"Private Equity Gets Back To Basics" by Brian Rich

Private equity’s success caused its demise.

December 14, 2009, Forbes.com – - From 2004 to 2007, private equity was one of the top performing asset classes, with average annual returns of 24.1%, according to data compiled by Cambridge Associates. Sometimes success breeds its own demise. As has been well documented elsewhere, a large part of the gains made during those years were the result of innovations in the debt capital markets that enabled the application of higher-than-normal financial leverage. High leverage driven by easy money leads to increased valuation multiples. Increased valuation multiples on top of high leverage leads to strong returns, which draw more money to the asset class, and so on.

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