Book Review: Jason Kelly's The New Tycoons

by: David Merkel, CFA

Private equity is ill-understood by the general public because it is private. They don't have to file statements with the SEC, all they have to do is inform their limited partners on how they are doing.

Jason Kelly gives us a neutral view of what is going on in private equity. I think he is neutral, because he does not come across as a fan or a critic. Personally, I think that is hard to do with private equity, because 1) it is easy for some to become amazed at the success of some incredibly wealthy and clever businessmen, or 2) it is easy to take offense at these shadowy capitalists that have produced bankruptcies, fired many people, and have been very clever at using the tax code to pay minimal taxes.

Both of these views are caricatures and the truth does not lie in-between but embraces both views. Indeed, in many cases, jobs have been preserved or created through private ownership of firms. Many firms might have died without private equity restructuring the company, leading to the loss of all jobs.

Jason Kelly takes you through all aspects of private equity:

  • Fundraising

  • Leverage

  • Deal-making

  • Operations

  • Exiting (Selling)

He also introduces you to all of the major private equity shops, and their leadership.

One thing the author highlights in the book is the pervasiveness of private equity. He notes how many businesses are managed by private equity. In general, these are businesses with steady cash flows that can service the debt that the private equity funds borrowed to buy them.

Some private equity firms are passive, and don't try to improve operations. Others make a great effort to grow the companies, hiring new people in the process, and taking risks to create a better company. It depends on the philosophy of the private equity owners.

The book does note the favored tax status of carried interest, but takes the position that the private equity investors are following the law, and that they will follow the law should it be changed. (My simple idea is that interest should not be taxed, or be a tax deduction.)

The book does note trends:

  • Private equity is becoming more public, as more large private equity firms go public.

  • Complexity inside private equity firms is growing as they broaden the scope of services that they provide.

  • The owner/founders are moving on, and a new generation of management is taking the reins.

  • Returns may be falling as private equity gets larger.

In all, a good book, but one that may leave partisans unsatisfied. It does not demonize or engage in hagiography.



Who would benefit from this book: Anyone wanting to learn about private equity would benefit from this book. If you want to, you can buy it here: The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything (Bloomberg).

Full disclosure: The author's PR Flack sent me a preprint and a copy of the book.

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