Lessons Learned from Conglomerates in the Private Capital Era

– Global private capital firms are adopting strategies similar to corporate conglomerates, consolidating market power and diversifying economic risks.
– Private equity firms are building product lines that are adjacent to their traditional buyout activities, creating financial conglomerates.
– The corporate conglomerate model in the past led to failure due to the challenges of managing complex businesses and the lack of strategic coherence.
– Conglomerates often sought economies of scope without the necessary expertise, resulting in decreased value.
– Private capital firms aim to achieve both horizontal cohesion and vertical integration, but conglomeration is not an efficient way to reduce investment risk.
– Financial conglomerates benefit senior management at the expense of investors, often resulting in agency problems and questionable market practices.
– Private capital firms have legal separation between portfolio assets and fund management partnerships, reducing liability and offloading costs onto limited partners.
– Private capital firms are unlikely to meet the same fate as corporate conglomerates unless a better alternative emerges.