What Is Private Equity Anyway? The Book's Introduction Explained
You would think that a thing called “private equity” would be easy to define. It has two words. One means private. The other means equity. Should be simple, right?
Nope. Not even close.
That is exactly where Cyril Demaria starts the introduction to his book “Introduction to Private Equity, Debt, and Real Assets” (ISBN 978-1-119-53737-3). And honestly, after reading it, I think the confusion is the point. The whole field is fuzzy on purpose, and Demaria does a good job explaining why.
Let me walk you through the four big ideas from the introduction.
A Moving Target (Section 0.1)
Here’s the thing about private equity: nobody can agree on what it actually means.
In the USA, people use “private equity” and “leveraged buy-out” (LBO) like they are the same thing. They are not. An LBO is when someone buys a company using a lot of borrowed money. It is just one type of PE deal. But because LBOs got a bad reputation (Warren Buffett once called LBO managers “porn shop operators”), the industry started hiding behind the nicer-sounding “private equity” label. Demaria calls this confusion “Orwellian.”
But here’s the problem. Even the name “private equity” does not describe what it covers anymore.
It is not just “equity.” PE investors use debt, convertible instruments, and all kinds of financial tools. You cannot analyze it the same way you would analyze stocks. The timeframes, risks, and skills are all different.
And it is not always “private” either. Some PE investors buy stakes in public companies through PIPEs (private investment in public entities). Others use listed vehicles like SPACs. So the “private” part is not a hard rule.
What actually ties it all together, Demaria says, is two things: a value creation plan and a long holding period. Investors buy a company, work a plan for 3 to 5 years to make it better, then sell. That is the common thread across venture capital, buyouts, growth investing, and everything else in this space.
The book also notes that PE has grown into something bigger. Private debt (direct lending, mezzanine, distressed debt) and private real assets (real estate, infrastructure, natural resources) are now their own categories. Together they form “private markets.” The field keeps expanding, which is why nailing down a definition is so hard.
The Information Problem (Section 0.2)
So private equity is hard to define. But here’s what makes it even harder to study: there is almost no data.
Public companies have to publish financial reports every quarter. Analysts cover them. Prices update every second. You can look up almost anything.
Private companies? None of that. They have no obligation to tell anyone anything. And for small businesses (which make up most PE targets), even producing financial reports is expensive. Many do not even have proper accounting software. Demaria notes that 99% of companies in any economy are private. That is a huge blind spot.
Before investing, PE investors have to generate, collect, and analyze the information themselves. That is actually one of their core skills. The whole business is about setting up a governance structure, based on self-generated data, to execute a value creation plan.
Demaria includes a big table showing all the data providers (PitchBook, Preqin, Cambridge Associates, and others). The picture is not pretty. Coverage is patchy. Much of it is behind paywalls. Some strategies and regions are barely covered at all.
The good news? Information is slowly getting better. Regulations like AIFMD in Europe and Dodd-Frank in the US are forcing more disclosure. Fund managers need to share more data when raising money. And after scandals like The Abraaj Group collapse in 2018 ($13.6 billion fund, gone), people are demanding better oversight.
But here’s the catch. More information means more costs. Better IT systems, more compliance staff, more reporting. Those costs get passed on as fees. So fees are probably not going down anytime soon.
Benign Neglect, Bad Consequences (Section 0.3)
When you do not have good data, bad things happen. Demaria calls this section “benign neglect, malign consequences,” which is a fancy way of saying: ignoring the data problem has real costs.
First, the information gap gets filled with noise. Rumors. Reputation. Gut feelings. Not actual data. People make decisions based on what they heard, not what they know.
Second, even the data that exists gets misread. PE performance statistics come from voluntary surveys of fund managers. They are unaudited. The sample changes every time. They only cover funds, not the whole market. So when European governments saw stats showing low venture capital investment in startups, they panicked and threw taxpayer money at the problem.
But here’s what happened: in many countries, startups were already getting funded by business angels and family offices. Those investors just did not show up in the stats because they are “below the radar.” The problem was not a lack of capital. The problem was a lack of visibility into who was providing it.
The result? Government programs that did not work. Demaria cites research showing state-backed VC funds in the UK earned returns of 1.7%, while commercial VC funds of the same period earned 7.7%. Public money crowded out private money and produced worse results.
That is the danger of acting on bad data. You solve problems that may not exist, and create new ones.
Knowing the Devil (Section 0.4)
Demaria is honest about something most textbook authors would skip: his own book cannot fully escape the same problems he just described. He is working with the same limited data everyone else has. He knows it.
But he argues that knowing your limits is itself valuable. If you go in with your eyes open about what is missing, you can be smarter about what you conclude.
His approach is different from other PE books in one key way. He treats private equity as a cycle, not a static set of rules. The industry grew from $100 billion under management in 1990 to $3 trillion by 2018. It went through six or seven business cycles in that time. Each cycle changed the players, the strategies, and the rules.
The practitioners keep innovating faster than academics can study them. By the time a research paper gets published, the industry has already moved on. That gap between theory and practice is built into the system. And that is why, Demaria argues, the subject cannot be reduced to neat equations. There is too much uncertainty, too little data, and too much change for math-like precision.
So What?
The introduction sets up the whole book with a simple but important message: private equity is hard to understand because it is private, constantly changing, and poorly documented. Anyone who tells you otherwise is oversimplifying.
That does not mean you should ignore it. It means you should study it carefully, know the limits of what you are reading, and stay skeptical of easy answers.
Good advice for investing. Good advice for life, honestly.
Next up, we will look at how private equity actually started. Turns out, the origins go back further than you might think.
This post is part of a series retelling “Introduction to Private Equity, Debt, and Real Assets” by Cyril Demaria (ISBN 978-1-119-53737-3). I am reading it so you do not have to. But honestly, you probably should anyway.
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