The academic paper “The private equity business model: On terra firma or shifting sands?” reveals how the financial crisis undermined the performance of Private Equity Partnerships (PEPs).

The private equity business model depends upon leveraged finance coupled with corporate transformation from market arbitrage that, in turn, delivers inflated market valuations and exit multiples. Private equity partnerships conjoin corporate productive and financial activity with speculative capital market demands where liquidity, risk appetite and market value appreciation matter.

It is a business model where productive transformation of acquired firm's is often disappointing because leverage inflates balance sheet capitalization ahead of cash earnings capacity. It is also a volatile business model because capital market valuations and fair value reporting amplify holding gains and losses for limited equity partners. It is a business model constructed on shifting sands not terra firma.

The paper published in Accounting Forum 2012 was written together with Professor Colin Haslam. Read more about the paper at Accounting Forum - Private equity business model.