Under the umbrella of the financial services industry rests private equity. These organizations, which make strategic long-term investments through capital-intensive buyouts, have been at the epicenter of many economic debates in the past year. In 2005, the private equity industry saw large consolidations of size and power after the bubble burst. Rationalizing that many returns had been realized within a mature market, large private equity firms seeded many investments abroad with their higher amalgamated capital. The European and Asian markets saw the most attention given the sheer economic size and amount of restructuring opportunities. According to the Financial Times, partners of the three largest private equity firms made almost $22 billion of principal investments abroad this year.
The ability and capacity to not only capture growth, but also nurture it within a certain horizon has been adopted by global private equity firms. The Czech Republic is the largest private equity market in central and eastern Europe, training only Poland with approximately $171 million worth of investments last year, reported by the European Venture Capital Association. Furthermore, private equity has become a common denominator for African companies wanting to leverage foreign expertise to streamline their operations and fund expansion initiatives. Many African countries offer strong GDP growth and an escalating middle class for private equity firms looking to take advantage of low valuations and “embryonic stock exchanges.” In 2013 alone, there was a reported $678 million in deal value originated in West Africa and a total of 51 deals in Sub-Saharan African countries. Corporations have the agency to improve national competitiveness and enhance local wealth creation by increasing local employment.
However, private equity firms come with their fair share of risk and controversy. Eileen Appelbaum and Rosemary Batt’s recent book, Private Equity at Work, brings to light the issue of gross financial distress and disproportionate emphasis on cost-cutting, outsourcing, and wage and benefit losses for workers in domestic and foreign markets. However, there seems to be an assertive response happening within the industry. According to the Wall Street Journal, more private equity firms are using their own balance sheets rather than their funds to buy larger companies. With the “five-year investment horizon” being called into question, large institutional investors seem to be taking more of an activist role. What are your thoughts on the fluctuating trends in global private equity?