
Recruiting timelines have shortened as well. Interviews for entry-level roles now regularly begin during a student’s sophomore year, well before most students have taken a single elective in the field they’re being asked to commit to. A 19-year-old, drawn in by the promise of financial security, is taken into a billion-dollar multinational firm, told that they are among the talented elite and asked to commit to a multi-year contract.
None of this happens without the school’s cooperation. Kelley steers students towards PE through investment focused career fairs, dedicated info sessions, and case competitions sponsored by recruiting firms. A student can walk from a private equity workshop to a networking event hosted by a firm which hires students to do exactly that. The school enables and encourages students to enter the PE pipeline.
Private equity firms should not be banned from campus, but a school that claims to teach students how to build businesses must act like it. That means giving the same institutional weight to the students trying to start new businesses as the ones trying to buy ones that already exist. It means asking whether giving firms direct access to 19-year-olds is preparing students for the workforce or leaving them open to exploitation.
Kelley can train students to build the businesses of the future, but that requires dismantling the PE pipeline it built.
Spencer Robinson (he/him) is a junior studying public policy analysis and law and public policy. His commentary can also be found on his Substack.
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