Higher interest rates mean fewer private equity deals and less borrowed money

When central banks raise interest rates, private equity firms do fewer deals. They also borrow less money to make those deals happen. This means that the cost of money directly affects how much private equity can buy and how much debt they can use.

Private equity has become a huge force in the economy, buying up everything from small businesses to major corporations. This paper shows that central banks can directly slow down this activity by raising interest rates. It means that the era of cheap money fueled a lot of private equity growth, and now that era is over.