A Long Time In Finance Barbarians at the Gate: A Short History of Private Equity
Nov 7, 2025
Peter Morris, a seasoned banker and buyout expert, dives into the $7 trillion private equity industry. He traces its origins from the 1970s and discusses how pension funds became deeply invested. Morris elaborates on the 'two-and-twenty' fund model, the implications of deregulation, and why massive fees are a norm. The conversation also touches on the industry's adaptability after economic downturns and its future convergence with public markets. Insights into the challenges posed by high leverage and agency problems provide a thought-provoking look at this financial realm.
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Pension Rule Helped Create Private Equity
- ERISA's 1978 'prudent man' change let pension funds invest in private equity and fuelled the industry's growth.
- KKR and others capitalised on this regulatory shift alongside deregulation and falling interest rates.
KKR Spun Out From Bear Stearns
- KKR founders first worked at Bear Stearns and were pushed out after losing money on early deals.
- Cy Lewis refused to back them, a decision hindsight shows was a mistake.
Limited Partnerships Turned PE Into An Industry
- Early private equity used deal-by-deal financing before limited partnership funds became the standard to attract pension capital.
- Big headline wins (e.g., Wesray's Gibson Greetings) drew institutional investors to pooled funds.