Jeffrey Hooke has previously written two books: M&A: A Practical Guide to Doing the Deal and Security Analysis and Business Valuation on Wall Street. I was surprised to see his latest book, titled The Myth of Private Equity. One of these things is not like the other. When it comes to the machinations of high finance, Hooke is an insider's insider. So what does he have against private equity (PE)?

Hooke provides a history of the leveraged buyout industry, from the exceptional results it delivered decades ago to the disappointing returns, illiquidity, and financial shenanigans that characterize many PE funds today. What happened to this promising form of investment? It seems that PE became a victim of its own popularity. Early investor groups could find companies that were poorly managed, buy them at a discount, improve operations, and sell for a tidy profit. In 2021, there are so many firms trying to do that that there isn't easy money to be had anymore. Even proponents of PE acknowledge that the old ways no longer work. For example, here's a quote from the HBR article "Private Equity's Mid-life Crisis":
"There’s trouble on the horizon for private equity. As the 50-year-old industry matures, investment returns are falling. In fact, for the past three decades, average buyout performance — the return a buyout firm generates from buying, improving, and then selling a company — has been on a downward trend."

It can be hard for investors to understand what their returns are from their investments. Compared to a stock-heavy portfolio, which lets investors check the value of their investments and sell shares at any time, PE fund performance is often opaque, and investors wishing to sell their stakes have to offer discounts. Hooke argues that some funds intentionally misrepresent aspects of their funds in ways that would not be allowed for public companies.

Overall, The Myth of Private Equity is a meticulously researched polemic that exposes the worst aspects of a poorly understood sector of the economy. I recommend it to policymakers, anyone involved in intuitional investing, and MBA students who want to read the minority report of high finance. I received a free copy of this book through NetGalley in exchange for an honest review.