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Book Review: The New Tycoons

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For Jason Kelly, “private equity by its nature and design, is secretive, a breathtakingly wealthy corner of the world.” Kelly is a writer at Bloomberg News, where he covers the global PE (private equity) industry. In his new book, The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything (Bloomberg) he uncovers hidden aspects of the field. Readers new to PE will find value in the book’s frontmatter, which includes a list of key organizations, individuals, and terms, and a chart illustrating the flow of money. Financial professionals will appreciate Kelly’s depictions of the major businesses and individuals and his coverage of trends and challenges.

The scope and impact of PE are not generally known, despite the fact that most of us come into contact with one or more of their financed companies every day. Assets in PE total an estimated $3 trillion. The owned companies employ 8.1 million people; in comparison, Walmart employs 2.2 million. If you visit the New York Public Library’s main branch, you will be in the Stephen A. Schwarzman building, renamed in honor of the Blackstone chairman and CEO who contributed $100 million towards the library’s expansion.

Kelly’s profiles of the large firms are lessons in the management of a financial business. In the crisis of 2008, none of these organizations suffered the catastrophic losses that many banks and brokerage firms faced. One reason for this is that the founders have tended to stay active in their firms and have invested most of their wealth in them. In 2007, Bill Conway, cofounder of The Carlyle Group, sent a letter to  employees urging them “not to get swept up in the euphoria of the deal heat surrounding them.” and told Carlyle’s companies to draw down their lines of credit.

The big PE organizations are particular in their recruitment, strive to create a common culture, and communicate management’s thinking to all parts of the business. They have successfully made the transition from small boutiques to large financial enterprises. This process involves creating succession plans. In recent years, the firms have stressed diversification and operational expertise — in a business that was once focused almost solely on financial engineering.

The book contains sound career advice. Kelly quotes Henry Kravis, cofounder of Kohlberg Kravis Roberts & Co., who advised young associates, “Be interesting. Be relevant.” Another of Kravis’ well-known maxims—“don’t congratulate us when we buy a company; congratulate us when we sell it”—points to the importance of having an exit plan. In a tough market, job seekers spend most of their effort on getting the offer rather than on coming out ahead in the end. David Rubenstein, another Carlyle cofounder, noted that of all the courses of study in business, there isn’t one on how to raise money. People who learn how to raise money rise the top and rarely worry about unemployment.

A job seeker recently asked me about trends in the financial services industry; my answer was to watch Blackstone. The firm has diversified into credit, hedge funds, real estate, restructuring, and advising. With an estimated “half a trillion dollars of dry powder” (committed, uninvested money) and a virtually unlimited amount of brain power, PE is an area to watch closely. The New Tycoons is a must-read for all in financial services.

–Bill Hayes

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