Chicago Booth Management Conference panelists

Jeff Sciortino

Perspectives on Private Capital

Chicago Booth’s 71st annual Management Conference took place on May 3, 2024, at the Sheraton Grand Chicago Riverwalk and Gleacher Center in Chicago. The conference featured a lineup of influential business leaders and notable faculty and alumni who discussed topics ranging from inflation spirals to artificial intelligence to the future of asset management. More than 640 attendees came together to learn about, discuss, and debate some of the most pressing issues in business, in true Booth style.

Steve Kaplan moderated a panel, “Perspectives on Private Capital,” featuring leaders in private equity Blair Jacobson, ’99; Martin Nesbitt, ’89; Gregory Purcell, ’94; and Raymond Svider, ’89. Here is an edited excerpt from their discussion:

Steve Kaplan: Private equity barely existed 35 years ago, but that has changed markedly. Buyouts and private credit have both grown to where 10–15 percent of the US economy sits in PE-funded companies—which is part of the reason it gets so much attention.

There’s a lot of misinformation out there about performance, so to set the record straight: Buyout funds have beaten the S&P 500 over the past 25 years, net of fees, which helps explain why so much money has gone in to private equity.

What are some changes you’ve seen over the past decade?

Martin Nesbitt: PE version 1.0 was financial engineering, 2.0 was operating expertise, and 3.0 is: Do you have a real understanding of global economic and policy dynamics and how they affect these industries?

More capital has come in, creating competition and driving up prices. If you want to still meet your return objectives, you have to do something different. For us, that’s more insight—a better strategic and operating understanding of the industries we invest in—and using that insight to create value.

Raymond Svider: The biggest thing that’s changed is access to information. There’s more transparency. It dovetails with what Marty said—to create value, you need to know more. There is still asymmetry of information in today’s world despite the transparency, but you need to work a bit harder for it. In the 1980s, the way we were doing business was similar, with a focus on operational intensity—changing things—and strategy. But we were doing it with a base of information that was incredibly limited because that’s what was available.

Martin Nesbitt headshot

“PE version 1.0 was financial engineering, 2.0 was operating expertise, and 3.0 is: Do you have a real understanding of global economic and policy dynamics and how they affect these industries?”

— Martin Nesbitt

Gregory Purcell: Thirty years ago, it was primarily generalist PE. The game has radically changed since then. It has shifted from being about leverage to what it should be today: getting paid to execute big thoughts and ideas. The answer doesn’t lie in the analytics of the Excel spreadsheet. That day and age is over. You’d better be adding value to the companies that you own, and if you’re not, get out of the way.

Megacap PE will always be there—enjoying a 9 percent gross, 7 percent net internal rate of return—but that’s not our game. We play for alpha returns. And the only way that this can be driven is by the execution of big thoughts and ideas. I believe in informational asymmetry. We generally know a lot more than the generalists we’re competing against. So we have a pretty good predisposition about what we’re going to do with the company.

The world is too competitive just to aggregate smart people, invest capital, call it in, and hope it works out. You’d better be good at something very specific.

Blair Jacobson: When we started, nobody knew who we were or why they should get into a lending relationship with Ares. So there was a lot of market education and convincing to be done. One of the biggest developments is the acceptance of our asset class.

Not only are we the first call for most companies, advisors, and owners; we talk to more than 3,000 companies a year that want financing solutions from us. They’ve figured out that we can deliver a lot of value to the company and its stakeholders, helping them implement their own value-creation plans. The other big difference is when we raised our first European fund in 2007, it was really hard, because private credit didn’t exist in Europe. We had to get creative. But today, private credit is its own asset class for most sophisticated institutional investors. The broad acceptance of what we do has been absolutely critical to our growth and success.

Nesbitt: The people and the culture have also evolved as the industry has gotten increasingly competitive. At Vistria, sometimes we underwrite and we know, baseline, a strategy that will get a 2.5 times return, but we want 3.5, and we know our team will find that hidden door. Or we know what the downside is. But we really need to have a culture, a collaborative environment, a group of people that can work well together to find that hidden door. And that’s ultimately an important point of differentiation: How do we work together to find that incremental value proposition that ultimately makes the difference?

Gregory Purcell headshot

“The world is too competitive just to aggregate smart people, invest capital, call it in, and hope it works out. You’d better be good at something very specific.”

— Gregory Purcell

Kaplan: One interesting phenomenon is the growth of private credit. Blair, why are you (and Ares) doing this and not the banks?

Jacobson: What we do in terms of private credit is what banks used to do. There’s been a seismic shift in the market over the past 20 to 30 years. In many ways, we believe the banking sector is in secular decline, whereas private-capital providers such as ours are growing their market share.

The reasons are pretty simple. In the 1980s and ’90s, US banks consolidated, and in so doing, they stopped serving smaller and midsize businesses. The second thing that happened was the financial crisis. In Europe, a significant number of banks simply went out of business. The third factor is regulation. The Volcker rule, Dodd-Frank, the Basel regime, and other regulations made it more difficult and less profitable for banks to provide this type of finance to companies, so banks don’t want these assets on their balance sheets.

At Ares, we have nearly 200 bankers in the United States and almost 100 in Europe looking for loans. However, we don’t book them on bank balance sheets. We book them on behalf of pension plans, insurance companies, high-net-worth individuals, sovereign wealth funds, and others who are the new beneficiaries of these attractive loan assets.

Svider: In the lower midmarket or even in the midmarket, you don’t compete with banks anymore, but if you have scale, it’s a great business to be in.

A year ago, if you were looking to raise $1 billion, no US bank would give it to you because volatility made it difficult to price risk and consequently the syndicated market wasn’t there. The syndicated market for larger deals is back now. But if you need a $300 million loan, nobody’s interested. Why? Because it’s not liquid.

Blair Jacobson headshot

“Today, private credit is its own asset class for most sophisticated institutional investors. The broad acceptance of what we do has been absolutely critical to our growth and success.”

— Blair Jacobson

The reality is that most of the banking sector has largely run away from these types of deals, and private credit has taken over. And I’m talking about simple loans. At BC Partners, we do a lot of structured credit for the lower and middle markets, which requires a lot of work and does not fit in with the simple matrices of a bank. Typically, large institutions do not want to do it and don’t necessarily understand how.

We’ve seen the same thing in residential mortgages, where banks in many countries have largely exited the market. It’s not only in leveraged finance—it has been across the board. Companies still need financing, but when large actors exit the market, it creates an opportunity for others to enter.

Nesbitt: We have intellectual property around the dynamics in the industries where we invest. We uniquely understand the risk—better than a bank that’s lending across the entire landscape of the middle market. We can be more focused and more selective, underwrite more quickly, price it better, and be more attentive and responsive to borrowers. That gives us an edge. We can earn good risk-adjusted returns leveraging the IP we have in these spaces. Why wouldn’t we do that?

Purcell: At Arbor, we have a captive mezzanine fund, and it’s designed strictly for that last turn of leverage of patient capital. In 100 deals and something like $17 billion of deal value over my career, we’ve only retired 14 percent of the principal that we borrowed. So what are we doing with the capital? We’re reinvesting it in people and infrastructure. We’re leaving these companies with a little bit of leverage—not at a dangerous level: this isn’t six- or seven-times leverage, and we’re not doing a perpetual recap. That’s not our model. But we need a strip of interest-only patient capital that helps us get to the promised land. It’s a better alternative to hammering the traditional banking market for leverage that isn’t available.

Raymond Svider headshot

“The reality is that most of the banking sector has largely run away from these types of deals, and private credit has taken over.”

— Raymond Svider

Kaplan: How will private equity do in the future?

Svider: There’s been a shift of capital into PE from institutional investors worldwide over the past 30 years. The industry has delivered performance, and at the core of that is a better agency model. It’s aligned incentive. You have money on the line, and it is the level of information, the level of work, and the knowledge you have when you take ownership of a company that are markedly different from the public market.

The agency model will continue to be a better model than the public markets. The industry will continue to evolve, but the returns today are not materially different from what they were 25 or 30 years ago. Throughout cycles, the industry has done relatively well—during the global financial crisis, for instance. Returns are going to go up and down together with the economy and the markets, but on a relative basis, it’s still going to be a better place to put your money to work.

Nesbitt: Because of that agency model, firms are figuring out that they have complementary insights. Each firm has a limited amount of capital to put to work, but they can get better performance if they work together. There’s been a proliferation of firms over the past couple of decades, and I think you’re going to see more and more partnerships evolve and maybe some consolidation happen.

Purcell: From our corner of the world, we look at consumer packaged goods companies and they’re four times larger today than they were 30 years ago. They use M&A as a once-every-four-or-five-year tool. And it can be risky. They’re buying an entrepreneurial venture with people who run fast and may or may not fit well in their larger structure.

What we do is de-risk things for that next corporate buyer. We’re outgunned, we’re outmanned, and we’re certainly out-capitalized, but we’re making businesses better. And I believe the world will continue to have larger and larger companies, many of which will need private equity’s help when it comes to producing M&A opportunities that will benefit earnings and shareholders.



Blair Jacobson, ’99, is partner and cohead of European credit in the Ares credit group at Los Angeles-based global alternative-investment manager Ares Management. Martin Nesbitt, ’89, is cofounder and co-CEO of private-investment firm Chicago-based Vistria Group. Gregory Purcell, ’94, is founder and CEO of Chicago-based Arbor Investments, a specialized private-equity firm focused exclusively on middle-market food and beverage companies. Raymond Svider, ’89, is chairman of London-based European investment firm BC Partners.

Steve Kaplan is the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at Booth and Kessenich E. P. Faculty Director at the Polsky Center for Entrepreneurship and Innovation at the University of Chicago. 

For more on Booth’s 71st Management Conference, read Investment Strategy, Inflation Spirals, and the Future of US Healthcare.

PE Training Ground

The Merrick M. Elfman and Therese L. Wareham Private Equity and Venture Capital Lab at Booth trains students for careers in the PE and VC industries. In 2024, 38 percent of all first-year Booth students applied to participate in the class, which combines an academic course with an intensive internship, where students have the opportunity to participate in real-world investment decisions. Here’s a look at the numbers:

Three graphics with private equity statistics

Source: “What’s Happening at Booth Polsky? PE, ETA, Entrepreneurship, and the NVC,” presented by professor Steve Kaplan and Erika Mercer, executive director of Booth entrepreneurship at the Polsky Center, at the 71st Management Conference.

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