The billionaire factory

Jack Jeffrey interviews Hettie O'Brien about private equity in the UK

In The Asset Class (2026), Hettie O’Brien charts how private equity (PE) became one of the most powerful forces reshaping our economies. In this conversation, she discusses the intellectual origins of the leveraged buyout, why Britain became PE’s experimental laboratory, the mortgaged futures of companies like Thames Water, the push to ‘democratise’ private markets through pension savings, and what alternatives might look like.

Note: The title of this post comes from a 2020 paper, An Inconvenient Fact: Private Equity Returns & The Billionaire Factory, by Ludovic Phalippou at the University of Oxford’s Said Business School.

Jack Jeffrey (JJ): In the introduction to The Asset Class, you reference Richard Hofstadter’s essay The Paranoid Style in American Politics (1964). In that he describes the paranoid style as “a style of mind that is far from new and not necessarily right wing... no other word adequately evokes the sense of heated exaggeration, suspiciousness and conspiratorial fantasy that I have in mind.” As you write in the book, there has been a lot of interest in private equity from the MAGA right, which portrays the industry as a conspiratorial plot to dispossess Americans of their assets. But as you also outline, PE has fundamentally transformed countries and not for the better. I’m interested in how you negotiated that tension between conspiratorial paranoia and justified suspicion when researching the book?

Hettie O’Brien (HOB): It’s something I frankly struggled with. I found it epistemologically challenging to figure out what I thought about arguments coming from a political perspective that I find pretty loathsome. But spending time on online forums, watching YouTube videos, listening to MAGA discourse about private equity, there were aspects of what they were saying that were true, even if the facts were often wrong.

There was a MAGA-adjacent influencer who had a particular line about how the industry had invested in “the things we cared about most [...] the things you will pay for, no matter what”. When I first heard that, I thought it was too convenient and simple as a narrative. But actually, it’s true. The motivations behind PE aren’t necessarily conspiratorial. They have to do with a confluence of different economic factors and trends. The low interest rate, post-2008 climate, prodigious access to debt, the retreat of the state, the sell-off of public assets. Taken individually, there is no Bond villain stroking a white cat in a secret room designing all of this. The reasons are largely economic. But the result can look and feel like a conspiracy because PE is so powerful.

I initially felt this had all the hallmarks of a great conspiracy story. But as a journalist, I care about being accurate and faithfully representing reality. I think anyone with a vested interest in the idea that truth corresponds to some shared factual reality tends to struggle with the idea of conspiracy because it seems so premodern and inattentive to those facts. There’s that Naomi Klein line I quote in the book: “conspiracy culture gets the facts wrong, but the feeling is right.” In much the same way, I don’t think it’s paranoid to want to resist PE. People are justified in feeling that things are unfair, and that this industry plays an outsized role in shaping everyday life. That makes it incumbent on people who want to tell the truth to both uncover what is happening and for politicians to make a case that it needs to change.

JJ: One of the things the book does really well is lay out the intellectual scaffolding of the PE model which, as you say, was a response to the perceived problems of managerial capitalism. That was really clarifying. But I’m interested in where you locate the failure. Is it in the ideas themselves, their selective application, or the post-2008 political conditions that have allowed private equity to colonise specific sectors?

HOB: I kept asking myself this while writing the book. Is the government to blame, or a series of pernicious academic ideas? I think it’s both. There were real policy failures and missed opportunities, such as the decision, in Britain, not to borrow when money was really cheap after the financial crisis and instead to embrace a devastating programme of austerity. That has meant that British people now live with both an immiserated public realm and a generalised acceptance of the idea that the government can’t afford things that would improve peoples’ lives, and instead needs private capital to do the things the state won’t. That’s a political failure, both of action and inaction.

But I also think ideas are important. I was interested in the origin story – partly the hangover from the post-war corporate consensus in America, the idea of managerial capitalism, and the pushback mounted by a renegade group of financiers against the Chandler idea¹ of what a corporation is supposed to be about. And when you drill down into the actual mechanics of PE, the central technique is the leveraged buyout. There was always this idea that in heaping debt upon companies you’d make them leaner, meaner, more efficient. But there was never really any empirical evidence cited for that.

I look at the work of Michael Jensen², who wrote papers on both the principal agent problem - the idea that public corporations had an intrinsic issue with managers rather than owners being in charge and therefore not producing enough value for shareholders – and a follow-up paper³ suggesting that debt was a way to resolve this tension. If you heap debt upon a company, it would force managers to take decisions resulting in more efficient companies. Yet again, he cited no empirical evidence. Whilst in the first wave of leveraged buyouts in the 1980s you could argue it worked to some extent, from the 1990s onwards, what PE has really contributed to is a sustained increase in leverage.

That raises the question of who benefits. It looks like a form of legalised arbitrage where a small group of financial insiders use the corporate form to borrow in order to enrich themselves, rather than doing what postwar corporations did which was borrow to build things, to expand, to do capital-intensive productive things (I’m not idealising here about midcentury corporations, or public companies - Enron was a public company, after all). Instead, you see an abuse of the corporate form: borrowing to enrich the owners rather than improve the company, and rerouting money away from the taxman through interest deductibility.

JJ: Just to follow up on whether PE is context specific. To what extent was the austerity decade of the 2010s a pivotal moment in this story? And now that those conditions have disappeared, i.e. that interest rates have ticked up, will PE be as pernicious and dominant as it has been?

HOB: This can look like a post-2008 phenomenon – catapulted by extremely low interest rates, quantitative easing, specific opportunities that emerged particularly in land and property. When the real estate bubbles popped in America and Spain, for example, there were opportunities to buy up housing, which is how thousands of people who had never previously heard of Blackstone first learned about the firm. But in reality the story goes back much further than this.

Britain specifically was almost like an experimental laboratory for PE; as Sadek Wahba, the founder of an infrastructure investment fund, put it in his book, Build: Investing in America’s Infrastructure, the UK has served as "a model to the world" in terms of infrastructure privatisation⁴. That has to do with the sale of public assets at an aggressive pace. Speaking to people who used to work at Macquarie - the Australian investment bank and infrastructure fund manager that began as the Australian subsidiary of British merchant bank Hill Samuel - there was a sense that when those Australians were sent back to Britain to buy up assets from sleepy local councils, Britain had created an incredible opportunity for PE’s encroachment into public services. That goes back to Thatcherism and its tail end, and then to PFI (the Private Finance Initiative), which started under John Major but became a hallmark of the New Labour era.

And if you want to go back even further, PE can really be read as a reaction against the social democratic and corporate consensus that emerged in the New Deal era in the US. It was an attempt to restore power to company owners and resembled an attempt to take the economy back to something resembling what it looked like during the Gilded Age, before Roosevelt regulated Wall Street and before the SEC (the US Securities and Exchange Commission) was created. There’s a brilliant line I quote from Henry R. Kravis: “Where have the Carnegies and the Mellons and the Rockefellers gone?” So yes, it took off post-2008 on one level, but on another it’s part of something much bigger – the dismantling of the twentieth century compact between social democracy and capitalism, and the concentration of power, decision-making and wealth among a small group of financial insiders.

As for whether it will continue. I started out thinking the wheels were falling off. PE took $1.5 trillion more from its investors than it generated in returns between 2017 and 2023. When you account for the steep fees charged, there’s a good argument that private markets have not really managed to outperform the stock market. And funds are sitting on companies they’re struggling to exit, resorting to Byzantine instruments like net asset value loans and payment-in-kind loans.

But I think that assuming this will have some existential bearing on the fortunes of PE is a little optimistic. The success of PE has less to do with actually generating returns than with its closeness to government and its ability to manufacture consent amongst its investors. For a long time, institutional investors such as pension funds were happy to pay proportionally more for private equity because having money locked up in private markets buffers you from the ups and downs of the stock market. And now there is an attempt to push further into the finances of everyday people through pension savings. The industry’s ability to access new pools of capital is largely determined by its political relationships. Both in the UK and US, governments are making the argument that more of our retirement savings should go into private markets – an argument very favourable to the industry. That’s ultimately why, even though the wheels look to be falling off in some respects, the success of the industry arguably has more to do with accessing new inflows of capital than with value creation.

JJ: The book focuses a lot on the US, but Britain is unusual, as you reference, in being a kind of experimental laboratory for PE. It has an unusually permissive takeover regime. Successive governments have refused to introduce public interest tests that are commonplace in other countries, which means that UK companies and infrastructure are perpetually available for acquisition. Why has that been so politically durable across governments?

HOB: I’m reluctant to reduce this to American PE funds preying on British assets, because I think it’s more complex. PE is an American invention in an important sense. It would have been impossible to imagine it emerging as it did outside the context of 1970s America. But now the model has been copied and mimicked by everyone from sovereign wealth funds to pension funds. As I put it in the book: one country’s pension provider is another country’s financial predator.

There are specific reasons why Britain has remained attractive. You’re right that there is a very permissive takeover regime. When I was a reporter covering competition policy it frustrated me enormously that a public interest test would be applied far more readily in France than in Britain, where its scope has been narrowly restricted. You can see this more broadly in how the Monopolies Commission (1973) quietly removed the word ‘monopoly’, arriving eventually at the Competition and Markets Authority (2013). Britain has really adopted the legal and economic principles born in America, which shifted competition law from intervening to protect genuine competition against entrenched power, to seeing law as a tool for insulating markets from democracy. That’s a missed opportunity, though there have been exceptions. And yet alongside that sits this narrative that a lighter touch on competition enforcement will boost economic growth – a completely credulous view that plays to the interests of entrenched power.

Another factor is that there are a lot of undervalued companies that have struggled to access capital because of a declining stock market and the drift away from any sense that pension funds ought to invest in UK equities⁵. That has left many companies either listing elsewhere or being snapped up and taken private. Ensuring companies can access capital to invest in productive activity would make them less undervalued and less attractive to buyout. It’s more complex than simply a vassal state story, though I agree with aspects of that framing.

JJ: I want to talk about the significance of debt. PE borrows to acquire, it loads debt onto companies, and those companies’ future earnings service that debt. What’s the significance of that process?

HOB: When you look at a company like Thames Water, we’re now living in that future that was mortgaged. The company is effectively insolvent because of all the debt taken out not to invest in productive capacity but to enrich a small group of shareholders and financiers. It raises very difficult questions about who deals with the problems that creates, because it becomes extremely expensive to untangle an asset from all those claims on its future.

It’s highly political. There’s a brilliant paper by Carolyn Sissoko⁶ that traces this really effectively - the way this uses a company’s debt-servicing capacity with no bearing on the broader benefit to society, and how different that is from what the managerial corporations of the postwar era were doing when they raised money to reinvest in the corporation itself. It amounts to a gigantic wealth transfer. Which is why the financial academic Ludovic Phalippou rightly calls PE a “billionaire factory”.

JJ: Circling back a bit, I wanted to ask about the push to direct pension savings into PE funds. The industry frames this as broadening access to returns, but it’s also an attempt to neutralise opposition by converting critics into participants. The parallel with Right to Buy comes to mind, and the way Thatcher converted renters and working-class people into a political project through council house sales. ‘Democratising’ PE seems to be doing something similar, i.e. converting workers into notional co-investors and making the political question of who owns what, and on what terms, harder to define. Is that too cynical?

HOB: When I hear the word ‘democratisation’ used in this context, it almost invariably refers to something that has nothing to do with democracy. It’s a fancy way of saying a group of people have found a new way of harvesting an even greater share of society’s wealth for themselves. The effect is also like buying an insurance policy for the industry itself. The more entwined you are with the finances of a nation, the more likely you are to be afforded a bailout if something bad should happen. So no, I don’t think it’s too cynical. The intention might not be to modify opposition, but the effect is to create coalitions that are difficult to untangle, at least rhetorically. You hear it constantly: you can’t do this, because what about people’s pensions?

If you drill into the actual numbers, the returns from PE really aren’t as good as they’re cracked up to be. Despite this, pension funds historically kept queuing up to invest. I think there are a few factors to explain this. Some pension funds are now asking questions and putting pressure on PE firms to release them from various agreements. But there’s also a set of behavioural biases at work. It’s more fun to invest in PE - as an investor in a PE fund, you hear about all these different companies and industries you’re ostensibly helping to improve; you get wined and dined at swanky conferences; and you can tell your investment committee things went really well, because you never have to take markdowns on assets that aren’t listed and therefore never really subjected to a market test. Those factors combine to produce a kind of behavioural failure at the level of individual incentives.

JJ: Is there any realistic alternative to PE? The story of what’s happened in Manchester is exciting, but it’s more complicated than just nationalising buses - and think tanks like Common Wealth have done valuable work proposing solutions. But I’m more interested in the transition. How do we get from where we are to something different? You can’t simply say you don’t like PE if PE is the only vehicle capable of mobilising capital at scale.

HOB: The sectors that PE has found its way into in the UK have explosive political potential to mobilise people, e.g. water, housing, care. These are things that people really care about regardless of their politics, things they depend on in everyday life. Not just thinking about PE specifically, but more generally: how do you build a progressive politics aimed at improving people’s lives? It starts with public services at the level that people experience them, and thinking about genuine affordability. There’s a book called When Nothing Works⁷ that looks at the portion of household income spent on services that are being massively commodified and therefore increasingly expensive, really exacerbating the cost-of-living crisis. I think that’s a good starting point - not just for resolving the issues I document in the book, but for more generally thinking about how you improve people’s lives and build a politics of progress and hope.

There are also more technical questions to do with law. There are a set of questions about limited liability, and about whether a PE fund should be held responsible for the debts it loads onto other companies, though that would be difficult to administer specifically around PE. But there are important questions to ask about the way this industry is a form of legal arbitrage that looks for loopholes and exploits them.

What I think is inadequate is to segment off one aspect of these problems as just being about PE, because what I write about in the book touches on a much bigger political failure and a broader set of issues around the model that has brought us to a point of public austerity on the one hand and private extravagance on the other. You need a politics much more concerned with holistic questions of improving people’s lives.

It’s about making people active participants in that project rather than passive recipients of things done to them. I wrote about Becky Malby, an organiser in Yorkshire who led an incredible campaign to hold the environmental regulator in the water system to account. She told me that you have to find ways for people to be “active participants in their future,” not just tell them stuff and dictate to them. I think that’s really important. And there is so much explosive potential there, given the public anger around the depletion and expense of basic services in Britain.

1. Alfred D. Chandler Jr (1918-2007) argued that large, professionally managed corporations run by salaried managers rather than owners were the natural and superior form of business organisation

2. Michael Jensen, and William Meckling (1976), Theory of the firm: Managerial behavior, agency costs and ownership structure in Journal of Financial Economics, Vol.3, No.1

3. Michael Jensen (1986), Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers in The American Economic Review, Vol.76. no.2

4. Sadek Wahba (2024), Build: Investing in America’s Infrastructure, Georgetown University Press

5. See Will Hutton’s recent essay for the Fairness Foundation, Escaping The State We’re In

6. Carolyn Sissko (2023), ’Private’ Equity Is a Misnomer: Government Support Has Been Driving the Restructuring of US Corporate Structure and the Transfer of Wealth to Buyout Firms Over the Past 40 Years

7. Luca Calafati, Julie Froud, Colin Haslam, Sukhdev Johal, and Karel Williams (2023), When Nothing Works: From Cost of Living to Foundational Liveability, Manchester University Press