The private equity industry faces great uncertainty as the next decade starts. It is clear that:
a. government or transnational entities will introduce regulation forcing transparency about
investment, investors and tax positions that will alter private equity’s heretofore claims of the
commercial benefits of little to limited transparency. These same entities may introduce
regulation to compel private equity sponsor firms to adhere to risk management schemes that
would carry even greater weight to alter the industry’s economic model.
b. once governments implement the widely discussed tax code alterations for private equity
general partners, there will be disparate implications for sponsor firms’ economics due to
possible geographic choice of commercial business locations; individual general partner
participants, and general partner/limited partner terms.
c. capital market reform developments in areas such as securitization and derivative products and trading along with government involvement with large scale financial institutions and limited
partners’ restricted ability to continue funding levels prevalent earlier this decade will materially
affect private equity industry’s fund raising, capital structure and return profiles.
d. the play out of industry’s portfolio companies’ capital structure hangovers will alter the private equity industry’s competitive structure resulting in sponsor firm deaths, other sponsor firms’
scaling back and some new sponsor firms and advisory firms gaining market share. It is possible
that there will be a second round of portfolio company ownership realignment given the
historic spotty record of first time restructuring success.
e. with projected growth rates in emerging markets forecasted to offer companies opportunities for domestic and non domestic growth, and the associated need for access to financial and human capital, emerging markets will experience substantial growth in the numbers of private equity players, the legal vehicles available to private equity investors and the investments themselves.
All of this will challenge the private equity industry’s intellectual foundations about the success of its corporate governance form, its traditional reliance upon leverage for managerial discipline as well as economic return magnification and its vetted study conclusions about employment and intellectual property creations. Thus, over these next years, there will be a tremendous set of opportunities and challenges for academic study and to develop platforms to influence governments, industry associations and practitioners.
The Course: “Emerging Topics in the Private Equity Industry” will expand students’ appreciation for how the many constituents are grappling with these challenges.
We will divide the course into topic areas.
1. Understanding the private equity industry. Please note: this will constitute only an introduction to the private equity industry. This would not take the place for fuller understanding that students would gain from studying other Columbia Business School courses such as “B9301-111: Private Equity: the Asset Class, its Investments and its Markets.”
2. Codes, rules and regulations –the “Volcker Proposal” and other matters
3. “Green Portfolio” – how portfolio companies seek to add value through sustainability efforts; implications for managers at the firm and fund levels.
4. “Going Public” – why and how funds go public
5. Limited partners – will they change the rules of the game?
6. “Domestic and Non domestic renminbi private equity funds” – passing fad or substantial influence?
7. Venture Capital – is it a viable business model in developed countries, is it a viable means to spearhead growth in developing countries?
Laura Resnikoff was a Columbia Business School faculty member from 1991 to 2016.