Private Equity, Pecuniary Logic and Enterprise Restructuring
Private equity, pecuniary logic and enterprise restructuring
Private equity firms, which in recent decades have become an important avenue for financial transactions in the US and UK markets, are being hard hit by the sub-prime crisis as they are unable to source their funding from investors. The resulting credit crunch and financial turmoil may also pose a threat to developing-country financial markets where they have become significant investors, particularly in Asia. The danger, according to a warning issued by the Reserve Bank of India, is that these equity funds could pull out from these markets in the face of the credit crisis in the US mortgage market, thereby causing greater financial volatility. But what is the creature called private equity? Andrew Cornford explains its character, history and role in financial markets.
LONG ignored outside the financial sector, private equity is now attracting widespread attention. This has been fanned by recent news items concerning some particularly large takeovers by private equity firms and the enormous income and capital gains which can accrue to their managers and principal shareholders, and which enable lifestyles recalling the earlier gilded age of the late 19th-century United States. Political interest has focused primarily on the loss of jobs in enterprise restructuring following takeovers by private equity firms, and on low rates of taxation of the remuneration of private equity managers and investors. Broader issues are also coming under scrutiny. The International Organisation of Securities Commissions (IOSCO), a body which fosters cooperation between different countries' securities markets and regulators, has established a task force to examine the implications of the increased role of private equity firms in global mergers and acquisitions (M&A), where their share of activity is now estimated to be as much as 20%. The ambitions of private equity firms are increasingly directed at
Private equity firms, which in recent decades have become an important avenue for financial transactions in the US and UK markets, are being hard hit by the sub-prime crisis as they are unable to source their funding from investors. The resulting credit crunch and financial turmoil may also pose a threat to developing-country financial markets where they have become significant investors, particularly in Asia. The danger, according to a warning issued by the Reserve Bank of India, is that these equity funds could pull out from these markets in the face of the credit crisis in the US mortgage market, thereby causing greater financial volatility. But what is the creature called private equity? Andrew Cornford explains its character, history and role in financial markets.
LONG ignored outside the financial sector, private equity is now attracting widespread attention. This has been fanned by recent news items concerning some particularly large takeovers by private equity firms and the enormous income and capital gains which can accrue to their managers and principal shareholders, and which enable lifestyles recalling the earlier gilded age of the late 19th-century United States. Political interest has focused primarily on the loss of jobs in enterprise restructuring following takeovers by private equity firms, and on low rates of taxation of the remuneration of private equity managers and investors. Broader issues are also coming under scrutiny. The International Organisation of Securities Commissions (IOSCO), a body which fosters cooperation between different countries' securities markets and regulators, has established a task force to examine the implications of the increased role of private equity firms in global mergers and acquisitions (M&A), where their share of activity is now estimated to be as much as 20%. The ambitions of private equity firms are increasingly directed at