On private equity

Most big companies naturally belong in liquid public markets. This is because investors value shares they can sell easily more highly than shares they cannot freely trade. It should not be easy for private equity firms to find big, undervalued targets. If investors think listed shares are cheap, they can buy them without paying a private equity firm to do the job for them. Alternatively, undervalued companies can be taken over by other listed companies able to extract synergies from merging their operations. Private equity firms have no synergies to offer. Small companies may not be valued correctly because there is not enough public information about their prospects. The same could be true of emerging markets. The problem here is that in markets with weak regulation and corporate governance, private equity firms may not enjoy full information either. They tend to go for bigger, not smaller, companies