Industries with private equity activity perform better and grow more rapidly than those without, a report has found.
A new report by the World Economic Forum brought together international academics to examine the impact of the private equity industry on the global economy. It analysed the impact of private equity on companies from 20 industries in 26 major OECD countries, between 1991 and 2007, looking at areas such as innovation, productivity, job creation and return on investment.
‘The Global Economic Impact of Private Equity report 2010’ found that industries where private equity funds had been active grew more rapidly than other sectors, in terms of total production, value added and employment. Industries with private equity activity experienced an average output growth of 6.2% compared with 5.7% in those without.
Furthermore, industries that had been exposed to private equity were found to be no more volatile in the face of industry cycles. For example, employee numbers in industries with greater private equity activity grew at an annual rate of between 0.4% and 1% higher than in other industries, appearing to contradict the widely held perception that investors strip assets and slash jobs.
“The World Economic Forum’s Working Papers provide new insight on the industry’s ecosystem and lay out tangible evidence that, if structured appropriately, private equity is indeed a vital catalyst to sustained economic growth on a global basis,” said Joncarlo Mark, portfolio manager at Calpers, the largest US public pension fund.
The report also found that moderate levels (some but less than 50%) of government venture capital support had a positive effect on the performance of young businesses, but warned that excessive levels could be “detrimental”.
© Crimson Business Ltd. 2009
