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The Symbiotic Relationship Between Business Schools and Private Equity
Business schools engage in a mutually beneficial partnership with private equity (PE) firms, which provides these firms with a steady stream of fresh graduates while simultaneously boosting the schools’ prestige and funding potential. Yet, this relationship often goes unquestioned at career fairs.
Private equity firms control approximately 20% of corporate equity in the U.S. They gather money from various sources, including pension funds, university endowments, and affluent individuals, to acquire companies outright. This can involve purchasing private firms or even taking control of publicly traded companies, stripping them from the stock market. Frequently, PE firms utilize leveraged buyouts, where they borrow most of the purchase price, passing the debt burden onto the acquired company that must then pay interest and fees, regardless of its performance.
The ultimate aim for private equity is to maximize resale value of companies, often sacrificing long-term stability for short-term profits. These strategies can include leveraging creative accounting methods, incurring additional debt just to payout special dividends, or conducting sale-leaseback transactions, where firms sell off company property to another entity and charge rent, extracting value from multiple angles.
Private equity continues its quest for new talent, viewing students as disposable resources. Business schools must decide whether they want to instruct students on building meaningful enterprises or contribute to a system based on “creative destruction.” In recent years, private equity has earned notoriety for practices like bankrupting healthcare establishments and extensively cutting costs, as evidenced by high-profile acquisitions.
When a PE firm buys a healthy, profitable business, the emphasis is on reducing expenses rather than enhancing operations. Issues like staff layoffs, reduced benefits, and deferred investments become common, compromising long-term viability in favor of immediate profitability for potential buyers.
Conversely, if a struggling business is acquired, the focus shifts to dismantling its valuable components—like real estate and brand licensing—while discarding the rest. These practices reflect a trend where businesses are viewed more as asset pools for liquidation than entities to nurture.
Ultimately, while the purpose of business schools is to equip students with the knowledge to innovate and create jobs, many students enroll primarily for financial incentives. A significant portion—52%—focuses on finance or real estate, which are primarily about acquiring and reselling existing resources.
Over the past few years, private equity firms have intensified their recruiting efforts in universities. The firm Kohlberg Kravis Roberts initiated a selective undergraduate analyst program, which boasts an acceptance rate rivaling elite universities. Similarly, recruitment timelines have sped up, with entry-level roles being offered well before students have a chance to fully understand their educational paths.
Such practices are facilitated by the schools themselves, which actively guide students toward private equity through targeted career fairs, information sessions, and case competitions sponsored by recruiting firms. A student can seamlessly transition from a private equity workshop to a networking event hosted by a hiring firm.
While private equity should not be entirely excluded from campuses, schools claiming to foster business creation must also support budding entrepreneurs. This includes critically evaluating whether such partnerships prepare students for a fulfilling career or render them vulnerable to exploitation.
Business schools like Kelley can pivot to instill the entrepreneurial spirit necessary for future business development, requiring a reevaluation of the existing PE recruitment framework.
Spencer Robinson (he/him) is a junior studying public policy analysis and law and public policy. His commentary can also be found on his Substack.
