NEW YORK (TheStreet) –- Most recent books about Goldman Sachs (GS), JPMorgan (JPM), Morgan Stanley (MS) and others published after the Great Recession did not provide any inspiring vision about their roles. A much older book, Merchants of Debt, about the history of Kohlberg Kravis Roberts, now KKR (KKR), is much more inspiring because it shows us that private equity firms provide very necessary functions.
This is the first of a two-part series that reviews both the positive and the negative features of what private equity brings to the free market. Private equity has grown in recent years and most likely will continue to do so. The current low interest rate environment favors equity investing with the debt financing of deals.
Overall, there are four main reasons why private equity firms are the best that capitalism has to offer.
1. Private equity enhances shareholder value
When a private equity firm buys a company, it offers a higher share price. The target company's management decides on the proposed deal in consultation with expert legal and financial advisers. No one is abused because the private equity firm is willing to pay more, based on its belief it can improve the management of the company and make a profit. The shareholders gain from a higher price, which is what being a publicly traded company is all about, for management, workers and those owning the stock.