Current Topics in International Private Equity

Over the past decade, private equity firms have surged in popularity across the globe and have presented financiers with less regulated opportunities across international industries. Investment opportunities are typically less regulated because private firms aren’t required to register with governmental organizations who regulate the trading of shares.

For those unaware of what private equity is, it is a form of financing where a firm can become a major stakeholder in a private company. The end goal of this investment is to make the firm more profitable and then sell equity to a different private buyer or take the bought company public in an IPO. Usually, the investment horizon of this business is a minimum of 5 years.

Specifically, in Europe, private equity firms raised €74.5bn from investors. This is the continent's highest level of fundraising since 2008. This is fantastic for European businesses since almost 6,000 companies received part of this money. Of these companies, 83% were small and medium-sized.  Much of this capital is being devoted towards startup firms that are still in a growth period. This type of investing benefits society because it promotes innovation and is continuously encourages new business philosophy.

In Asia, private deal volumes have slowed down from their highs in 2015. This continent has seen their economic growth hampered a bit since China produced 10.3% GDP growth in 2010. In 2015 deal value peaked at $124 Billion compared to 2016 when the deal value was $92 Billion. 

When considering the economic cycle of private equity firms, they thrive in recessions because of their ability to buy firms at low valuations. The future of this industry in Asia is uncertain due to Asia’s recent political instability with North Korea.  Intangible events such as this cause panic. Another reason the deal volume slowed down is the conflict and tension of shipping rights in the South China Sea.

As we move forward, look out for geopolitical events in this region and how this financing method is affected.