At the larger end of the private equity spectrum, GPs are showing indications of their wish to have greater clout within the regulatory sphere – and a willingness to team up with their peers to attain that goal.
In July, sister online news service PrivateEquityOnline reported that The Carlyle Group, The Blackstone Group, Kohlberg Kravis Robertsand Texas Pacific Groupwere in preliminary discussions to form a lobbying group in Washington, DC. The group's mandate would be to represent the interests of buyout firms with the US government, as well as other regulatory bodies and foreign governments.
An update from a source familiar with the matter confirmed that the formation of the private equity advocacy group is still in the early stages, and although there is a consensus that something needs to be formed, many of the decisions – including who will comprise the membership and what specifically will be on the agenda – have yet to be determined.
Also in July, the Financial Times reported that The Carlyle Group would appoint a global head of lobbying, with the aim of overcoming regulatory obstacles in various markets, but particularly that of China. There, the Washington, DC-based private equity firm has been engaged in a three-year tussle with local authorities over the approval of Carlyle's acquisition of Xugong Construction company – a struggle that may be delayed even longer in light of the Chinese government's recent issuance of new M&A rules (see page 19). A source close to the matter has confirmed that Carlyle is indeed interested in hiring a managing director for global government relations, who would advocate on behalf of the firm certain regulatory, tax and trade issues in the US and globally, particularly as these issues relate to the firm's portfolio companies.
At the core of these government relations endeavors – both at the industry level and at the individual firm level – is education on and advocacy of the private equity industry. These efforts seek to inform various levels of the US and other countries' governments about what private equity does and how it impacts employment, restructuring companies, and the pensioners who invest in private equity funds.
Whereas the US venture capital industry has had decades-long support and representation via the National Venture Capital Association, buyout firms have not had a vehicle through which to work as a collective for achieving objectives on the regulatory front. With many buyout firms having mastered the delicate art of the club deal, achieving improvements in rules and regulations together should prove to be no more challenging than generating IRR as a consortium.