Report Categories Finance The Global Economic Impact of Private Equity Report 2008
The Global Economic Impact of Private Equity Report 2008 |
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Research project overview While the leveraged buyout transactions of the 1980s were scrutinized in a number of important academic analyses, it is fair to acknowledge that the studies examining buyouts 25 years ago had two important limitations which the current research has attempted to address. First, the bulk of the older research focused on a relatively small number of transactions in the US and, to a lesser extent, in the UK. But the buyout market today is no longer primarily a US and UK phenomenon, as evidenced by this research. Non-US private equity has grown to be larger than US private equity in the last few years, with growth in Continental Europe being particularly pronounced. The second limitation of the older research on private equity relates to the fact that the industry has grown and evolved since the 1980s. Almost all of the published studies have focused on the industry’s formative years. The World Economic Forum’s research project on the “Global Eonomic Impact of Private Equity” sought to analyse private equity transactions, meaning equity investments by professionally managed partnerships that involve leveraged buyouts or other equity investments with a substantial amount of associated indebtedness (as opposed, for instance, to venture capital investments in start-ups). The goal was to complete a rigorous study of the impact of these investments around the world, prepared by a tightly organized consortium of leading international scholars. Visit The Global Economic Impact of Private Equity Report 2008 Download Page The Globalization of Alternative Investments Download The Global Economic Impact of Private Equity Report 2008 PDF format, 4.3MB, 189Pages. Preface: The World Economic Forum is proud to release this first volume of Working Papers from our Globalization of Alternative Investments project. This report is the culmination of a year-long partnership between leading international scholars, industry practitioners, other distinguished experts and stakeholders, and our organization. We hope that these Working Papers represent a first step to providing a comprehensive and robust fact-base related to the global economic impact of private equity to enable a rich series of further discussions and analyses. Through recent years, alternative investment asset classes such as private equity have become increasingly important pools of capital in the global financial system. Private equity activity in particular (defined as equity investments by professionally managed partnerships that involve leveraged buyouts or other equity investments with a substantial indebtedness) has accelerated noticeably. The research finds that the total value of firms (both equity and debt) acquired in leveraged buyouts is estimated to be $3.6 trillion from 1970 to 2007, of which $2.7 trillion worth of transactions occurred between 2001 and 2007. The asset class has grown in scale such that by 2005 about 2% of non-government US employees worked for firms that received private-equity investment, and in global scope such that a majority of private equity transactions now take place outside the United States. Simultaneously, many private equity firms have expanded dramatically in size and global reach, and the sector has attracted attention from many other players, such as politicians, regulators and organized labour. Just over two years ago, in recognition of the increasingly important role and impact of private equity and other alternative asset class investors on the global environment, the World Economic Forum launched its first new industry group in over 10 years, focused on the Investors Industry. The objective was to take advantage of our organization’s multistakeholder platform and link these industry players with the diverse constituents already engaged with the Forum. Over 30 companies from the sector have since joined the World Economic Forum’s Investors Industry Partnership, committing to discuss key issues on a global and crosssectoral basis and engage in dialogue, research and action to address them. The research on the “Global Economic Impact of Private Equity” represented in this first volume of Working Papers was undertaken as part of the World Economic Forum’s Globalization of Alternative Investments project, which is the first mandated by the Investors Industry Partnership. The analyses and case studies herein were designed to help All are meant to encourage a practical and policy-based dialogue on the role of private equity firms and investments. They raise policy issues about innovation, employment and governance, and provide examples and data from both the developed and developing world. Collectively, they provide as detailed and comprehensive an overview of private equity activity as is available today. The Working Papers are, to our knowledge, an unprecedented endeavour linking active practitioners, leading academics, institutional investors in private equity and other constituents (such as organized labour) and boasts involvement from many parts of the globe. The core research team, led by Josh Lerner, Jacob H Schiff Professor of Investment Banking at Harvard Business School, included: • Ann-Kristin Achleitner, Head of the KfW Endowed Chair in Entrepreneurial Finance and Scientific Co-Director of the Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München • Francesca Cornelli, Professor of Finance, London Business School • Lily Fang, Assistant Professor of Finance, INSEAD • Roger Leeds, Research Professor and Director of the Center for International Business and Public Policy, School of Advanced International Studies (SAIS), Johns Hopkins University • Per Strömberg, Associate Professor of Finance, Stockholm School of Economics and Senior Research Fellow, Swedish Institute of Financial Research In a matter of only 10 months, this group oversaw the four large-scale analytic studies and six case studies contained herein. Intellectual stewardship and guidance was provided by an actively involved Advisory Board, chaired by Joseph L. Rice, III, Chairman of Clayton, Rice & Dubilier, with Michael Klein, Chairman and Co-Chief Executive Officer Markets and Banking, Citi Inc., and R. Glenn Hubbard, Dean and Russell L. Carson Professor, Columbia Business School, serving as Vice-Chairmen. An illustrious group of experts completed the Advisory Board, including: While not necessarily endorsing any of the specific conclusions reflected in the analyses or case studies, the Board provided detailed feedback, and helped ensure the integrity of the work by acting as a sounding board for the independent academics. The opinions herewith are solely the views of the authors and do not reflect the opinions of the Advisory Board or the World Economic Forum. On behalf of the World Economic Forum, the project was ably led by Anuradha Gurung, who served as both project manager and as co-editor of this volume together with Josh Lerner. The release of this volume of Working Papers on the economic impact of private equity has been timed to coincide with the World Economic Forum’s Annual Meeting 2008, where public discourse is planned on related issues. In addition, our Annual Meeting in Davos will officially launch a series of regional meetings over the course of 2008 in various parts of the world, as well as an informal set of discussions with various key stakeholders. We hope this set of analyses and case studies will provide a foundation for these discussions. This volume is but a beginning. Based on the structured discussions and public debate, we anticipate additional work and analyses will be both productive and necessary. The Advisory Board has expressed its interest in continuing these productive efforts; the academic team has already proposed further research; and the Investors Industry Partners have relayed their enthusiasm for not only using this work as a basis for engagement, but also expanding it to better explore some of the still unanswered questions. On behalf of the World Economic Forum, we therefore thank all involved in creating this first set of Working Papers for their tremendous contributions to this valuable work, and relay our earnest hope you will continue your involvement in our future efforts. Kevin Steinberg Letter on behalf of the Advisory Board The increasing privatization of economic activity around the world is at the forefront of public attention. The private equity industry’s tremendous growth has understandably sparked both interest and concern from several quarters. While private equity’s constructive influence in fostering the renewal of US corporations 20 years ago is well documented, its more recent impact in the US, as well as in Europe and emerging markets, which now surpass the US in private equity activity, has not been as comprehensively analysed. Recognizing that private equity, along with other alternative investments, has matured significantly since the 1980s, as part of its project on the Globalization of Alternative Investments, the World Economic Forum has taken the lead on a research initiative to examine the impact of private equity ownership on long-term investment, employment, corporate governance and other important measures of economic health. At the same time, the Forum has committed to serve as a catalyst to engage industry participants, policy-makers and other key stakeholders in an ongoing dialogue about the alternative investment asset class. The Working Papers that are included in this volume represent the initial findings from the private equity research commissioned by the Forum. The various studies were conducted by a renowned group of scholars representing academic institutions in North America, Europe and Asia. An Advisory Board of distinguished international experts representing labour, industry, finance, government and pensioners was assembled by the Forum to help guide the project and provide the academic team with practitioner perspective. While the members of the Advisory Board do not necessarily endorse the conclusions reflected in the papers, they recognize that the body of analysis produced by the Forum’s academic team is among the most comprehensive and relevant ever undertaken on private equity. Literally thousands of buyout transactions going back as far as 1970 have been analysed. The large-sample studies on the effect of private equity ownership and innovation are unprecedented in their scope and the findings suggest fruitful avenues for additional research and analysis. The Forum and the academic team are to be commended for beginning what will hopefully be a multi-year effort to build a solid factual basis for assessing private equity globally and from which sound conclusions and public policy recommendations can eventually be made. One of the biggest challenges ahead for the private equity industry will be to act responsibly with the enormous amount of capital entrusted to it in the past several years. In this regard, the insights from the Forum-sponsored research will be instructive to all of us – whether investor, industrialist, employee or policy maker – in better understanding the governing dynamics of the asset class. On behalf of the Advisory Board, I would like to express our thanks to the academic team for their important contribution and to encourage the Forum to continue its efforts to build more understanding and thereby increase public confidence in private equity investment activity. Members of the Advisory Board for the World Economic Forum Globalization of Alternative Investments Project Chairman: Co-Vice Chairs: Board Members: Set as favorite Bookmark
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In the past few decades, the private equity industry has grown both in terms of size and geographic reach. Despite the growing global impact of private equity, there is limited research on these developments that stakeholders can reference. It is, perhaps, not surprising that in markets as diverse as China, Germany, South Korea, the United Kingdom and the United States, important questions have arisen about the impact of private equity on employment, managerial time-horizons, the overall health of companies and the economy more generally.
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