New Survey: Federal Financial Regulations Causing Private Equity Concern
Worries that private equity-backed businesses will default on debt commitments Increased tax liability gives foreign competition advantage
Online, July 21, 2010 (Newswire.com) - NEW YORK, NY, JULY 20, 2010 - An increasing number of executives are concerned about government oversight and the affect it will have on private equity, according to a survey released today by Merrill DataSite®, the leading provider of virtual data room (VDR) solutions for business communication and information management.
More than a quarter (26.1%) of financial executives surveyed are extremely concerned with the increased government oversight and regulation in private equity, while almost half (45.9%) indicate they are somewhat concerned about these regulations. More specifically, over half (52.3%) of respondents think that the threat of increased tax liability placed on private equity firms in the U.S. will result in a disadvantage for domestic PE firms.
"The fear is that increased US government oversight will result in a greater level of disclosure and higher due diligence costs, culminating in a reduced level of available capital to private equity funds," said Richard A. Martin Jr, Senior Director of Merrill Datasite. "With one hand tied behind their back, American private equity firms will operate at a significant disadvantage to less regulated overseas PE firms."
In addition, 45% of respondents indicated that private equity managers are doomed to make risky investments due to the 'use it or lose it' structure of private equity investing. This does not bode well for the coming year, nor does the fact that about one-third (31.5%) of respondents think that more private equity-backed businesses will default on debt commitments in 2010 than in 2009.
"Firms are sitting on piles of capital with a 'use it or lose it' deadline looming," Martin said. "With money being harder to raise, firms may be willing to make increasingly risky investments."
Responses were drawn from the survey questions posed during a webinar called, "Riding Out the Storm: How Private Equity Firms Survive and Thrive in Tough Economic Times."
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