Increased rates have altered the landscape for private equity

Private equity firms are feeling the squeeze as higher interest rates and a sluggish new listings market make it harder to sell holdings and return cash to investors. In response to these challenges, Blackstone, the largest and most well-known private equity firm, has launched a “shared ownership initiative” to give workers at its portfolio companies an equity stake.

This initiative, which will start at Copeland, a climate control group acquired by Blackstone for $14 billion last year, will allow the company’s 18,000 employees to receive payouts tied to the firm’s profits from the deal. Blackstone is not alone in this effort, as rival KKR and a charity founded by a firm executive have also implemented similar programs.

The move towards shared ownership plans is not just about marketing, but also a response to the changing landscape of private equity. With higher interest rates fundamentally altering the game for private equity firms, they must find new ways to deliver strong returns to investors. This includes focusing on operational changes that increase revenue, cut costs, and improve overall management of portfolio companies.

Employee profit-sharing is seen as a way to not only address social inequality but also to harness the positive energy and insights of current workers. By involving employees in the success of the company, private equity firms hope to improve engagement and drive better results.

While employee ownership is not a guarantee of success, it represents a shift in the way private equity firms view and interact with their workforce. As the industry continues to evolve, the focus on shared ownership and employee engagement could be a key factor in driving future success for private equity firms.