Editor's letter

Private equity triumphalists, of which there are many, believe that this industry will continue to expand because the very model of the private equity partnership is superior to other forms of investment and corporate governance. They believe that, market conditions be damned, private equity will continue to break through walls and disintermediate legacy groups, such that a financial reordering will occur with private equity on top. The bigger story is not that Goldman Sachs has become a major private equity player but that many major private equity players will become Goldman Sachs.

Certainly there is reason for those in the private equity industry today to suffer diminished self-confidence. The kind of deals that justified the supersizing of these firms have gone away, and the health of many deals done over the past two years is in question. But, transferring confidence from the nature of the deals to the nature of the model, it would appear that private equity has never been more successful. Large institutions are pouring capital into private partnerships targeting all kinds of strategies all over the world. They are attracted by the track records of established GPs, the largest of which can be found in this year's PEI 50 (see page 71). But these institutional investors are also sold on the private equity model, which tends toward control, high transparency between ownership and management, exit optionality, alignment of interests and long-term value creation.

Between April 2007, the first time we stacked up the PEI 50, and last month, when we went to press with the second list, the PEI 50 fundraising tally grew an astonishing $259 billion to $810 billion. Not all of this can be explained by larger fund sizes – our 50 firms now manage many more kinds of funds. Take the example of TPG – the firm seems to have pulled a Carlyle over the past couple of years. At press time it was raising its main private equity fund, an Asia fund, a financial services fund, a mid-market fund and (although outside the methodology of the PEI 50) a substantial distressed debt fund. Limited partners, gratified at the performance of past TPG private equity funds, want to follow the firm into other strategies. They like the private equity partnership approach to investing, and within that they like the TPG model, people and culture.

We think it's important to track the largest private equity firms in the world, because among these will be groups that create a new order for capitalism. While certainly the growth of private equity funds under management has been the main story of the PEI 50, it may be the activities that we didn't count that put an exclamation point on the significance of this list.

Enjoy the issue,

David Snowdavid.s@peimedia.com