News

Private equity funds hold investments in companies that are not listed on a public stock market. They usually control management and, on acquiring a company, often bring in a new team of managers. PE funds keep a company for just a few years, seeking to pump up its value for resale, merger or liquidation – often with scant regard for labour rights, jobs and conditions. Even a strong CSR culture is unlikely to survive.





Goldman Sachs, the New York-based global investment bank, currently manages $22 billion of private equity money, as its interests in the sector have continued to grow over the last decade. http://www.bobsguide.com/guide/news/18411.html, 21 March ‘07



The California Public Employees' Retirement System (CalPERS) in February committed $400 million for new private equity investments in emerging markets in Eastern Europe, Latin America and Asia, including venture capital, expansion capital and leveraged buyout transactions. The pension fund is one of the world’s largest private equity investors, with over $35 billion committed in its Alternative Investment Management (AIM) Program. Launched in 1990, the program had yielded $9.4 billion by September 2006. AIM returned 20.9% last year and 20.5% for the three years ended December 2006. About a quarter of its investments are abroad. www. financialnews-us.com, 21 March ’07; Calpers AIM web page:

www.calpers.ca.gov/index.jsp?bc=/investments/assets/equities/aim/home.xml.



€522.5 million has been committed to a private equity fund directly investing in companies organised or operating in Central and Eastern Europe, including Poland, Czech Republic, Slovakia, Hungary, Romania, Bulgaria, and the Baltic Countries. The fund is the AIG New Europe Fund II, L.P. (NEF II), launched by AIG Capital Partners, Inc., a member of AIG Global Investment Group. AIGGIG is one of the largest asset management firms in the world. NEF II follows NEF I, which invested $321 million. The new fund is focused on capitalising on the region’s long-term growth outlook, increased domestic consumer demand and “a shift in the manufacturing base from Western Europe”. Pierre Mellinger, Managing Director, AIG Capital Partners and CEO of NEF II leads a team out of Warsaw, Poland, with investment professionals in Warsaw, Bucharest and Budapest. PRNewswire-FirstCall, New York, 19 March ’07.

http://sev.prnewswire.com/banking-financial-services/20070319/NYM03419032007-1.html



According to the Gulf Venture Capital Association, close to $10 billion was raised by Middle East private equity funds in 2006, up from $5.7 billion in 2005. The Daily Star, Lebanon, 21 March ’07.



A private equity alliance focusing on investment in the retail sector in China was announced 19 March by The Bear Stearns Companies Inc., a New York-based financial services firm, and Eagle Investment Group, a Chinese investment firm. Bear Stearns’ private equity arm, Bear Stearns Merchant Banking (BSMB) invests in retail and consumer brands throughout the United States. Eagle’s chairman is Mr. Wong Kwong Yu, the founder of GOME Electrical Group, the largest electronics retailer in China and the largest retail business listed on the Hong Kong Stock Exchange. Bear Stearns and Eagle have pledged $250 million each. Business Wire, Beijing and New York, 19 March ’07.

http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20070319006307&newsLang=en



Many private equity investors have been eyeing the Chinese market, now that there are record funds available to invest in Asia – more than $100 billion, say some estimates. Carlyle, a leading US private equity group, recently suffered a chilling setback, when after months of wrangling it had to settle for a minority stake in a Chinese contruction machinery manufacturer. But the flow of deals remains strong. According to the Centre for Asia Private Equity Research, there were 120 completed venture capital and buy-out deals by foreign funds in 2005 with a combined deal value of $3.3 billion. Last year, the completed deals had climbed to 141, with a value of $6.9 billion – although the valuation figure was swollen by Goldman Sachs' $2.8 billion pre-IPO investment in Industrial and Commercial Bank of China. So far this year, there have been 22 completed deals with a value of $1 billion. But buy-outs, especially of state-owned companies with well-known brands, remain sensitive. FT.com via MSN Money, 20 March ’07.

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=FT&Date=20070320&ID=6634301



Has the private equity buyout market peaked? That is one question raised by the surpise report that The Blackstone Group, the world's largest private equity firm, is planning an initial public offering. An IPO is when a privately owned company goes public, by listing its shares on a stock exchange. New York-based Blackstone has confirmed its IPO intentions to US regulators, without further details. It will be the first time a private equity giant has sought a public listing. But other big names - the Carlyle Group, Kohlberg Kravis Robert & Co and Apollo Group - have all studied the possibility in recent months. And Kohlberg Kravis last year raised $5 billion for investments through a public stock offering of an affiliate in Europe. A public offering by Blackstone is a remarkable about-face for an industry that has long extolled the virtues of being private. Executives in private equity have criticised stock markets for being over-regulated and too focused on short-term earnings. As a public company, the compensation and perks of Blackstone’s executives, some of whom are routinely paid more than $50 million a year, will have to be disclosed. Co-founder Stephen Schwarzman, who owns as much as 40% of the firm, is said to regularly pay himself over $300 million annually. The income from the IPO will go to a dozen executives who own stakes. Mr Schwarzman stands to gain several billion dollars. Blackstone manages $28 billion in private equity investments and $16.7 billion through a fund of hedge funds, reportedly getting 48% of its investment capital from government pension funds. It is one of the finance firms currently considering a bid for UK supermarket chain Sainsbury's. The New York Times via The Sydney Morning Herald, 19 March ’07; International Herald Tribune, 17-18 March ’07; BBC News, 22 March ’07; Journal Inquirer.com, Connecticut, 16 March ’07.



German media group Bertelsmann AG plans to set up a €1 billion equity fund with buy-out groups Citigroup Private Equity and Morgan Stanley Principal Investments. Some commentators see this as a new way for companies to make acquisitions. The Financial Times says it is Bertelsmann’s private status that allows it to establish a partnership with private equity partners. Thomas Rabe, Bertelsmann’s chief financial officer, is to head the new fund. He estimates that Bertelsmann will spend roughly €4 billion on acquisitions in 2008-10. The FT observes that the new fund’s structure is not without risk to Bertelsmann. With equity representing 25-30% of the total bid package, debt is likely to be more cautious than in some private equity deals. But it will still increase Bertelsmann’s potential exposure to any sharp change in credit markets. FT Alphaville Blog Archive, 23 March ’07.



Private equity firms are expected to continue investing in the US entertainment and media sectors this year, according to a PricewaterhouseCoopers report, after a strong 2006, which saw 282 deals announced, worth investments of $114.6 billion. Its new study, 2007 M&A Insights - U.S. Entertainment and Media Industry, PwC reports that 132 deals announced in 2006 are slated to close in 2007. Building on this backlog of deal activity, corporate buyers and cash-rich private equity funds are expected to continue investing in the sector, which includes advertising and marketing, print and broadcast, video and digital content distribution and portable media. Worldscreen.com, 9 March ’07 via Private Equity Intelligence.

http://www.preqin.com/article.aspx?articleid=264



Worldwide, 684 new private equity funds raised a total $432 billion in 2006, according to UK-based Private Equity Intelligence (Preqin). That was a 38% increase over the already strong 2005 figure. Buyout funds remained by far the largest segment. They raised $212 billion, up 45% on 2005’s total. By contrast, venture funds [often presented as the positive side of private equity] struggled. Despite a record number of new funds, the amount raised was 10% down on 2005, at $44 billion. “2006 was truly America’s year, with funds managed by US firms raising a total of $295 billion, 32% up on 2005 and accounting for 68% of the global total.” Europe and the rest of the world had a steady year by comparison. Preqin’s forecast is for another record fundraising year in 2007, with a likely total of $450 to $500 billion for the year. Private Equity Intelligence (Preqin): The 2007 Global Fundraising Review.

www.preqin.com/docs/GFR2007_sample.pdf



A performance assessment by academics Steven Kaplan and Antoinette Schoar has found that top private equity funds have outperformed the US’s S&P 500 index, but average fund returns after fees were about equal to the index. The S&P index is based on the average performance of 500 widely held stocks on the New York Stock Exchange. Private equity firms collect a management fee - usually 2-4% of all of the capital committed by the partners. They also get a performance fee based on the profits generated by the partnership. Reuters via CNBC.com, 23 March ’07; Journal Inquirer.com, Connecticut, 16 March ’07.



The government of India has restricted the income tax exemption of domestic venture funds and private equity to investments in nine sectors. The still exempted sectors are biotechnology, nanotechnology, IT hardware/software, R&D for new chemical entities, seed research, dairy, poultry, biofuels, and large hotel-convention centres. Foreign firms that only have an asset management arm in India are not affected by the change in tax status. Domestic PE fund managers are complaining that the change will slow down their investment of committed funds, as they will have to seek fresh approval from investors. Experts say nearly $800 million of the existing funds of domestic PE firms like IL&FS Investment Managers, ICICI Ventures, IDFC Private Equity and UTI Ventures are waiting to be invested. Together, these firms manage about $2.8 billion worth of funds. Some PE funds like IDFC and IL&FS are considering setting up future funds in tax havens like Mauritius to circumvent the new regulation. But that requires approval from the Reserve Bank of India. Times News Network, India, 17 March ’07.