Charles L. Evans,
; Daniel G. Sullivan,
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microeconomic policy research
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; RitaMolloy and Julia Baker,
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In the ﬁrst luncheon keynote address, Jacques Nasser, One Equity Partners(and former president and CEO of theFord Motor Company), explored privateequity investment strategies that target the auto industry. This industry is beingadversely affected by many trends in thecurrent economy, including high energy and commodity prices, falling consumerconﬁdence, and tighter credit. However,each of the three segments of the autoindustry (manufacturers, suppliers, anddealers) has signiﬁcant structural andoperational weaknesses that could pres-ent opportunities for private equity ﬁrms.Nasser also proposed a broader andlonger-term strategy—with investmentsin a range of new technologies that wouldbeneﬁt energy security and environmen-tal protection while generating proﬁtsfor both the automotive sector and theprivate equity industry at large.
Private equity ﬁrms continue to explorenew opportunities in Europe. SusanBoedy, Thunderbird School of GlobalManagement, moderated a panel on thesubject, and it included Paul Carbone,Baird Private Equity; Kurt Geiger, formerly of the European Bank for Reconstructionand Development; Mark O’Hare,Private Equity Intelligence; and HelgePetermann, Capital Dynamics. Europeanfunds have delivered strong returns formany years. Private equity investment inEurope is roughly similar to the amount invested in the U.S., but the Europeanmarket is much more complex and dif-ferentiated by region and country. Forinstance, Eastern Europe continues todemonstrate strong demand for privateequity, particularly for the growth andexpansion capital variety, yet many re-gions in Europe remain underpenetratedby private equity. In 2007, Europeanfundraising was dominated by buyout,real estate, infrastructure, and mezzaninefunds. The regulatory environment variesconsiderably by country, with the UK generally favoring industry self-regulationand countries on the continent favoringmore direct government regulation. Venture capital is relatively underdevel-oped in Europe. Panelists attributedthis to the general lack of geographicalclusters that combine human and ﬁnan-cial capital, technology, entrepreneur-ship, and academia (such as Silicon Valley in the U.S.). European returnshave yet to be signiﬁcantly affected by the credit crunch. Regarding the future,the large number of family-ownedEuropean ﬁrms with succession issuespresents great opportunities, particularly for buyouts. However, European coun-tries often have structural impedimentsto private equity strategies, such as restric-tive labor laws. Panelists agreed on theneed to ﬁnd experienced local partnersin order to successfully navigate thecomplexities of European markets. Another panel focused on the rapidly emerging market of China. This panel wasmoderated by John Crocker, Citigroup,and featured Christopher Lane Davis,of McCarter and English; Gary Lawrence,Excelsior Capital Asia; Eugene Pohren,PCG International; and Andrew Rice,The Jordan Company. According toCrocker, private equity investments inChina in 2007 totaled $12.8 billion,roughly matching 2006 levels; the num-ber of deals increased in 2007 by 37%, to177. China’s legal and regulatory environ-ment is developing to foster increasedprivate equity investment in the years tocome. However, signiﬁcant barriers ex-ist that discourage traditional foreigninvestment. These hindrances includecultural issues, banking sector problems,discrepancies in the legal system, andgovernment restrictions. Lawrence de-scribed how government policy is shiftingtoward greater energy efﬁciency and en- vironmental protection, more investment to reduce income disparities, and devel-opment of the ﬁnancial sector. According to Pohren, in 2007 early stage/growth capital strategies represented 38%of private equity investment in China, with buyouts representing only 13%. Riceexplained how Chinese companies havebeen looking to foreign partners not only for capital but also for guidance regardingcontrols and procedures to help them be-come world-class global suppliers. Finally,Davis proﬁled the relatively small venturecapital segment of the market that is cre-ated by government entities, which differsmarkedly from venture capital in theU.S. and other developed economies.
Management of conﬂicts of interestand spinoffs
Private equity investing coupled with otherbusiness activities, especially within bank-ing organizations, inherently generatesmany potential conﬂicts of interest. Man-aging these conﬂicts is an essential ele-ment in reducing legal and reputationalrisks. Kenneth Wilcox, SVB FinancialGroup, discussed how his ﬁrm (a bankholding company headquartered inSilicon Valley) addresses these issues. Wilcox detailed a wide range of potentialconﬂicts of interests that can arise in hisorganization. For example, the pursuit of LP interests could be contrary to cor-porate shareholder interest (and vice versa), or the pursuit of personal interestsby employees could hurt shareholdersor LPs. Key defenses against conﬂictsare clearly deﬁned responsibilities andseparation of duties, clear prohibitions,clear incentives, an appropriate “toneat the top,” a strong culture of ethics,and severe and immediate consequencesfor policy violations.For strategic reasons or as a result of merg-er consolidations, management teamsresponsible for private equity activitiesare often “spun off” from banks and otherﬁnancial institutions. A panel, moderated