We tend to think about the efficient markets hypothesis in terms of what goes on in the financial markets. Here active investors constantly seek out mispriced assets. In the process of buying or selling those assets, these investors drive prices back toward a level where no one can any longer earn alphas by trading in them. But the efficient markets hypothesis is a big idea with ramifications beyond the stock exchanges and the bond markets. Think about private equity beyond the mega-deals that make the headlines. In privately held companies, corporate objectives, management, financing, control, and the uses of power differ dramatically from what goes on in publicly held companies. The typical management in publicly held companies aims to keep the ship on its course, with as few disruptions as possible. Most private equity investors buy companies with an explicit goal of selling them later, which means change and disruption are expected if that sale is to produce a profit.
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