The Global Economic Impact of Private Equity Report 2008 - World ...

PrefaceKevin SteinbergChief Operating Officer and Head of the Centre for Global Industries(New York), World Economic Forum USAMax Von BismarckHead of Investors IndustryWorld Economic ForumThe World Economic Forum is proud to release this firstvolume of Working Papers from our Globalization ofAlternative Investments project. This report is the culminationof a year-long partnership between leading internationalscholars, industry practitioners, other distinguished expertsand stakeholders, and our organization. We hope that theseWorking Papers represent a first step to providing acomprehensive and robust fact-base related to the globaleconomic impact of private equity to enable a rich series offurther discussions and analyses.Through recent years, alternative investment asset classessuch as private equity have become increasingly importantpools of capital in the global financial system. Private equityactivity in particular (defined as equity investments byprofessionally managed partnerships that involve leveragedbuyouts or other equity investments with a substantialindebtedness) has accelerated noticeably. The researchfinds that the total value of firms (both equity and debt)acquired in leveraged buyouts is estimated to be$3.6 trillion from 1970 to 2007, of which $2.7 trillion worthof transactions occurred between 2001 and 2007. Theasset class has grown in scale such that by 2005 about2% of non-government US employees worked for firmsthat received private-equity investment, and in globalscope such that a majority of private equity transactionsnow take place outside the United States. Simultaneously,many private equity firms have expanded dramatically insize and global reach, and the sector has attractedattention from many other players, such as politicians,regulators and organized labour.Just over two years ago, in recognition of the increasinglyimportant role and impact of private equity and otheralternative asset class investors on the global environment,the World Economic Forum launched its first new industrygroup in over 10 years, focused on the Investors Industry.tThe objective was to take advantage of our organization’smultistakeholder platform and link these industry players withthe diverse constituents already engaged with the Forum.Over 30 companies from the sector have since joined theWorld Economic Forum’s Investors Industry Partnership,committing to discuss key issues on a global and crosssectoralbasis and engage in dialogue, research and actionto address them.The research on the “Global Economic Impact of PrivateEquity” represented in this first volume of Working Paperswas undertaken as part of the World Economic Forum’sGlobalization of Alternative Investments project, which is thefirst mandated by the Investors Industry Partnership. Theanalyses and case studies herein were designed to helpbring a common, rigorous fact-base to a set of complexissues related to private equity and its economic impact inorder to contribute to a healthy financial ecosystem. Someare provocative and raise as many questions as they answer.All are meant to encourage a practical and policy-baseddialogue on the role of private equity firms and investments.They raise policy issues about innovation, employment andgovernance, and provide examples and data from both thedeveloped and developing world. Collectively, they provideas detailed and comprehensive an overview of private equityactivity as is available today.The Working Papers are, to our knowledge, an unprecedentedendeavour linking active practitioners, leading academics,institutional investors in private equity and other constituents(such as organized labour) and boasts involvement frommany parts of the globe. The core research team, led byJosh Lerner, Jacob H Schiff Professor of Investment Bankingat Harvard Business School, included:• Ann-Kristin Achleitner, Head of the KfW Endowed Chair inEntrepreneurial Finance and Scientific Co-Director of theCenter for Entrepreneurial and Financial Studies (CEFS),Technische Universität München• Francesca Cornelli, Professor of Finance, LondonBusiness School• Lily Fang, Assistant Professor of Finance, INSEAD• Roger Leeds, Research Professor and Director ofthe Center for International Business and Public Policy,School of Advanced International Studies (SAIS),Johns Hopkins University• Per Strömberg, Associate Professor of Finance,Stockholm School of Economics and Senior ResearchFellow, Swedish Institute of Financial ResearchThe Global Economic Impact of Private Equity Report 2008Prefaceiii