The 21st-century history of private equity is peppered with episodes of political ‘heat’. Even as it has become a larger, more institutionalised part of capital markets, political slings and arrows continue to fly in its direction.

My choice from the archives is an interview with Poul Nyrup Rasmussen, a former prime minister of Denmark and, at that point, president of the Party of European Socialists. Rasmussen saw the private equity industry as a bad economic actor and was a loud voice among the calls to regulate the sector. I was grateful to him for giving up his time to speak to a publication that clearly approached the sector from a different standpoint.

“A business model that relies on extracting value for the benefit of a few, as opposed to creating value for the benefit of many, cannot deliver efficiency at the macroeconomic level,” he told me. “A company is not a ‘bag of assets’ that can be dismantled for the sake of short-term returns.”

He expressed admiration for venture capital and was in favour of the idea of government support (both through regulation and funding) for VC investment: “Denmark has consistently had the highest level of venture capital investment in Europe for several years, and it is also one of the most competitive economies in the world, particularly in the high-tech sector. It’s not by chance.”

But leveraged buyouts were – to him – the source of “negative externalities not just for companies undergoing LBOs, but for society as a whole”. 

In his eyes, the behaviour of private equity firms had been a significant factor in bringing about the global financial crisis – a dubious opinion in my view: “The very reason why private equity firms are at the worst possible time today,” he said, “is because we lacked appropriate regulation prior to the crisis.”

I put it to him that in 2010 the market had moved on from debt-fuelled mega-buyouts; deals like the €13 billion take-private of Danish telephone operator TDC of 2006 were no longer on the table. Perhaps regulation was, at this point, unnecessary? 

“With the economic recovery, markets will rebound, cash will flow again, leverage ratios will increase, new bubbles will inflate, until it all collapses again and we undergo another massive crisis… unless we do something now,” he said. “It might be in two or in 10 years, but if we don’t change the rules of the game today, we will face the same problems tomorrow. We cannot simply accept that.”

The criticism levelled at the private equity industry continues to flare up with some regularity. Nine years later, Senator Elizabeth Warren would back a bill in the US designed to curb the activity of private equity firms, which she likened to “vampires”.  

More than a decade after this interview, however, the private equity industry has changed. LBOs like those we saw pre-GFC have not resurfaced, and growth capital forms a much larger part of the market. Private equity firms have also got used to life in a regulated industry, whether that is under the Alternative Investment Fund Managers Directive in Europe (Rasmussen’s preoccupation at the time of our speaking) or by the Securities and Exchange Commission in the US. It has also got better at communicating its industrial success stories. 

I often wonder whether Rasmussen views the industry in a different light today.

Toby Mitchenall is senior editor for ESG and sustainability at PEI Group and editor of affiliate title New Private Markets. He was editor of PEI until 2011 and senior editor, private equity between 2016 and 2020.