According to the industry’s trade body, about two and a half million people in the United Kingdom work for a firm owned by private equity. Many, if not most, likely do not realise this. Almost 10 per cent of all UK private-sector economic output in 2025 was generated by such companies. Many services once considered a part of the role of the state – from care homes for the elderly to nursery provision for the young – are now owned and operated by private equity companies. Does this matter? Is there really any difference between a large firm being owned by a relatively small number of private investors or it being listed on a publicly traded stock market? It matters a great deal, according to Hettie O’Brien in her excellent book, The Asset Class.
Private equity can be quite tricky to define. As O’Brien argues, the name itself is a form of camouflage because while it emphasises equity, the key to the business model has long been debt.
Equity and debt finance are the two main ways a business can fund its operations and expansion. Debt finance – borrowing money in the form of bank loans or bond issuance – allows owners to keep control of their firm, but it involves agreeing to both a repayment schedule and interest on the borrowed cash. Equity finance – such as selling shares in a public or private deal – allows firms to raise money that does not have to be repaid but, in return, involves giving up ownership of a proportion of their business and future profits. Both kinds of finance offer advantages and disadvantages, and the typical firm will employ a combination of both. The balance that is decided upon is referred to as the firm’s capital structure.
The capital structure is, as one might expect, something economists have studied a lot. In its purest form, the rather grandly entitled Modigliani-Miller theorem – named for the two Nobel Prize-winners who proposed it in the 1950s – states that, subject to a few assumptions, the overall value of a firm should be the same whatever mix of debt and equity is used to fund it. Merton Miller rather neatly compared a firm to a pizza; no matter how many slices it is cut into its overall size does not change. The capital structure, by this analogy, can divide up a firm’s cashflows between holders of debt and equity but it cannot change their overall value.
But like most economic theorems, the assumptions used matter a great deal. As Modigliani and Miller realised, the real world is more complicated. The basic version of their theorem assumed the existence of no taxes. In a world where corporations pay tax and where, in most jurisdictions, the interest paid on debt finance reduces taxable income, then suddenly a firm with more debt can be valued more highly.
This truth defines the key tool employed by private equity, the leveraged buyout, or LBO. This instrument is, in O’Brien’s words, both “counterintuitive and, frankly, outrageous”. A private equity fund will buy an existing firm using some of its own money (equity finance) and a much larger amount of borrowed cash, a standard ratio being around 20 per cent equity to 80 per cent debt. But – and this is the outrageous bit – the debt is then transferred to the company being bought. In effect, the target company goes into debt to fund its own purchase. Private equity bosses like to talk up their ability to manage acquired firms well, by improving its efficiency and stripping out unnecessary costs. But the real returns usually come from this financial engineering.
The 2010s were an excellent decade for private equity and LBOs. Global interest rates were at a historical low, making debt and borrowing cheap, while asset prices had a strong run. This allowed companies already bought to be flipped for solid profits. The 2020s are proving tougher. Higher borrowing costs and more volatile financial markets make for a very different environment.
If the “equity” part of the nomenclature is somewhat misleading, the “private” part at least contains some important truths. Firms whose shares are listed on a public stock exchange are subject to all sorts of disclosure requirements that private companies are exempt from. As O’Brien notes, the private equity-backed oil and gas producer Hilcorp Energy emitted 50 per cent more methane than publicly traded ExxonMobil despite producing much less fuel. Yet the US’s largest emitter of this greenhouse gas has largely escaped public scrutiny.
Further complicating the picture is the way acquired firms are usually held through a bewildering array of “Opcos” (operations companies), “Propcos” (property companies) and “Holdcos” (holding companies), often with different names. It is tricky to figure out who owns what. As one trade union organiser explained to O’Brien, a company can say “we haven’t got any money, we can only afford to pay people the minimum wage”, and the complex web of holding companies “makes it impossible for us to trace that money and disprove their arguments”.
It would be very easy to write a rather dry book on this phenomenon. But O’Brien’s work reads more like a thriller. At its heart it is a detective story, unravelling the growth of private equity ownership from the 1970s up to the present. This is also an angry book. Because while the financial engineering that underpins LBOs has offered large rewards to investors, it is those living in the real economy that have often carried the costs. O’Brien reports on the real-world consequences of over-indebted failing firms, declining employment rights and wages, job cuts and failing services. The Asset Class uncovers this pattern in institutions as varied as British care homes and global retailers to Danish housing and Kenyan hospitals.
Take, as an example, the English water industry. Reporting from Ilkley in the Yorkshire Dales, O’Brien notes that around one third of every household bill paid to Yorkshire Water goes towards serving the private equity-owned company’s debt bill or paying investors dividends. Meanwhile, between 2016 and 2021, the same company released sewage into rivers once every 18 minutes.
After several decades of financial engineering, the debt ratios of water companies in England have risen from 60 per cent to 80 per cent, but there has been very little actual engineering: no reservoirs have been completed since 1992. Some of the blame lies with the regulators who failed to scrutinise what was happening and the politicians who did not ask the right questions, but the end result has been well-renumerated asset managers making solid returns while ordinary billpayers lose out and the quality of service declines.
One major source of funds for private equity firms over the past couple of decades has been from sovereign wealth funds. In particular, the oil-rich nations of the Gulf. That raises all sorts of interesting questions. As one ex-US treasury official told O’Brien: “If one of your most influential business sectors is incredibly dependent on Saudi Arabian money, isn’t that relevant for public discussion?” Given that Donald Trump has appointed his son-in-law, who also happens to run private equity money, to handle complex negotiations – often with the very people who control sovereign wealth funds – it feels especially relevant in 2026.
The Asset Class traces the rise of private equity, its intellectual roots, how it changed from a relatively niche subfield of finance into a major part of the sector and, towards the end of the book, maps out some of its more recent problems. It might be that the years of mega-growth and seemingly easy profits are gone. The book has less to say on the closely related field of private credit – or non-public lending – which has involved many of the same players. The exponential growth in private credit over recent years is causing more than a few market jitters: funds are moving to block investor withdrawals amid fears over potential losses.
With global interest rates much higher than five or so years ago, a repeat of the private equity deal bonanza of the previous decade seems unlikely. But private equity is no longer the small sub-sector it was in the 1970s and 1980s. As O’Brien documents, this destructive financial model has spread throughout the economy and into the most seemingly unlikely of places. The Asset Class is an excellent starter for anyone seeking to understand how this happened and what it means. It is not, however, a calming read. It will leave many readers as furious as the author.
The Asset Class: How Private Equity Turned Capitalism Against Itself
Hettie O’Brien
Weidenfeld & Nicolson, 320pp, £25
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[Further reading: Meet the Angry Young Women]
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This article appears in the 15 Apr 2026 issue of the New Statesman, Angry Young Women
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