Q What's your opinion about the hoopla surrounding private equity?

A The controversy surrounding private equity (PE) today is similar to the clamour that accompanied leveraged buy-outs in the late 1980s. That says one thing: capitalism is working.

Private equity almost always creates thriving businesses. It makes a company's vision clear and its goals measurable. It tightly aligns goals with compensation systems. It creates an exciting ownership mentality, unleashing renewed passion from employees. And it does all those things fast.

We're often asked: "Why can't regular companies do the same?" Some do, but too many do not, and the reasons are myriad, including entrenched management, inertia, fear of change, and neglect, which is most often "imposed" on orphaned businesses.

Left to their own devices, too many companies also fail to install the kind of governance you find in PE firms. There, owners and managers have real skin in the game and they take the place of directors who fly in every other month to maintain the status quo.

That competitiveness has made some high-profile entrepreneurs very rich. But PE has also been responsible for widespread wealth creation.
And yet the debate continues to intensify. Whether or not tax legislation is passed, the PE cycle will play out because it thrives when businesses, underperforming for whatever reason, can be bought at attractive prices with low-cost money. Inevitably, though, those kind of deals start to dry up. And that's what happened last time around.