Private equity needs a rethink.
There are legendary stories of leaders who went into a private equity–owned business and came out with a personal oath to never step inside again. You might know one—you might be one of those people.
Yet the brush is too broad when it paints all of private equity as bad for culture, business, or humanity. It is a business model that serves an important role. When a business owner needs to sell—she can’t go public, her kids won’t buy it, and there are no other options—private equity is there.
Private equity creates opportunities, in counterintuitive ways.
The challenge facing private equity, as some are quick to share, is that the timeline from purchase to sell again is typically five years. Depending on the business, getting to fresh new growth might be challenging. So, it means cutting costs without impacting margins. Commonly articulated as: Do more with less and still make it feel like more to the customer.
In some ways, the private equity market resembles short sellers, keeping downward pressure on costs inside a business. One example: the large private equity firm 3G Capital, best known for its partnership with Berkshire Hathaway on the purchase and merger of Kraft Heinz in 2015. 3G has such an influential reputation for “3G-ing” the businesses they buy, other public companies reported “3G-ing” themselves to avoid being acquired. If you work at Nestle or General Mills, you might have experienced it.
This likely led to layoffs, closures, products cancelled, innovations forgotten, and a general dismay with the immediate future of the corporation. Yet the 3G perspective also provides some focus on what matters. Margins get more attention, and the organization can find a healthier path forward. This downward pressure on businesses as economic engines has certainly splashed back on private equity, like a bad aim at the urinal.
The scale of private equity has encompassed $7-9 trillion of total assets under management, globally. It has stretched into dental, medical products, pet care, hospital systems, plumbing, homes, construction, sports franchises, and many other categories. Some things seem to be working, but there are also cracks in the facade. Rising interest rates, declining funds raised by private equity in 2025, and a general distaste for the cultural style of business coming with a private equity shakedown are negatively impacting the model.
Now to four finer brush strokes of how we might look at private equity differently.
- The private capital sector’s short selling puts pressure on public companies. This is one healthy part of capitalism that most people really don’t like because they might have been part of a layoff at some point in their career. Yet it helps keep costs competitive, margins reasonable, and life affordable.
- The private equity model plays other important roles in the economy, helping bring back distressed ventures, taking a public company private, or inserting growth capital into a venture. As a living organism, a venture can’t live on capital alone; it needs direction and motivation to achieve something greater. When private equity brings more to the table, it can turn a declining venture into a positive outcome.
- Private equity must play a more expansive role in the future. Every venture runs into challenges along the journey, and sometimes a bit of tough love can help it get back to profitable growth. The easy path, outlined above, is cost cutting without impacting margin. The hard path is finding new growth opportunities and having the patience (and timetable) to let the growth materialize. This requires a culture change.
- A private equity–influenced industry, such as general contracting or skills trades, may see greater opportunities for those not under the thumb of private equity. Three years ago, Pete Bonfe watched 10 of 13 industry peers, all high-performing contracting companies, sell to private equity. Since then, Bonfe Heating and Electrical has seen growth because of the behaviors of private equity. If your competitors are all driving down cost and not improving the customer experience, there will be market opportunities to treat customers better.
As an adjacent concept, turnaround specialists in the UK are referred to as “company doctors.” Their role is equal to turnaround specialists here, but with a few translations—like “turnover” meaning “revenue.” As part of a metaphorical care team, financial engineers, who look at cost structures and margin leaks, are like doctors who focus on the body. And the “head doctors” look at culture, language, and motivations to consider the entire business organisation (spelling is a nod to the Brits).
Studying different types of work culture helps to identify conflicts. For example, a pet hospital system might foster an “enjoyment culture” (or, a fun workplace) at its individual locations, while the leadership team has a “growth culture.” Knowing these cultures improves messaging, morale, and trust among areas of the organization. Keeping the cost of translation low—in other words, having understanding of these multiple cultures throughout the business—can help to spread messages more effectively and efficiently.
The future of private equity can’t live on cost reduction alone. Cost reduction will peak as a category and start to decline because not all ventures need that side of the private-equity equation. The evolution of private equity will need to embrace the other side, which is less formulaic and can be a stretch for finance majors. It will be realized by those who can take this financial robot known as private equity and humanize it for the next century.