It's been brewing for a few years now, but it looks like
2007 will be the year that private equity will have to shelter
from the storm that it started. There has always been some
criticism of private equity, but in the last few months
politicians and other industry figureheads have begun to speak
out against it in earnest. In many European countries there has
even been political lobbying against private equity.
For example, in the UK, the British Private Equity and
Venture Capital Association has reacted to press coverage by
setting up a working group to formulate a code of conduct for
its members. Although initial reaction questions the impact of
the code, many US private equity houses will be following the
outcome of the group closely. If the code is a success and
moves the spotlight away from private equity in the UK, there
is every chance the US will follow suit.
Despite political intervention, private equity is going from
strength to strength. The fact that it is making headlines on
front pages, as opposed to the financial pages, is proof
positive that it is doing well.
Take funds that operate in emerging markets for instance.
2006 was a bumper year in this field as funds operating in
Asia, eastern Europe, Latin America, the Middle East and Africa
raised a record $33.2 billion. This was almost a third better
than 2005 and more than five times what was raised in 2004.
These figures are distorted by fundraising in Asia, where 93
funds raised $19.4 billion, but the increases are indicative of
the rest of the market.
On a global level, the Blackstone Group dominates the
picture. According to Dealogic, the fund paid $622 million in
fees to investment banks last year alone. This was much more
than any other buyout company and Blackstone dominated the
In the coming months, private equity houses will have to
assess their relationships with hedge funds. There is a
misplaced opinion that hedge funds are in direct competition
with private equity houses. This is true in large acquisitions,
but neither side should forget that they each use each other
for financing sources or even co-investing. Club deals are
still popular in the market and private equity houses should
not rule out cooperation with hedge funds.
Private equity is booming and it will continue to boom for
quite a while. However, as it does, market relationships will
strain, public scrutiny will increase and new challenges will
arise. It is for these reasons that the International Financial
Law Review publishes the 2007 edition of The IFLR Guide to
Private Equity and Venture Capital. We hope that it serves
you well and that you refer to it often.