Private equity boosts growth, WEF study finds

Industries exposed to private equity activity are growing faster than the ones that are not, a study found, providing a boost for a sector struggling with public perception and a dearth of deals.

Production, value added and employment were all higher in industries where deals happened in the period between 1991 and 2007, the study by the World Economic Forum (WEF) showed.

“If structured appropriately, private equity is indeed a vital catalyst to sustained economic growth on a global basis,” Joncarlo Mark, portfolio manager at Calpers — the biggest U.S. public pension fund — said in a press release.

Cheap credit boosted the volume in private equity deals to a multiple of their previous average in 2006 and 2007, but the credit crisis put a halt to that. The WEF was confident however, that the findings in the study held.

“The study… included data over other cycles which makes me comfortable that we’ve identified a general trend although clearly the current downturn is different in scale to other cycles,” said Josh Lerner, who contributed to the study.

Buyout houses are grappling with illiquid debt markets and problems at many of their investment companies. At the same time, they are facing tighter regulation.

None of that is helping a widely held perception that they tend to shed jobs, strip assets and load companies full of debt, while adding little else to the economy.

But according to the report, the number of employees in industries with greater private equity activity, grew at an annual rate that is between 0.4 percent and 1 percent higher than other in industries.

And while average output growth was 6.2% in industries exposed to private equity over the period, it stood at 5.7% in those that were not.

Moreover, private equity backing did not cause an industry to be more volatile than others.

The third in a series of reports by the World Economic Forum to look at alternative investments, The Global Economic Impact of Private Equity Report 2010, examined the impact of private equity investments across 20 industries in 26 western countries over the period 1991-2007.