Paris Hilton has just got an extra bonus for getting out of jail. Private equity behemoth Blackstone Group shelled out $26 billion (Rs 105,200 crore) to buy out the Hilton group of hotels, in which her grandfather Barron Hilton owns 5 per cent, and controls another five per cent of the shares. And this is not even Blackstone’s largest deal. In February, it paid $39 billion to take over Equity Office Properties in the US.
Even that pales in comparison to the $ 48.5 billion (a shade under Rs 2 lakh crore) which a consortium of three private equity funds bid for Canadian telephony major Bell Canada Enterprise – the largest leveraged buy-out in history.
So what does all this have to do with the price of oranges in China – or in this case, India?
Plenty. India is emerging as one of the biggest centres of attention for private equity players. Giants like Blackstone, The Carlyle Group and Kohlberg Kravitz Robert & Co., have all announced that India will be a ‘key hub’ in their Asia plans. More than 100 private equity firms are already in India and the size of the India private equity market in 2007 is expected to hit $10 billion.
Even this is a tiny fraction of the kind of money that these players can actually bring to bear. According to data tracker Dealogic, global private equity firms blew $650 billion on buy-outs in 2006, and have a war chest of $750 billion yet to be deployed. But money is not the only reason why market regulators the world over are taking a hard look at private equity. There is the question of identity, for instance. Last year alone, private equity funds raised $632 billion in fresh funds – over and above the assets they already have under management. Almost all of this comes from faceless investors, who are essentially ‘unit holders’, who have put in money for a share of the profits. That money could come from anywhere. A lot of it is from wealthy individuals. Saudi Prince Alwaleed bin Talal’s Kingdom Holdings is estimated to be around the $ 17.6 billion mark, for instance.
However, an increasing amount is also from governments. The investment arms of Dubai and Singapore are well known players. China has already announced its intention of deploying a part of its trillion-dollar-plus reserves into equity buy-outs, through its recently formed State Investment Corporation (SIC). It is no coincidence that Blackstone’s greater China head, Antony Leung was formerly Hong Kong’s finance secretary and the senior-most ex-government official to join a private equity firm. His first deal? A $3 billion investment in Blackstone by SIC.
Regulators in developed markets are worried. The US Department of Justice has conducted an inquiry into private equity firms. UK’s Financial Securities Agency is conducting its own probe.
It’s time our own regulators looked beyond the quantum of foreign holdings – which is regulated at the moment – to its nature.