Author: | Published: 1 Apr 2007
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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 M&A arena.

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.