The notion of private equity as anything but constructive for shareholder value is of recent vintage. The real story of PE is the story of commerce itself. The first enterprising person to buy a company instead of starting one engaged in a private equity transaction.

Before World War II, most “private equity” transactions were funded and financed by wealthy families. The lack of a sophisticated lending infrastructure and regulatory framework for what we call leveraged buyouts today left most corporate investments to the Vanderbilts, Rockefellers and Whitneys who were expanding their family empires. Returning vets with entrepreneurial instincts began many small and medium-size companies in the post-war period.

Another boost came from the conglomerate era in the 1960s and ‘70s (remember ITT?). Public markets discounted holding companies of unrelated industries. Private buyers looked to unlock their hidden value. As founders aged, many faced a succession problem. With few younger generation members carrying on the family business, and not wanting to sell to competitors, they turned to private financial buyers such as Jerome Kohlberg and Henry Kravis. Coining the term, “bootstrapping,” they used borrowed funds in pioneering the leveraged buyout.