No, private equity didn’t ruin Britain – it’s helping rebuild it

If you read some corners of the media, you’d be forgiven for thinking views on the private equity industry were informed entirely by a binge-watch of 1980s movies of corporate raiders and asset strippers.

What nobody seems to ask themselves when writing those pieces is – how does this industry supposedly make such strong returns for investors without growing value in the businesses it invests in? 

Of course, in reality the answer is that their version of the story just doesn’t add up. 

So, what is the private equity business model?

Fundamentally, private equity makes long-term investments to grow British businesses and build a better economy. 

Businesses backed by the wider private capital industry, which also includes venture capital, number 13,000 across the UK, nine in 10 of which are small or medium-sized enterprises. Businesses backed by the industry employ 2.5 million people across the UK and contribute 7% to GDP.

In 2024, £29.4bn was invested by private capital into UK businesses. This includes companies in every sector, across every part of the country, with six in ten (58%) of the businesses backed in 2024 located outside of the capital.

These investments are long term, with an average investment period of six years, in contrast to less than a year in public markets. And analysis shows that private capital’s active ownership model helps the businesses it backs become more productive. Indeed, the businesses backed by private equity are more productive than the wider population too, which could learn from PE’s approach. Unlike listed companies with thousands of shareholders, private equity firms work closely with company leadership to create value. This means faster decisions, tighter alignment and a focus on long-term improvements across everything from sales to supply chains. Even after a firm exits, these gains are built to last.

You can see the result of this in how private equity ownership has reinvigorated and grown British business success stories, like that of Visma, which through investment and acquisitions is now valued at around $19 billion. It has also supported the expansion and success of well-known brands like Medik8, Hawksmoor and Tangle Teezer. 

It has been key to backing innovative British businesses developing sustainable solutions to the challenge of net zero and climate, and will be an important part of defence investment. In fact, the Strategic Defence and Security Review highlighted the private capital industry’s experience of investing in innovation and growth, indicating that the industry can play an important role in supporting the Government’s efforts to build up security capacity in the UK. In supporting businesses in these sectors, investment by the industry is critical to the future success of the economy.

And it is ready to invest more: UK-based private capital specialists have raised £190bn of funds, known as dry powder, that is expected to be invested over the next three to five years. 

Given all of this, it was extremely disappointing to see a leading periodical claim that private equity bears responsibility for ‘ruining Britain’, ascribing recent challenges in the water sector to the private equity industry.

Clearly, any journalist is entitled to scrutinise different investment models, but it is important that they are clear about the terms and what different models mean. In this particular case, the journalist has applied the label ‘private equity’ to a series of companies and investments which most knowledgeable professionals would not consider to be private equity.

The recent Independent Water Commission final report made clear that there are a wide variety of different investors in English water companies, including pension funds, sovereign wealth funds, global infrastructure conglomerates, asset managers and insurance companies. In fact, according to our own analysis, we have not found a single water company majority-owned by a private equity fund.

Claims that the industry routinely cuts headcounts in businesses it owns are also wide of the mark. Independent research into the portfolio companies of the UK’s largest buyout funds shows that over the past 10 years, year-on-year organic employment growth is higher than the comparator for the ONS private sector benchmark. What is more, private equity’s investment in employees typically increases both year-on-year and over the duration of private equity ownership.

The UK has never been particularly good at shouting about its success stories, but the growth of the private equity industry has been one of them. As a country, it’s important that we are seen to welcome rather than discourage the increased investment and potential this industry brings to the UK. International investment will continue to flow across borders – so let’s build on Britain’s success and make sure it flows here, rather than to our competitors. 

In the global race for investment, sentiment matters. Investors do read the news, after all.

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