News & Analysis

Introducing the PEI 50

Last month, sister publication Private Equity International released a ranking of private equity firms by size, called the PEI 50. The magazine used a unique, apples-to-apples methodology—private equity capital raised over the past five years. Specifically, PEI counted the amount of capital raised for direct private equity investment, excluding real estate and senior debt funds, from January 1, 2002 until press time in mid-April. This methodology captures a firm's current heft in the market and also indicates the scope of its recent deal activity. The list is global. While all firms listed were given a chance to fact-check, PEI is not disclosing which firms provided information to the survey and which declined. Where confirmation was not provided by the firm in question, PEI relied on the best available information from a variety of sources. PEI also allowed its methodology to include direct private equity investors that rely on non-traditional funding structures, such as 3i and Teachers' Private Capital. As private equity continues to grow, morph and globalize, expect to see the PEI 50 constituent rankings and makeup change dramatically. The complete methodology and detailed profiles of each firm can be found in the May 2007 issue of Private Equity International

-

Senator introduces investment advisor registration bill
US Senator Chuck Grassley, a Republican from Iowa and ranking member of the Senate Finance Committee, has introduced the Hedge Fund Registration Act, proposed legislation that would require many private investment advisors to register with the Securities and Exchange Commission. Grassley has already attempted to pass such legislation, but the proposal failed to draw enough support. In a press release, Grassley focuses on what he calls the non-transparency of the hedge fund industry. The release and the two-page draft of the bill do not mention private equity funds, or give any definition of what a hedge fund is. But the bill would require SEC registration of all investment advisors except those that meet all four of the following criteria: managing less than $50 million; having fewer than 15 clients; not ?holding himself out to the public as an investment advisor?; and managing assets on behalf of fewer than fifteen investors. Grassley is reportedly also behind recent inquiries into the tax rate applied to GP carried interest.

German law disappoints
The German government has dashed the hopes of many in the private equity industry. The government's draft legislation on private equity has left many unimpressed through its failure to meet the industry's requests and the recommendations of an independent report. The proposals will limit the tax breaks private equity firms receive to €260 million ($353 million). The draft legislation claims the government loses €15 to €20 billion of funds which could be rectified by full tax transparency of fund structures in private equity. Daniela Weber-Rey, a partner at law firm Clifford Chance, said the figure is a mistake due to the tax transparency claims. She said: ?This is certainly based on a misunderstanding and no one in the industry knows where these numbers come from.? The government text also recommends support for early stage venture capital investments for firms of below €500,000 in size and of less than seven years of age. A third segment of the draft legislation recommended the disclosure of shareholder identity when 10 percent of a company is acquired. The measures appear to be targeted at hedge funds and insiders were bemused that they came during a report into private equity. A senior director at a big four firm explained: ?The Germans hate private equity, they believe it is run by sharks who deny wonderful Germans their rightful jobs.?

Delaware cracks down on private equity bids
Recent rulings from the business courts in Delaware display a greater sensitivity to shareholder concerns over sales to buyout firms, specifically those that find management still in place after the deal. The shareholders' primary issue is whether managers are diligent enough in sourcing bids to gain a fair price during the auction process. The lawsuits charge that management failed to adequately source bids during the auction process, accepting a lower sale price in return for greater profits later. In early May, Delaware Vice Chancellor of the Court of Chancery Leo Strine Jr. said he would not dismiss or stay such a lawsuit filed against the $385 million buyout of baseball card maker Topps. The lawsuit accuses management not only of selling the company at a low price, but signing off on measures that would discourage other bids. In March, Strine postponed the shareholder vote of approval for the private equity buyout of business software provider Netsmart Technologies until the company provided more information on the sale, including the rationale for not pursuing strategic buyers. In ruling on the Topps situation, Strine cited his Netsmart decision and a decision from Vice Chancellor Stephen Lamb. Lamb refused to approve a settlement to the lawsuit concerning the buyout of SS&C Technologies.