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EquityFC Blog
Is regulation for PE a bad thing? | 28 November 2009
The EU is on the brink of passing new disclosure regulations for private equity firms. Opponents claim this will cost funds £30,000 a year and that's got the BVCA's back up. They argue smaller PE firms will be worst hit and that could damage investment in smaller businesses.
I'm not so sure. Private equity should be working very hard right now to put itself well above any suspicion. After all, with hundreds of billions of dollars-worth of debt falling due in the next couple of years, there's going to be an awful lot of bad press as funds' equity is wiped out by bondholders.
This looming PR disaster (well, PR and, y'know, collapsing companies and mass unemployment) is well articulated by Josh Kosmanin this video, where he's plugging his new book. It's worth watching for a reminder about the danger of high leverage - although the fact you're reading this at EquityFD and EquityFC suggests you're looking for a challenge that's not merely about financial engineering.
Kosman signs off by asking why the debt interest tax shield is still in place. And his argument is pretty good. Tax relief on interest is there to promote investment in growth, not a gamble on enterprise valuation. And if ever politicians did get bold enough to repeal it (hint: they won't...), PE firms would have a lot more to complain about that a few extra disclosures.