Buoyancy in deal-making notwithstanding, private equity firms face a tough future ahead as specter of tax hike and tougher regulatory measures loom large in the US and Europe, home to majority of Private Equities (PEs). Possibility of backlashes from investors in fast-growing Asian markets like India and China, dominated by family-owned businesses and stricter government regulations also cannot be ruled out. A string of failures that include some high-profile deals like Australia's Qantas Airways and China's Xugong are indications.
Even as more private equity firms look set to follow into the footsteps of Blackstone Group which recently went for an Initial Public Offering (IPO), termed as one of the most high-profile and the largest IPO in the US in the last five years, a public outcry threatens to spoil the party for the private equity players who use borrowed money to buy troubled firms and turn them around into profit machines, earn their big bucks by finally reselling them. However, the outrage has grown in recent times as political class in the US want them to come under stricter regulatory regime. Private Equities (PEs), which enjoy hedge funds-like freedom, have gained notoriety en route to their spectacular success during the last few years. Spearheading the war against PEs are Max Baucus, Democrat of Montana, and Charles Grassley, Republican of Iowa, as well as members of the powerful Senate Finance Committee, who have introduced a legislation that, if it comes into vogue, would deny the publicly-traded private equity and hedge funds of the favorable tax treatment as it would require publicly-traded partnerships to be treated as corporations for federal tax purposes. At present, PEs are taxed at the rate of 15%, which is much below 35%, the rate at which corporates are taxed. For private equity players who are fast spreading their wings globally, there would be more trouble elsewhere too. In UK, for example, the demand for tightening the regulatory noose around PEs is growing. To appease the critics, Gordon Brown, the new British Prime Minister, has hinted at stricter regulations. |
