If private equity (PE) firms are making money from their investments, logically the companies they're investing in should be doing well too. Just how well is something a study by Prof Amit Bubna at the Indian School of Business attempts to quantify.

He analyses balance sheet data of private equity-backed firms and compares them with various sub-groups such as firms listed on the Nifty and the broad non-PE group. In most cases, the PE-firms do better, and the big difference is seen when it comes to annual sales growth (22.9 per cent for PE-firms versus 15.8 for Nifty ones, between 2000 and 2005) and wage growth (32 per cent for PE-firms versus 16 per cent for the Nifty ones).

The big question, however, is whether private equity backs winners or whether it helps create them. Bubna's study doesn't examine causality but does a survey of 200 PE-firms. The results are interesting.

A third of firms said they wouldn't have existed had it not been for PE and over 62 per cent said they'd have grown slower; 64 per cent said there was no change in their export growth while 36 per cent said they rose because of private equity.

Nearly two thirds of firms said they'd got strategic direction from their investors; a fifth of firms said they met several times a week and 36 per cent said they met once a week. Not surprising then, that private equity investments have risen from $20 mn in 1996 to $7.5 bn in 2006.