home > by publication type > daily analysis > Private Equity Gone Public
Email
| Prepared by: | Lee Hudson Teslik |
|---|
Traders kept a keen eye on Blackstone's stock on its first day of trading. (AP Images/Richard Drew)
Having long sailed beneath the regulatory radar, private equity firms all of a sudden find themselves the target of congressional attention. The June 21 initial public offering (NYT) of the buyout behemoth Blackstone Group drew headlines, not least for the massive payouts the IPO brought the company’s cofounders Stephen Schwarzman and Peter G. Peterson. The day after Blackstone went public, a group of Democrats in the House of Representatives proposed legislation (Reuters) to more than double tax rates on the pay of hedge fund and private equity managers. Across the Atlantic, British parliamentarians whipped up their own storm with Tory MPs opening an investigation into private equity firms’ earnings and threatening parallel tax hikes (BBC). But should the bills pass, the resulting clampdown would reach well beyond the cloistered world of high-finance.
Private equity, loosely defined as any investment that isn’t publicly tradable—though the term is often used more specifically to refer to groups investing in publicly-owned companies with the intent of taking them private—has seen banner growth of late. Private equity (PE) firms are expected to raise $500 billion in 2007, a 16 percent jump from a record year in 2006, according to data from the British research company Private Equity Intelligence. This expanding influence weighs heavily on global institutions like the World Bank and International Monetary Fund (IMF), as private lenders increasingly are able to provide loans to developing governments on preferable financial terms and without political strings. This April the IMF lashed out, railing against PE firms in its annual report on global financial stability. The report criticizes irresponsible PE buyouts, saying they threaten to destabilize international banks. Indeed, the report says the possibility of a PE meltdown ranks among the biggest risks facing the global economy.
The very fact of Blackstone’s IPO added to speculation that the sector’s run might soon be up. Despite the looming regulatory clouds, Blackstone’s offering netted solid gains and the Wall Street Journal went so far as to compare it to Netscape’s heady 1995 IPO (though Blackstone’s shares flagged in the days that followed, giving up their initial gains). Now the British PE firm Kohlberg Kravis Roberts & Co. says it too will go public. All this has some analysts whispering “bubble.” The FT’s Alphaville blog quipped Blackstone speculators are “buying into the notion, though not the reality, of private equity when it looks just too bubble-icious for words.”
For all the criticisms, however, private equity begs sober analysis. A New York Times editorial argues the private equity sector should be able to weather a tax hike and says Congress would be acting in the name of fairness to pass the proposed legislation. The Economist also cautions against inflated predictions of the sector’s demise, pointing out that major PE firms are sufficiently diversified to ride out a bumpy period. Still, a Financial Times op-ed warns against legislating against PE firms, saying public animosity may be a function of “broader hostility towards big business and globalization” and adding that the consequences of a clampdown could drain much-needed liquidity from financial markets.
Weigh in on this issue by emailing CFR.org.
To order Task Force reports, Council Special Reports, and Critical Policy Choices, please call, fax, or order online from our distributor, the Brookings Institution Press: phone +1.800.537.5487, fax +1.410.516.6998.
For information on other reports that are not for sale, or for general publications information, please call +1.212.434.9516 or email publications@cfr.org.
Start-Up Nation addresses the trillion-dollar question: How is it that Israel—a country of 7.1 million, only sixty years old, surrounded by enemies— produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the UK? With the insights of geopolitical experts and investors, the authors examine this nation’s adversity-driven culture to answer this question and offer prescriptions for a global economy on the rebound.
In Forces of Fortune, Vali Nasr presents a paradigm-changing revelation that will transform the understanding of the Muslim world at large. He reveals that there is a vital but unseen rising force in the Islamic world—a new business-minded middle class—that is building a vibrant new Muslim world economy and that holds the key to winning the cold war against Iran and extremists.
In Cuba: What Everyone Needs to Know, Julia E. Sweig presents a remarkably accessible portrait of Cuba's unique place on the world stage over the past fifty years, including its internal politics, its often fraught relationship with the United States, and its shifting relationship with the global community.
Complete list of CFR Books
The report of this bipartisan Task Force of distinguished leaders and experts represents a strong consensus on the importance of repairing America's immigration policy. It makes the case that maintaining America's political and economic leadership depends on attracting talented and hard-working immigrants, and on securing the country's borders in a smart, effective, and humane way.
This report finds that nuclear weapons will remain a fundamental element of U.S. national security in the near term, and makes recommendations on how to ensure the safety, security, and reliability of the U.S. deterrent nuclear force, prevent nuclear terrorism, and strengthen the nuclear nonproliferation regime.
About Independent Task Forces at CFR
Complete list of Task Force reports
Identifying international threats and acting on them may be the most difficult job for U.S. policymakers. This report
provides an actionable road map for managing international threats before they erupt into crises and makes a strong case that preventive action is not a luxury but a necessity.
For more than a decade, the United States has mostly watched from the sidelines as Asian countries organize themselves into an alphabet soup of new multilateral groups. In this report, the authors review the relationship between pan-Asian and trans-Pacific institutions and suggest policy guidelines for a new U.S. approach to this new Asian landscape.
Complete list of Council Special Reports
To request permission to reprint or reuse CFR material, please fill out this permissions request form (PDF), referring to the instructions on page 1.
Copyright 2009 by the Council on Foreign Relations. All Rights Reserved.