![](\"https:\/\/blogger.googleusercontent.com\/img\/b\/R29vZ2xl\/AVvXsEiCqC0L0iPS9waGdWpUPJhK_og_PK3xA945BRK7WBiVqDqQ23wcx1apxQfSQYJoWBfXao0rCsS3SNX2OdG287WqkXbpwxrKbIMs31wP5XODiCl-gc1mIzP2GIXcOeZGRxbNgCAcO-o2jb9hr0pemZv5uJLevudFnV1wO74-3DR7YrNQjBatt25JSMivfL9p\/s5712\/LSE%20private%20equity.jpg\")
<\/a><\/div>\nI\u2019m a big fan of Scandinavian thrillers, especially the original The Girl with the Dragon Tattoo. So when I walked into the auditorium at the London School of Economics, I had the strange feeling I was looking down at three lead actors from a Nordic noir drama.<\/span><\/p>\n The speakers were\u00a0Ulf Axelson<\/strong>, Professor of Finance and Private Equity at LSE;\u00a0Per Str\u00f6mberg<\/strong>, Professor of Finance at Stockholm School of Economics and LSE; and\u00a0Kurt Bj\u00f6rklund<\/strong>, Founder and Executive Chairman of Permira<\/span><\/a>, with roughly $50bn under management.<\/span><\/p>\n What followed was one of the clearest, data-driven explanations I\u2019ve heard of\u00a0why private equity (PE) ownership so often outperforms public equity, and where its limits lie<\/strong>.<\/span><\/p>\n Why Private Equity Outperforms: Start with the Data<\/span><\/b><\/p>\n The first half of the lecture was led by Per Str\u00f6mberg and focused squarely on the evidence. Rather than starting with anecdotes or ideology, he began with productivity data across countries and firms.<\/span><\/p>\n In Germany, for example, fewer than 1% of firms accounted for roughly 65% of positive productivity growth over the period studied<\/b>. Most firms contribute little. Some actively destroy value.<\/span><\/p>\n This matters because private equity does not rely on averages. Its entire model is built around identifying, creating, and scaling outliers.<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 Str\u00f6mberg argued that the performance gap between PE-owned and publicly listed companies is not primarily due to regulatory arbitrage or tax advantages, though those exist at the margin.<\/span><\/p>\n The core driver is\u00a0active ownership<\/strong>.<\/span><\/p>\n Drawing on both academic literature and operating evidence, PE value creation can be grouped into three broad mechanisms:<\/span><\/p>\n PE owners are not distant shareholders. They:<\/span><\/p>\n This sharply reduces classic agency problems between owners and executives.<\/span><\/p>\n During my MBA at Northeastern,\u00a0one of my finance professors<\/span><\/a>\u00a0specialised in corporate governance, and I conducted research on shareholder activism. One theme emerged repeatedly:\u00a0public-company executives often optimise for personal incentives that diverge from shareholder value<\/strong>.<\/span><\/p>\n Below: PE-owned companies are rigorous in selecting customers that add value<\/span><\/b><\/p>\n PE ownership compresses that gap. In the same way that active shareholders hold senior leadership to account, Private Equity owners can step in to ensure the company is run as efficiently as possible.\u00a0<\/span><\/p>\n Per explained that the productivity and efficiency gains of Private Equity ownership (according to him, 2-3% higher than Public Equity, according to Kurt, head of a PE firm, it is closer to 6-7% higher), can be divided into three key categories:<\/span><\/p>\n Three types of engineering\/tools<\/span><\/b><\/p>\n 1. Governance engineering \u2013 being an active owner of the company<\/span><\/p>\n 2 . Financial engineering \u2013 reduce cost of capital\u00a0<\/span><\/p>\n 3. Become sector experts \u2013 can leverage networks to assist management<\/span><\/p>\n Well, that begs the question \u2013 why don\u2019t other companies copy the behaviour of PE companies, to improve their performance?<\/span><\/p>\n According to Str\u00f6mberg, this opens a \u201ccan of worms\u201d.<\/span><\/p>\n <\/p>\n First, PE performance may not be indefinitely sustainable. Funds have finite holding periods, typically six to seven years. Active ownership delivers diminishing returns once the biggest inefficiencies are removed.<\/p>\n However, within that limited time frame, PE seems to be doing better than ever. Exit value experienced a rebound in 2025<\/span><\/a>, increasing 41 per cent to $1.3 trillion, the second-highest year on record.\u00a0<\/p>\n <\/span><\/p>\n Second, PE capital is more expensive. While leverage can be cheaper than equity,\u00a0the cost of financial distress rises sharply<\/strong>\u00a0as leverage increases.<\/span><\/p>\n PE is not a universal solvent. It is a\u00a0precision tool<\/strong>, effective under specific conditions.<\/span><\/p>\n<\/div>\n The second half of the session (unrecorded) shifted from data to practice. Kurt Bj\u00f6rklund<\/span><\/a> described himself not as a financier, but as a\u00a0\u201cfinancial entrepreneur\u201d\u00a0<\/strong>and “Sector disrupter<\/b>“.<\/span><\/span><\/p>\n His framing was revealing.<\/span><\/p>\n Public equity investors, he argued, suffer from\u00a0information asymmetry<\/strong>. Even large shareholders rely on periodic disclosures and carefully curated narratives.<\/span><\/p>\n PE ownership, by contrast, is built on\u00a0information abundance<\/strong>:<\/span><\/p>\n Bj\u00f6rklund was blunt: unlike asset managers such as BlackRock,\u00a0he cannot afford to be wrong<\/strong>. Every investment must succeed. That forces extraordinary diligence and relentless focus post-acquisition.<\/span><\/p>\n He also warned about classic PE pitfalls:<\/span><\/p>\n \u201cIn my business,\u201d he said, \u201conly the paranoid survive.\u201d<\/span><\/p>\n One of the most charged parts of the discussion came during the Q&A, where students (from the LSE, Imperial, Oxford, and Berkeley, USA) repeatedly asked about AI and job security. There were also several questions from analysts at various Private Equity firms.<\/span><\/p>\n Bj\u00f6rklund acknowledged the anxiety, but did little to soothe it.<\/span><\/p>\n He described investments in complex B2B businesses where\u00a0agentic AI, and improved automation have reduced headcount by orders of magnitude<\/strong>, particularly in areas such as KYC and compliance.<\/span><\/p>\n In one example, automation reduced a team from 5,000 people to 500, while increasing profitability. Many in the organisation were conducting relatively complex tasks, which could nevertheless be performed more effectively with AI and Automation.<\/span><\/p>\n Above – Top Target Universities (non-US) for Goldman Sachs. Source: Krugman Insights<\/span><\/a><\/p>\n His view was unsentimental: there will always be jobs for the very best, and the traditional path: An elite education, a top investment bank such as Goldman Sachs, and then a good Private Equity firm, remains viable. But the middle is being hollowed out.<\/span><\/p>\n Interestingly, he noted that\u00a0older employees often adopt AI more effectively than younger ones<\/strong>, attributing this to psychological barriers to AI in younger workers.\u00a0<\/span><\/p>\n Perhaps it’s also because you need deep experience in solving the problems, to ask AI the right questions? It’s very easy to generate ‘AI workslop<\/span><\/a>‘ that drives no insight, and diminishes your credibility in the organisation. And that is no doubt from whence that fear emanates.<\/span><\/p>\n<\/span><\/a><\/div>\n<\/span><\/a><\/div>\n<\/a><\/span><\/p>\nThe Mechanism: How PE Actually Creates Value<\/span><\/h2>\n
1. Governance engineering<\/span><\/h3>\n
\n
<\/span><\/a><\/div>\n<\/span><\/a><\/div>\n<\/span><\/a><\/div>\nAn Operator\u2019s Perspective: Kurt Bj\u00f6rklund of Permira<\/span><\/h2>\n
\n
<\/span><\/a><\/div>\n\n
<\/span><\/a><\/div>\nDisruption, People, and the Role of AI<\/span><\/h2>\n
<\/a><\/div>\n