Harry Geels: What critics of private equity and private debt tend to overlook

October 14, 2025

_{This column was originally written in Dutch. This is an English translation.}

By Harry Geels

Private investors are subject to considerable criticism from society. They are perceived as capitalist (vulture) investors who charge excessive fees and operate outside of supervision as much as possible. However, critics overlook seven major advantages of private markets.

Private markets (PE, PD and real assets such as real estate and infrastructure) are regularly criticised. Concerns have been raised about the relatively high costs and rapid growth, which largely takes place outside of supervision. The media likes to highlight cases of damage. For example, NRC reported that private equity in healthcare leads to more complications, and Members of Parliament have expressed concerns about the impact of private money on the quality, accessibility and affordability of healthcare.

Criticism is healthy, but the media often presents a one-sided picture, which can then have all kinds of consequences. For example, various musicians, such as Goldband and Hang Youth, cancelled their performances at the Zwarte Cross festival because the organiser, Superstruct Entertainment, had recently been taken over by the private equity firm KKR. Other artists, such as Youp van 't Hek, Claw Boys Claw and Wild Romance, have joined them or taken similar decisions.

However, the media, politicians and artists are overlooking seven important positive characteristics of private investment.

1) Financing problems in small and medium-sized enterprises

One of the bigger problems in our current economic system is the financeability of SMEs. Banks are partly withdrawing from this market, partly due to stricter capital requirements for small businesses. In addition, stock exchanges are no longer always a good alternative: large investors (and analysts) pay little attention to smaller listings, while supervision and liabilities are increasing.

Fortunately, private markets offer a way out. Small and medium-sized enterprises can still raise capital through private equity, private debt and, in some cases, additional bank financing. The advantage of private money is that financiers are more directly involved and can set up more flexible structures. Don't forget that SMEs are the backbone of innovation and employment.

2) Succession problems

Many SMEs face succession problems. Younger generations are not always willing to put in the hard work and take on the responsibility of running a business. Private equity can offer a solution here. Acquired companies are given new management over time, often with expertise that is limited within the family. A fresh pair of eyes often provides new impetus.

3) Scale and international expansion

Small companies are often stuck in their own world. The director is busy with operations and hardly has time for strategy. Working with experienced private investors creates new opportunities: mergers, acquisitions and international expansion. This is often so attractive that the original owners remain (partly) on board and can even make a second “exit”.

4) Tighter management

Both private and listed companies are not always well managed. This can be due to wrong decisions, internal power struggles or a lack of ambition (“it will muddle through anyway”). Private equity can then shake things up and professionalise. This is sometimes accompanied by financial optimisation and reorganisation, but employees of “dormant” companies are remarkably often positive about the new dynamic.

5) Sustainability transition

The sustainability transition is particularly strong in private markets. Large listed companies often have established cash cows in less sustainable activities and cannot simply switch over. Figure 1 shows that the growth of private companies with an ESG label is much faster. Private investors can also more easily agree on their own sustainability criteria with acquired companies.

Figure 1

6) Less leverage in the financial system

When banks finance the “system”, they often do so with considerable leverage: to put it simply, one euro of savings is lent out ten times over. That leverage is much smaller in private markets. Institutional investors generally want to limit their use of debt. This makes the system more stable, even though part of the financing takes place outside the banks (and therefore outside supervision).

7) Less volatility in returns

The final reason is more investment-related: prices in private markets fluctuate much less than those on the stock market, because private investments are usually valued on a quarterly basis. Critics call this an optical effect, but as Hans de Ruiter, CIO at Pensioenfonds TNO, rightly pointed out during the Financial Investigator seminar on private markets: ‘Public markets are probably too volatile due to investor emotions.

Salient detail

Finally, there is a salient detail. Banks appear to be withdrawing from the SME financing market, but in the US we see that they are still financing private equity and private debt funds to some extent. This happens mainly when these funds want to apply modest leverage, a practice also known as “back financing”. This means that banks are still indirectly financing SMEs through the back door, while circumventing stricter capital requirements. Blood is thicker than water.

Perhaps that is the real lesson: where public and large institutions become rigid due to rules and bureaucracy, private markets find new routes. Not to replace the public sector, but to supplement and correct it. In that light, private investors are not vultures, but the silent cardiologists of the financial-economic system.

Figure 2: Development of direct bank loans to SMEs, private credit financing and bank loans to private credit and private equity funds (index 2013=100, illustrative)

This article contains the personal opinion of Harry Geels

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