There are risks lurking in the world of private capital - FT中文网
登录×
电子邮件/用户名
密码
记住我
请输入邮箱和密码进行绑定操作:
请输入手机号码,通过短信验证(目前仅支持中国大陆地区的手机号):
请您阅读我们的用户注册协议隐私权保护政策,点击下方按钮即视为您接受。
FT商学院

There are risks lurking in the world of private capital

A recent court ruling against SEC reforms of the sector is an unfortunate blow to transparency and fairness
00:00

New Orleans is (in)famous for being a party town that seems to inhabit a parallel universe — what happens on Bourbon Street usually stays there, however wild. Not so, however, in America’s fast-expanding private capital world.

On Wednesday, the New Orleans-based Fifth Circuit US Court of Appeals ruled in favour of six private equity and hedge fund groups to toss out a transparency rule introduced last year by Securities and Exchange Commission. This had required private equity, hedge fund and real estate groups to start issuing quarterly performance and fee reports, perform annual audits, and to stop giving some investors preferential treatment over redemptions and special access to portfolio holdings.

Such concepts have long been standard in public markets. But they are anathema to many powerful private capital players. Wednesday’s ruling has thus sparked jubilation among many financiers — and dismay from progressives and consumer protection groups.

So what should sober-minded investors conclude? There are three key points to note.

First, this saga will underscore the impression that the US judiciary is becoming ever more partisan. After all, the reason the case was brought in New Orleans is that Louisiana is a red state whose Republican leaders are predisposed to dislike what the Democrat-controlled Washington administration does. Two of the three judges in the case were appointed by Donald Trump and the other by George W Bush.

Such legal forum shopping is not new, of course. But the stink of political partisanship in the US is rising today. And insofar as the New Orleans ruling reinforces the sense of a partisan judiciary, it is deeply unfortunate.

The second point is that because Republicans are forum shopping, more SEC initiatives may now be overturned. Recent proposed reforms to Treasury market trading and climate-linked reporting, say, look particularly vulnerable.

This is also unfortunate. Chopping and changing these rules will undermine confidence in the predictability of American policymaking. Moreover, the proposed reforms to the bond market and climate-change reporting are sensible: the former aims to reduce the (very real) risk that the Treasuries market will malfunction; the latter would just echo where most other major countries are heading.

The third big lesson from New Orleans is perhaps the most important: investors of all stripes need to get much savvier about the risks lurking in the private capital world. “Business” and “finance” news tends to focus on public companies which are, by definition, easier to track. But one oft-ignored reality of American capitalism is that private companies have always played a huge role in the economy. Another is that the footprint of private capital has exploded in the past two decades.

The American Investment Council says that the US now has 32,000 private equity-backed companies, employing 12mn, while 34mn Americans have pensions invested in this sector. Meanwhile, FTI Consulting estimates that average returns have been 15 per cent in the past 20 years — 50 per cent more than the S&P 500.

Private capital players argue that tighter regulations would crush those amazing returns and insist they are unnecessary since their investors are highly sophisticated. There is some truth to both points: the high-net-worth individuals who used to dominate the sector could and should understand the principle of caveat emptor; and public company reporting burdens are costly and clumsy.

Indeed, FTI calculates that the SEC’s disclosure proposals run to 650 pages, and points out that “unlike their large publicly traded counterparts . . . most private equity firms and real estate funds typically do not have large in-house compliance departments” to handle this.

But the sector is no longer just about sophisticated rich individuals; the reason those 34mn Americans have their pensions exposed to private equity is that numerous mainstream funds and endowments have recently rushed in. Given that, the SEC’s desire to inject more transparency and protection seems entirely understandable and laudable, particularly since higher interest rates will reduce returns in the coming years.

Of course, there is another way to resolve this problem: the asset owners themselves could now demand better disclosure — or vote with their feet, by leaving. I very much hope that more asset owners now do precisely this; it is the only rational response to Wednesday’s ruling.

But one problem with this scenario — that is, trusting in the power of market forces — is that private capital funds typically have long lock-up periods. Another is that financial history shows asset owners usually only demand basic levels of transparency after, and not before, a disaster hits.

Maybe private capital investors will be wiser this time? After all, the impact of rising interest rates on the business model of private capital is already becoming clear. But unless those asset owners do wake up and demand the type of transparency and fair treatment that the SEC can no longer enforce, some will face nasty shocks in the future. And such post-party hangovers are never pleasant, least of all when they’re unexpected. Just ask any hardened visitor to Bourbon Street.

版权声明:本文版权归FT中文网所有,未经允许任何单位或个人不得转载,复制或以任何其他方式使用本文全部或部分,侵权必究。

硅谷在特朗普支持下挑战欧盟技术规则

Meta等美国团体有了特朗普撑腰,试图让有关人工智能和市场支配地位的欧盟规定在执行时缩水。

欧洲如何在没有美国帮助的情况下保卫自己

欧洲各国正争相填补安全缺口,以防特朗普撤走美国驻欧军事资产。

比亚迪的战略转变将冲击全球汽车制造商

比亚迪将先进驾驶辅助系统作为标准配置,不收取额外费用,这将会削弱竞争对手的实力。

Lex专栏:欧洲天然气面临似曾相识的局面

除非欧洲大陆修复其潜在的能源结构,否则很难完全消除俄罗斯进口天然气的诱惑。

苹果悄悄转向印度

苹果希望在中国以外实现供应链多元化,印度能抓住这个机会吗?

“莫迪-特朗普”能源承诺为美国天然气出口商带来红利

莫迪和特朗普上周同意增加美国石油和天然气出口,这是两国贸易关系再平衡努力的一部分。
设置字号×
最小
较小
默认
较大
最大
分享×