Guest Column: Should Private Equity Stay Private?

Last week, leveraged buyouts heavyweight Kohlberg Kravis Roberts (KKR) detailed plans to list on the New York Stock Exchange by December 2008. See related post. After Blackstone, KKR is the second block-buster US private equity firm to go public. But, do private equity firms have more to lose than gain in going public? Subrata Majumdar heads product management for Thomson Reuters in Bangalore, with a special focus on private equity. He has spent over a decade leading initiatives in corporate treasury management, investment banking, consulting and software development in companies such as IL&FS and i-flex Solutions. Majumdar shares his thoughts on the imminent listing.

By Subrata Majumdar

The power of secrecy should not be underestimated. If it is a secret, it must be so for good reason. Confidentiality and a ruthless, single-minded determination to make money define the private equity business — adulated by many but understood by few. If the secrecy around the no-holds-barred deal (and money) making in private equity adds to the excitement, why give it up?

There are two main reasons why companies — any company — go public. One, to create liquidity so that investors can monetize. Two, to raise capital. Industry pundits argue that the reasons for private equity firms going public, do not fundamentally deviate from these two justifications. However, the motivation around the first justification — to create liquidity — is difficult to understand because fund managers in private equity firms are compensated in line with their investment performance.

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Limited Partner China

Missed this one last week. China is at it again. Chinese government agency, State Administration of Foreign Exchange (Safe), is putting $2.5 billion into TPG’s new fund, says the FT. This becomes the third flank opened by China in recent times to edge into the private equity business.

Last year, the government-backed sovereign wealth fund, China Investment Corporation (CIC), bought a 10 per cent stake in Blackstone for $3 billion, just ahead of its initial public offering. Post-Blackstone, CIC has been busy actioning new investment plans — see the Reuters report. Meanwhile, domestic pension fund National Council for Social Security Fund has turned limited partner for domestic buyout funds such as CDH Capital and Hony Capital — Bloomberg report here.

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