2008 Global Private Equity Report

Investment Management and Real Estate
Seeking differentiation at a time of change*

Global Private Equity Report 2008
*connectedthinking
Contents
1 PricewaterhouseCoopers
01 Introduction/highlights 2
Differentiating private equity businesses in difficult markets 2
02 Analysis 4
Sustainable growth becomes critical 4
Building the business model 8
Reconciling responsibility with returns 12
Fair value challenges in the current environment 16
Addressing tax in a wider world 20
BRIC opportunities – and the accompanying risks 26
03 Statistics 38
The world view: investment & fund raising trends 40
The world view: high-technology investment trends 44
The world view: expansion investment trends 45
The world view: buyout investment trends 46
Data sources 47
North America 48
Europe 50
Asia Pacific 52
04 Disclaimer and contacts 54

01 Introduction/ Differentiating private

highlights
equity businesses in
Brendan McMahon
PricewaterhouseCoopers
difficult markets
(Channel Islands) After the unprecedented financial events of the past year, private equity
+44 1534 838234 is operating in an environment where fundraising will become more
[email protected] competitive. What is more, as the turbulence affects the ‘real
economy’, so investing will be more difficult.
In this new world, the industry needs to make use of the flexibility it has been so well-known
for over the years.
PricewaterhouseCoopers1 believes private equity is embarking on a new phase – that the

industry is at an inflexion point, if you like – and that firms need to adapt. They need to look
long and hard at how they create value. They need to consider how this is reflected in their
brands. Not only will they have to change, they will have to demonstrate how they are
anticipating tomorrow’s world, to differentiate themselves.
The data at the back of this report shows how much the world has changed in just a few
months. Our comprehensive global investment and fundraising data for 2007 demonstrates
an industry where buyout investment was still thriving, and high-technology and expansion
capital activity was in line with 2006 levels.
1
PricewaterhouseCoopers’ refers to the network of
member firms of PricewaterhouseCoopers
International Limited, each of which is a separate
and independent legal entity.
Clearly, in the autumn of 2008 no private new set of management and control In certain countries, tax structures that Just as the benign conditions of the past
equity firm can take growth for granted. challenges. appeared secure are being challenged. A five years fostered a phase of growth when
Based on our internal experience and greater awareness of tax risks is required. large buyouts became increasingly
conversations with leading industry players, Reconciling responsibility with returns dominant, so in the coming years the
this report highlights some of the challenges Until recently corporate responsibility BRIC opportunities – and the industry will reshape itself again to adapt to
and opportunities we view as shaping appeared to offer few advantages for private accompanying risks the new environment.
private equity’s future. equity. It was chiefly seen as having a brand While emerging markets are clearly
or investor relations benefit for companies in vulnerable to the global crisis, their medium-
the public arena. Now this is changing, as term growth prospects still appear better
Key report headlines sustainability issues look likely to have a than those of the developed economies.
major impact on companies’ bottom lines. Expansion of their middle classes is leading
Below is a brief summary of the issues
to huge new consumer markets. Private Brendan McMahon
addressed in the report: Fair value challenges in the current equity houses need to have emerging Global Investment Management &
environment market strategies. Yet these economies
Sustainable growth becomes critical Real Estate Private Equity Leader
The move to fair value reporting in today’s have idiosyncratic regulatory, legal and
The most important form of differentiation
market conditions, made necessary by new taxation environments. Careful planning,
is performance. This is becoming far harder
accounting conventions, will make for a structuring and due diligence is essential.
to achieve. With a less supportive capital
difficult 2008 year-end accounting process.
market environment, firms have few options
Achieving it means addressing a whole set
other than to achieve this by improving the
of practical issues. But with investors A new phase
businesses in which they invest – so
generally dissatisfied with the standard of
increasing the pace of growth. This means a Taken individually, these issues have
reporting received from alternative
shift in skill sets and culture for many firms. implications of varying seriousness for
investments, fair value is an important step
private equity. When combined, however,
Building the business model in the right direction.
they mean that firms have to make
The logic for private equity firms to diversify significant changes across their firms –
Addressing tax in a wider world
into other alternative asset classes is from value creation, through to structuring,
As private equity has become a global
not diminished by the downturn. As controls, reporting and so on. In addition,
business, and an owner of increasingly
macroeconomic and capital market they may face greater regulation – notably
high-profile businesses, so the tax issues
conditions change, so opportunities emerge within the European Union, where there are
it faces have become more complex.
for different strategies. Building bigger, more calls for tougher capital requirements.
diversified businesses introduces a whole
02 Analysis Sustainable growth

becomes critical
The economic slowdown is forcing private equity firms to focus on
Chris Hemmings earnings growth as the primary driver of internal rates of return. Some
PricewaterhouseCoopers (UK) firms will find this easier to achieve than others.
+44 20 7804 5703
[email protected]
Tougher trading conditions throughout most economic sectors are hastening a significant
shift in the way that private equity creates value. For several years, firms have been stepping
up their efforts to increase growth in their portfolio companies. Now, the downturn means
they are focusing on this as a matter of urgency.
Whereas previously private equity firms have achieved high returns through clever
acquisitions, balance-sheet restructuring and rising valuations, today their investment theses
have little choice but to target growth improvements. In order to achieve this, they need to
be able to help businesses make organisational changes and operational improvements.
Consequently, private equity firms are working their portfolio companies harder and making
solid business management skills a core competency. Those that do not already have
appropriate in-house expertise are hiring operationally experienced managers and
specialists in organisational change and turnarounds, to complement existing in-house
resources.
Competition increases not just cost savings. Private equity

‘It’ll be a period where
investors ranking in the top quartile for
As the private equity asset class has grown
and matured, so the basic premise for value
investment returns in this next phase of the
market will be those who not only buy well,
actually hard work
creation has changed. In the industry’s early
days it was possible to buy companies at
but also adapt quickest to the need for
hands-on professional management.
will need to be applied,
realistic prices and then incentivise the
What is more, hiring the right people to
and firms will have to
management to implement strict cash flow
and cost disciplines. The resulting growth in manage the portfolio companies will ensure
that the dealmakers within firms are not
get used to living with
earnings and surplus cash flow generated
significant equity value at the time of exit. spending all their time fixing the problems
emerging in existing portfolio companies.
the fact they’ve got
Over the past decade, however, it has been Instead, they can focus on taking advantage portfolios of companies
harder to find undermanaged businesses in of the opportunities that will undoubtedly
the mature Western economies. Fortunately, arise in the volatile market we will that are not performing
during this period, private equity investors experience over the next 18 months.
have been able to rely upon increasing so well. It’s going to be
levels of cheap debt, together with Routes to earnings growth
ever-rising valuation multiples to create quite a period of
equity value. Leverage and multiple
arbitrage were a potent cocktail for
Perhaps the most popular avenue for
earnings growth by private equity firms is
change.’
unusually high equity returns. through ‘buy and build’ strategies in
fragmented industry sectors. Typically, this Jon Moulton,
As has become painfully clear, however, Managing Partner, Alchemy Partners
is done by buying a core ‘platform’ business
the credit crunch has blown away these
and then using small bolt-on acquisitions to
favourable conditions and they are unlikely
add scale and create synergies. Further,
to return. In the absence of ever-increasing
small bolt-on acquisitions will generally be
leverage and buoyant industry valuation
made at lower multiples, and as such will
multiples, private equity investors must now
average down the overall acquisition price.
rely on EBITDA growth within their portfolio
companies. This growth will have to be
generated through top-line revenue growth,
Sustainable growth Some firms are using buy and build as a

way of accessing the faster growth
their business practices and then seeking to
implement these practices in their own
becomes critical opportunities of emerging market
economies. Those that do not have offices
portfolio companies.
in these countries are often nervous of Changing the resource mix

making direct investments and, therefore,
prefer to gain exposure through their The clearest sign of the changing value
portfolio companies. creation model is the evolving skill sets
within private equity firms. Broadly
These buy and build strategies work well
speaking, the change is least pronounced in
when the management team has good
the US private equity firms as they have
integration expertise. Sometimes, this
always employed an operating partner
expertise can be introduced through the
model. This has involved the use of ex-
appointment of new board members;
industrialists and business managers who
however, there are many instances of
would play an active role on the boards of
private equity firms embarking on such
all their portfolio companies, helping
a strategy without integrating properly
management to implement change and
the acquired companies. The result is a
drive strategic developments. By
string of related businesses, and little real
comparison, the European firms tended to
value creation.
adopt a more hands-off role on operational
Another common approach is to use matters. But now, many Europeans are
external consultants to work with recruiting operationally qualified people to
management to achieve best-practice in key help them take on a more proactive role of
areas of operational performance. portfolio management.
Previously, private equity firms might have
In the best of these firms, the portfolio
insisted that a portfolio company’s
management team is now involved in an
operational key performance indicators
investment right from the inception of the
(KPIs) be improved to match the best in its
deal. They help to formulate and test the
sector. Now, they may go further, asking
investment thesis. They then actively assist
which business sector has the best
the company’s management with its
performance in each of those KPIs, studying
implementation, bringing in relevant

expertise as necessary to facilitate
strategic change.
Securing a profitable exit

When it comes to exiting a portfolio
company, demonstrating a sustainable
earnings growth profile will become
increasingly important. Generally speaking,
buyers will be harder to find since private
equity investors are less inclined to buy
from each other and the public equity
markets will become increasingly
discriminating at a time when there is little
confidence in capital markets. In order to
achieve top quartile returns going forward,
private equity investors will therefore have to
put in place portfolio management
disciplines, which will promote the
development of clear market leaders in their
portfolio, with a demonstrable trading
record for revenue and earnings growth.
Without these characteristics the list of
serious buyers willing to pay reasonable
prices will remain short.
02 Analysis Building the

business model
Shifting economic conditions are strengthening the motivation for
Brendan McMahon building diversified stables of investment strategies. Yet the creation of
PricewaterhouseCoopers larger businesses must be accompanied by appropriate controls.
(Channel Islands)
+44 1534 838234
[email protected] The current uncertainty in financial markets appears likely to fortify the trend towards
diversification of private equity firms’ business models. Firms have been steadily expanding
their businesses beyond US and European leveraged buyouts for several years. Now, there
is an even greater logic in having a diversified product range – as some asset classes are
more suited to generating investment gains through the trough of the cycle than others.
Certainly, there are examples of private equity firms taking advantage of financial turmoil to
diversify – either by buying new investment businesses from within troubled banks or by
hiring experienced investment banking executives who can spearhead expansion into new
asset classes and geographies.
This drive to build stable business models has also led to the listing of private equity
businesses. By listing on public equity markets, firms gain an additional currency for
attracting and motivating talented employees. Equally importantly, going public
institutionalises the issuer, solidifies the issuer’s institutional presence and enhances
the brand name. On the debit side public listing brings with it a whole host of new
responsibilities and obligations as well as putting the spotlight on short-term
earnings performance.
Profiting from and protecting Brand is particularly important in today’s

‘I think what you are
uncertain environment. Those managers
the brand
with sustained performance, appropriate
fiduciary controls and a good record for
going to see is a natural
As managers seek to build bigger and
broader businesses, brand has become managing talent will have enhanced brand
recognition. It is imperative that appropriate
evolution of firms taking
especially important. Several of the larger
managers clearly believe long-term corporate governance structures exist within
private equity firms to facilitate the long-
their networks and their
leadership in private equity has imbued their
brand with value that facilitates expansion term success of organisations. As private brand into other fields
into complementary new businesses. They equity managers have more significant
will benefit from substantial synergies jurisdictional and product diversity, such where they can get
across all of these businesses, including the governance structures are critical in order to
ability to leverage the extensive intellectual manage associated investment risk. a return.’
capital that resides throughout their firms.
Investments for all seasons Marc St John,
When extending their businesses, firms are Partner, CVC Capital Partners
cautious not to take risks that could Infrastructure is one of the asset classes
damage the brand. For this reason, they that private equity is diversifying into most
have tended to focus on asset classes that actively. Institutional investors have an
require investment skills related to private appetite because they consider the stable
equity, such as infrastructure, real estate cash flows of infrastructure assets – such as
and debt. Expansion into the other big toll roads and power stations – resilient to
alternatives area – hedge funds – has fluctuating market conditions. US and
tended to be more limited, due to the European managers have recently
different skills required. expanded into this area and recruited
appropriate expertise. They view this as an
asset class that requires investment skills
similar to those applied in their core private
equity business, and another source of
profit with which to support resource-
intensive international office networks.
Building the There is huge scope for infrastructure

investing. This is a multitrillion-dollar
The challenge for managers looking to
diversify into areas such as infrastructure
Other firms have gained investment from
sovereign wealth funds (SWFs), which are
business model global marketplace with enormous need for
private investment. Developing countries
and debt is to understand the specific
requirements of those sectors in terms
investing directly into private equity
managers, as well as in their underlying
such as China and India recognise the of fund structures, managing the associated managed funds. Through such strategic
critical role infrastructure plays in supporting tax risks, recruiting suitable expertise investments private equity managers are
economic growth. and shaping investor reporting. They building strong relationships with SWFs,
also need to formulate a control which facilitate fundraising in the future.
Debt funds are a further example of environment to mitigate, among other Given that private equity firms are unlikely to
diversification into an asset class where things, investment risk. be accorded a high valuation in today’s
private equity-type investment skills are markets, SWF investment may be a better
relevant. In the current environment, alternative for some firms.
where banks have struggled to syndicate Going public
leveraged debt, there are unique Yet, being a public-listed vehicle brings
In the past few years, private equity groups
opportunities for traditional private equity a host of additional responsibilities –
have raised significant funds at the
managers who have developed deep not least the need to demonstrate strong
corporate level through public market
expertise through decades of structuring and appropriate corporate governance
listings, partly to finance the handover of
leveraged financed buyouts. models. Most alternative asset managers
private equity firms from the founding
that have listed have invested significant
Some private equity managers are going partners to a new generation of managers.
time and money preparing their internal
further and establishing distressed debt In the current environment, listing is
control structures. In some cases, they will
funds to take advantage of the increasing obviously more difficult, although there
be required to comply with Section 404 of
range of loan types now trading at deeply remain strong reasons to do this, ranging
the Sarbanes-Oxley Act 2002, concerning
discounted prices. from motivation of employees to
the scope and adequacy of the internal
institutionalising the brand and gaining an
control structure and procedures for
acquisition currency.
financial reporting.
Controlling diversity Clearly then, private equity players will

continue to develop new businesses
In order to support diversified product and capital sources to further leverage
ranges, a number of private equity their brand, information advantage,
managers – now more akin to fully fledged substantial resources and sourcing
alternative investment managers – are capabilities…compelling economics and
transforming their internal corporate scale! They will, however, have to make sure
management structures, and this has that internal processes support such
included the appointing of chief executive growth. Industry players moving in this
officers and chief administrative officers. direction will be the leading alternative
Building robust management structures is investment managers of the next decade.
critical for attracting investors looking to
shift assets to leading global alternative
managers, particularly those with strong
brand recognition and diversity of
investment strategy.
02 Analysis Reconciling responsibility

with returns
As pressure increases on private equity to become more accountable,
Geoff Lane corporate responsibility appears increasingly likely to affect investment
PricewaterhouseCoopers (UK) returns.
+44 20 7213 4378
[email protected]
Until recently corporate responsibility appeared to offer few advantages for private equity.
It was chiefly seen as having a brand or investor relations benefit for companies in the
Phil Case public arena. Now this is changing, as sustainability issues look likely to have a major
PricewaterhouseCoopers (UK) impact on companies’ bottom lines.
+44 20 7213 4166
[email protected] Additionally, pressure from stakeholders such as politicians and union officials has led to
calls for private equity to become more accountable. This has resulted in the UK’s Walker
Report transparency guidelines – published in 2007 – and current pressure for legislation
within the European Parliament.
For private equity companies, then, sustainability is showing signs of affecting their ability –
both positively and negatively – to deliver returns for investors. For example, environmental
issues are both creating opportunities for businesses to grow and significant potential
liabilities that have to be managed. The move towards a cleaner world is opening up
whole new product markets, while at the same time gradually forcing companies to pay for
their pollution.
Yet, although climate change is currently the effects on exit values. Indeed, as Figure 1: CR as a key driver of added value
most urgent issue within the sustainable sustainability becomes more accepted
development agenda, other issues such as for its relationship to a business’s value,
poverty, natural resource depletion and it may also help private equity firms to
• Reputation enhancement
scarcity, population increase and differentiate themselves – both to
• Product/service
demographic changes may also affect the prospective portfolio companies and differentiation
prospects of private equity portfolio investors. In a tough fundraising climate, • Sustainable operating model
Opportunity
companies. this could be especially useful.
Data shows clearly how energy technology

Specific benefits investments are multiplying as countries
strive to achieve ambitious targets for
PricewaterhouseCoopers’ work with
greenhouse gas reductions under the Kyoto
corporate clients to quantify the value of
Protocol framework. According to New
sustainability-related programmes has
Energy Finance, investment in clean energy Operational efficiency Increasing value
important lessons for private equity portfolio
rose by 60% in 2007 to US$148.4 billion,
companies. Our work is demonstrating the
due to supportive policies around the world,
following benefits:
high oil prices and growing consumer and
• Adding to cash flow in the long term business awareness.2
through ‘eco-efficiencies’ and operational
But new investment opportunities are
cost reductions;
not only related to well-publicised products
• Ensuring easier access to finance by such as wind turbines or solar panels.
Risk
reducing risk, therefore achieving a lower There is an increasingly clear focus on

weighted average cost of capital; the value of carbon, which is influencing • Operational risk
project economics: the availability of carbon • Licence to operate
• Creating major new ‘green’ product lines, credits from a Clean Development • Regulatory compliance
with opportunities for increased revenue, Mechanism project, for instance, might turn • Reputational risk
especially through ‘clean technology’. a marginal project into a profitable one.
By contrast, a company that is bad at
Evidently, then, for private equity firms, managing emissions will increasingly have
factors such as these could have significant a substantial cost to bear. 2
www.newenergymatters.com/download.php?p=about&n=NEF_Week_in_Review_04-03-2008.mht&f=WiR_mhtfile&t=weeklybriefing.
Reconciling With a growing acceptance that doing

nothing is not an option, private equity
Of course, a degree of environmental due
diligence has long been a feature of
There are already cases where high-profile
deals have been restructured for corporate
responsibility companies must choose their strategic
stance, both at an organisational and
investment appraisal. However, to be truly
effective investment screening now needs to
responsibility reasons. In one case, when a
large US private equity firm acquired a US
with returns investment level. At one end of the scale,
management might prefer to take a
include consideration of longer term trends
for consumer or supply chain demands,
state’s largest power generator, a critical
condition of the deal was scrapping all but 3
defensive, compliance-based approach. resource availability and human rights and of 11 planned new coal-fired stations.
At the other, as shown in Figure 2, they labour issues (particularly for investments in This was due to controversy over their
could use corporate responsibility to developing countries). At the aggregate environmental impact, the potential costs
positive effect. They could embed corporate investment portfolio level too, attention is of carbon emissions and related impact on
responsibility throughout their firm, so needed. A series of investments, which by the generator’s share price. The generator is
enhancing the value of portfolio companies themselves appear to carry acceptable now investing US$400 million over five
and making their brands synonymous with levels of corporate responsibility risk, may years in energy efficiency and conservation,
the sustainability agenda. together represent a very different ‘basket’ introducing corporate policies tied to
of risk. This is particularly the case if climate stewardship and strengthening its
What private equity can do stakeholders can identify trends in a pattern environmental policies. Since this
of investment that they consider announcement, the company’s share price
Those private equity houses that have irresponsible and unacceptable. has improved.
actively begun work on the corporate
So the identification of wider stakeholders Looking forward, we believe that private
responsibility agenda have started by
and the undertaking of a ‘risk mapping’ equity firms will start to take corporate
ensuring that their own operations are being
exercise (where issues are linked to those responsibility increasingly seriously, both in
run on environmentally and socially
stakeholders most affected or concerned) is response to external pressure and as it
responsible lines, through energy efficiency
a useful starting point for strategic corporate becomes increasingly relevant to portfolio
programmes, employee equality and
responsibility management. In this way, company performance.
diversity initiatives, and so on. However, by
reputational risks related to investments can
far the bigger prize, and therefore where Our experience suggests that the
be identified early.
most investment is being made, is in the assessment and management of material
area of investment policies and procedures. non-financial issues is already affecting
company valuations. Responsibility is being
reconciled with returns.
‘When we come to
Business and financial services embraces corporate responsibility think about the
The concept of sustainable development has increasingly gained currency. Climate change is currently the most high-profile issue
within the sustainable development agenda, although poverty, natural resource depletion and scarcity, population increase and
progression of a
demographic changes are also receiving increasing attention – nationally and internationally – among both government and private
sector organisations. Underlying this is the recognition that these challenges are increasingly affecting government and private sector
business to an exit,
organisations’ ability to operate. Business’s crucial role in contributing to sustainable development through corporate responsibility by there’s plenty of
achieving an appropriate balance between environmental, social and economic impacts is now widely acknowledged.
evidence now to
Given its facilitation of all forms of economic activity, financial services is regarded as having an important role in promoting greater
corporate responsibility. Many leading banks and insurance companies have made significant progress in managing the direct and show that the value
indirect environmental and social impacts of their core-lending and investment activities.
of a company will
Recent examples of guidelines and voluntary principles related to environmental, social and governance issues, adopted by the
financial services industry are: The UN Principles for Responsible Investment, an investor initiative developed in partnership with the be enhanced if the
UN Environment Programme Finance Initiative and the UN Global Compact. As of January 2008, the guidelines had been adopted by
nearly 360 financial institutions globally, representing over US$14 trillion in assets under management, up from 180 signatories and potential shareholders
US$8 trillion in assets under management in 2007.
feel confident about
a company’s
governance, in terms
of its approach to the
range of issues under
the CSR agenda.’
Chris Rowlands,
3i Managing Partner for Asia
02 Analysis Fair value challenges in

the current environment
Fair value presents challenges, but is also an opportunity to improve
Nick Rea transparency for investors.
PricewaterhouseCoopers (UK)
+44 20 7212 3711 Fair value is one of the hottest topics facing the alternative investments sector today. We are
[email protected] seeing an increase in the pressure that investors, regulators and auditors are placing on
valuation at a time when we are experiencing:
• The most difficult economic conditions in years;
• A significant decrease in stock market values across most sectors;
• An increased focus on debt values; and
• A decrease in the number of transactions.
This combination of events promises to make the current valuation process extremely
difficult at a time when falling stockmarket valuations are likely to mean significant write
downs for private equity investments at the year end. As a result, we expect to see a high
degree of internal and external challenge in the valuation of unlisted investments by private
equity companies and hedge funds this year.
The journey to ‘fair value’ and policy in the industry. This factor, % Institutional investors’ views on the quality of information of valuation techniques
alongside the lack of transparency of
The old principle of keeping investments at valuation techniques and assumptions, is in 70
cost (less any diminution) provided far fewer part responsible for recent initiatives such
challenges, especially in a rising market. as the Hedge Fund Working Group and the 60
59
Now, fair value is increasingly required, due development of International Organisation 50
56
to the accounting requirements of of Securities Commissions (IOSCO) and 50
International Financial Reporting Standards Alternative Investment Management 40
(IFRS) and US generally accepted Association (AIMA) guidelines – all of which 30
accounting principles (GAAP), and the highlight valuation as a key area for
27
increased application of the International improvement. In addition, in the UK we have 20
22 21
Private Equity and Venture Capital seen the Walker Guidelines that look at
10 14 14
Guidelines (IPEVCG) and US Private Equity transparency in its wider context 12
9 7 9
and Investment Guidelines (PEIGG). surrounding private equity. 0
Very good or good Average Poor or very poor Don’t know
These guidelines advocate the use of This is supported by the recent
certain valuation methodologies and provide PricewaterhouseCoopers/Economic
■ Hedge Funds ■ Private Equity ■ Private Equity
some structure to enable consistency of Intelligence Unit briefing on alternatives
approaches in the industry. ‘Transparency versus returns: The
institutional investor view of alternative
However, these guidelines alone will only assets – March 2008’3. This highlighted
help to a certain extent and there are a the disconnection between the perceptions
number of areas that are subjective and for of investors and providers of information.
which judgement will be required. Some 63% of companies considered that
their valuation policies were effective at
We have observed that some companies
managing risk, but investors largely
have responded well to this challenge,
disagreed. Only 25% of private equity
whereas many have struggled. As a result
investors thought that valuation policies
there is some inconsistency in approach
were effective in this respect.
3
PricewaterhouseCoopers/Economic Intelligence Unit briefing on Alternatives ‘Transparency versus returns: The institutional investor view of alternative assets, March 2008’, pages 12 and 27.
Fair value challenges in In addition, it emerged that only around

one in five respondents considered the
Practical issues • Debt value – Consider the fair value of
debt and do not simply assume that book
the current environment current disclosure levels to be ‘good’ or
‘very good’ across the alternatives industry,
We see a number of practical issues
including:
value is appropriate.
as shown below in the chart opposite. • Fund of funds – The lack of detailed
• Use of companies that are not information to arrive at fair value is
So why is fair value important? Some in the comparable or incomplete list of providing difficulties for fund of funds,
private equity industry would argue that, as comparable companies used – when particularly as they meet the requirements
portfolios are usually held in close-ended using an earnings-based approach, the of FAS 157 in terms of the determination
funds, cash at exit is all that matters and, choice of comparables and where this of ‘principal market’ and ‘market
therefore, fair values are purely an changes from prior year needs to be participant’, the lack of identical actively
accounting issue. understood. traded investments, the concept of orderly
transactions and secondary market
However, the briefing again provides an • Averaging – The averaging of multiples is considerations.
interesting perspective on this. Performance not best-practice valuation and while it is
was the overriding criteria for considering a mentioned in the IPEVCG and PEIGG
third-party provider of alternative guidelines, it is not recommended best- Response to the challenges
investments, with 72% of respondents practice. The average of values derived
We are seeing some private equity houses
highlighting this compared to just 33% for from different approaches is also to be
and hedge funds applying significant
quality of reporting. Yet, when it comes to avoided.
resources to the valuation exercise,
deselecting a provider, these factors are
• Application of generic assumptions – including the use of third-party experts. It is
considered of equal importance, 41% and
Items such as marketability discount rates also apparent that the level of internal
40%, respectively. Clearly, investors want
on an investment-by-investment basis. challenge on valuations involving pricing or
regular and robust information and will exit
valuation committees is increasing.
funds if this is not made available.
• Maintainable earnings and application
of a consistent multiple – The fair value There are clear benefits from a rigorous and
of an investment should be based upon a regular valuation process, including the
sale in its current condition and based on ability for investment managers to:
an appropriate multiple.
• Communicate to investors where value is • Document your rationale – All valuations Conclusion
being added or lost over time in a fund by are underpinned by judgement – ensure
‘Fair valuing positions
reference to the fair value of specific
portfolio companies;
the thoughts and drivers are clearly
documented and cover all key points.
Historically, some private equity firms have
been criticised for applying excessive
is a big challenge
• Make informed decisions on entry and • Sense check results – Think about and
caution – quick to write down, slow to write
up. It is clear that such an approach is
for funds-of-funds.
exit by understanding upside and
downside scenarios;
document how the proposed value
compares to last year, recent transactions
generally no longer consistent with GAAP Typically funds-of-
and such practices are coming under
• Meet the requirements of IFRS and US
and the entry multiple. increasing scrutiny from investors, funds rely on the
regulators and auditors who demand a
GAAP accounting standards and therefore
to satisfy auditor review; and
• Be consistent – Use the same valuation
methodology from one period to the next
robust assessment of fair value. funds’ fair market
• Produce regular valuations where
and avoid changing approaches
unnecessarily. This will help to identify real
While this represents a challenge for all valuations.’
those in the industry, a key positive
investors trade on monthly net asset value value movement. outcome would appear to be an opportunity Christophe Florin,
(NAV) in respect of open-ended funds.
to maximise client retention. This is essential Managing Director of Asia,
• Consult – Developing a robust approach
Whether valuations are done in house or by for any private equity company operating in AXA Private Equity.
can be time-consuming. Be sure you have
an external party, we think that the following the increasingly uncertain and volatile
consulted internally (and with external
are essential to a smooth process: markets today.
advisors) before developing the valuation
process.
• Involve the investment manager –
Do not leave the valuation in the hands
of a member of the finance team alone,
as they may not be involved in the
management of the investment. However,
be aware the dealmaker’s interpretation
of fair value may not necessarily be
consistent with the requirements of IFRS
or US GAAP.
02 Analysis Addressing tax in a

wider world
The increasingly global presence of fund managers, coupled with
Oscar Teunissen the growing sophistication of tax authorities, makes building holistic
PricewaterhouseCoopers (US) internal procedures to manage tax risk essential.
+1 (646) 471 3223
[email protected]
As their investment portfolios become ever global, private equity houses are confronted
with increasingly complex tax risks and structuring challenges. The private equity industry
Thomas Groenen has undergone unprecedented global expansion in recent years and many of the new
PricewaterhouseCoopers (US) territories in which funds are invested, or looking to invest, have relatively undeveloped
+1 (646) 471 7026 (and in some cases unpredictable) taxation systems, particularly where international tax
[email protected] issues, such as permanent establishment (PE) and beneficial ownership are concerned.
In the more developed economies – which remain important markets for private
equity houses – tax risks are increasing, as we see a proliferation of audit activity
around transfer pricing, jurisdictional substance and PE, as well as a plethora of new
anti-avoidance measures.
More positively, increased global competition has prompted many governments to introduce
favourable provisions, exemptions and safe harbours in a concerted effort to entice
investment managers and funds onshore.
This article considers certain key tax risks and opportunities in the new global private equity
landscape. It offers some practical recommendations and perspectives on how private
equity houses can effectively manage these new challenges, as well as avail themselves of
certain opportunities.
The importance of managing Managing ‘permanent particularly across the emerging markets,
to go where the deal is. That is to say, the
tax risk establishment’ (PE) risk
analyst or portfolio manager may want to be
It is incumbent upon fund managers to Investment capital and the management of local to a specific deal, to be on the ground
manage tax risk effectively on a global basis it are highly bifurcated functions in today’s to take part in negotiations, to do physical,
for the funds they manage – not only to global financial services world. Typically, on-the-spot research or simply to be able to
discharge fiduciary responsibilities they have private equity houses set up funds in assess the deal in person without any time
to investors, but also to avoid potential jurisdictions whose corporate law zone delays. Managers are now extremely
financial loss and reputational damage. environments are favourable and tax mobile and often undertake their duties in
There have recently been a number of well- regimes flexible. The fund manager and its multiple locations throughout the year.
publicised disputes between fund managers sub-advisory entities are usually formed in A critical question is whether this behaviour
and tax authorities around the world, onshore jurisdictions, such as the United could create a taxable presence (i.e. a PE)
resulting in unwelcome reputational damage States or the United Kingdom, or, more for the lead manager, or, worse still, the
for the manager, even where the challenge recently, in countries that are geographically fund, in these global locations? Given the
was ultimately unsuccessful. In the most proximate to the manager’s target markets draconian consequences associated with a
serious of situations, noncompliance with (e.g. Brazil, Russia, India or China). PE finding, managing PE risk should be at
local tax laws can lead to financial penalties Managing capital in a taxing environment the core of a manager’s overall risk
or even jail time for executives. invariably exposes the fund to a certain management strategy.
degree of PE risk, i.e. the risk that a taxing
A fund manager’s ability to manage tax risk Mitigating PE risk:
authority could deem the fund to have a
is becoming an ever-important selection PE risks can be mitigated in various ways.
taxable presence, either because it
criterion for investors, who are becoming The use of operating guidelines (curtailing
conducts its business through a fixed place
increasingly sophisticated, knowledgeable local investment professionals’ authority and
of business or through a dependent agent.5 4
PricewaterhouseCoopers/Economic Intelligence Unit
and experienced. For example, we are ability to make decisions), as well as sound briefing on Alternatives ‘Transparency versus returns:
seeing a greater allocation of funds from Private equity managers have traditionally corporate governance arrangements, are The institutional investor view of alternative assets, March
large institutional investors.4 Further, the established themselves in financial centres two common techniques. PE risk can also 2008 revealed a strong desire among investors for better
risk management, controls and transparency.
advent of FIN 48 (which is relevant for those such as the United States or the United be mitigated by strategically deploying 5
In the international tax context, and in accordance with
funds using US GAAP and discussed in Kingdom. However, with the increasing senior investment professionals (e.g. those guidance issued by the Organisation of Economic
more detail below) has further heightened globalisation of investment portfolios, individuals who have discretionary authority Cooperation & Development (OECD), a dependent agent
to bind the fund) to jurisdictions that is generally considered to be a person who acts on behalf
the importance of managing tax risk on a investment professionals are being of a foreign enterprise and has, and habitually exercises,
global and ongoing basis. deployed on a more global basis, have introduced trading safe harbours. an authority to conclude contracts in the name of the
enterprise.
Addressing tax in a Trading safe harbours are favourable

provisions that allow advisory entities to trade
negotiating on behalf of an offshore fund,
even within clearly defined and limited
ultimately instructs the fund, or the general
partner of the fund, to invest or divest).
wider world with discretion on behalf of nonresident
funds without creating a PE for the fund.
parameters, can in some jurisdictions lead
to a PE finding. Certain countries, typically
If locally based investment professionals,
responsible for sourcing investment
those in the emerging markets, afford local opportunities, serve on the investment
Trading safe harbours around the world are managers a certain degree of latitude to committee, care must be taken as this
not uniform. For example, certain negotiate within predefined limits (without arrangement could expose the fund to
investment transactions or asset classes creating a PE for the fund). However, this is binding authority PE challenges in certain
may be covered by the UK Investment a contentious, and often grey, area of jurisdictions. Ideally, local investment
Manager Exemption, but not the Hong Kong international tax law that can be subject to professionals should not serve on
Trading Safe Harbour. Private equity houses sudden change and interpretation by a investment committees. If their participation
should look to take advantage of such taxing authority. The ability to negotiate is important from a commercial perspective
arbitrage opportunities, particularly in locally should be reviewed on a case-by- – which can be the case – they should
today’s environment where deals are case basis, in light of prevailing laws and abstain from voting on any investments or
becoming more esoteric and the financing practice. Where a certain amount of opportunities that were within their sourcing
of them more complex. Further, fund dealmaking authority has been delegated, mandate. Professionals based in certain
managers should continually monitor the the parameters should be very clearly jurisdictions should not be on the
scope of any safe harbour upon which they defined and documented. Should a local investment committee whatsoever given the
rely, or they are considering relying on, as sub-advisor wish to exceed its imbued underlying risk and uncertainties.
the rules can and do change.6 authority, it should do so only under explicit
authorisation from the lead manager, and Activities undertaken for
In jurisdictions that do not have trading safe portfolio companies:
such authorisation should be clearly
harbours, PE exposures are generally Directors or employees of the management
documented. Depending on the jurisdiction,
mitigated by limiting the activities of local company will typically perform services
6
For example, the Singapore safe harbour was recently operating in this way may expose the fund
changed with the issue of two circulars in June 2007 and investment professionals to research and for portfolio companies, ranging from
to an unacceptable degree of PE risk and
August 2007. The new circulars abolished the ‘80:20 rule’ perform other sub-advisory services. directorships to active participation in
and expanded the definition of designated investments. fund managers may wish to limit, in form
Operational guidelines are typically used to day-to-day operational affairs. Such service
A qualifying fund will now be granted the exemption and in substance, certain delegated
regardless of the residency of its investors. do this. From an operational (i.e. doing arrangements should be carefully
authority.
7
These provisions do not provide a safe harbour for certain business) standpoint, it is often desirable to structured. Care should be taken to
activities, but rather require that the investment manager imbue local investment professionals with a
in Japan is independent from the fund, requiring a case-
Care must be taken when forming the demonstrate that local investment
by-case analysis. certain amount of authority to interact with investment committee (i.e. the body that professionals are, in substance and form,
8
Circulars were issued June and August 2007. local targets and shareholders. However,
acting for, and on behalf of, the portfolio Singapore has recently expanded the to tax on its worldwide income, is another decision-making powers are not exercised
company, and not as representatives for the definition of ‘designated investments’ that important risk that private equity groups equally by all directors. In the UK, for
fund. Certain practical measures can be qualify for its fund regime and has simplified should carefully manage. If an offshore fund example, the revenue authority has alluded
taken to evidence the former, for example, the regime by abolishing the ‘80:20 rule.’8 or special purpose vehicle (SPV) was found to the possibility that a foreign company
by ensuring that local investment A qualifying fund will now be granted to be resident outside of its country of could potentially be considered a UK tax
professionals enter into separate contracts exemption, regardless of the residency incorporation, the consequences could be resident if UK resident directors routinely
with portfolio companies pursuant to which status of its investors. draconian – not least because any participate in board meetings by telephone
they (or the local sub-advisors by whom incremental tax paid by the fund could from the UK. Most tax practitioners would
they are employed) are remunerated directly In Switzerland, while there is no trading safe represent a ‘deadweight’ cost for the SPV now generally advise UK resident directors
for services rendered. harbour, per se, private equity and hedge and its investors. against dialling in to board meetings from
fund managers can negotiate favourable tax the UK.
Opportunities: rulings with the Swiss tax authorities, which While the criteria for determining tax
While global tax risk is arguably increasing, will allow them to exercise discretionary residency can differ across jurisdictions, it is Mitigating tax residency risk:
funds, fund managers and their principals trading powers without creating a PE for the common for a company to be considered a Tax residency risk can be mitigated through
have been presented with a number of offshore fund. There are also proposals to tax resident in the jurisdiction in which it is the use of guidelines and sound corporate
opportunities in recent times. For example, introduce favourable rules governing the incorporated and/or effectively or centrally governance arrangements. The best form
in a quest to become financial centres of taxation of income earned by private equity managed and controlled. of defence from any revenue authority
choice, certain jurisdictions have liberalised principals (e.g. carried interest) who reside challenge that a company is resident (say in
their trading safe harbours, and in some and work in Switzerland. Factors that can heighten tax a taxing jurisdiction) is to have a properly
cases introduced a plethora of domestic residency risk: constituted board that holds genuine board
exemptions, designed to entice hedge and Fund managers should consider the array Certain foreign taxing authorities have meetings overseas with nonresident
private equity managers to migrate or of opportunities on offer, recognising the begun to focus on residency as a potential directors, making real decisions that are
establish their operations onshore. dichotomy that can exist between means to increase tax revenues and certain documented. Further, there should be
jurisdictions whose goal is to attract private fact patterns may, or are more likely to, adequate guidance and controls in place
Japan, for example, has recently introduced equity houses, and those who view the trigger residency inquires. For example, regarding the conduct of board meetings
an independent agent exception, which industry as a target for raising revenues. where some or all of the directors of an and other management decision-making
allows an independent agent to trade in offshore SPV reside in one taxing activities, reflecting any specific residency
Japan on behalf of a nonresident fund Managing tax residency risk jurisdiction, directors who regularly travel to rules in each of the relevant jurisdictions.
without creating an agency PE.7 An a particular jurisdiction and make
attractive feature of this regime is the ruling Tax residency risk, i.e. the risk that an entity management decisions there, a
procedure, which can allow fund managers could be considered tax resident outside of concentration of directors in one jurisdiction,
to operate with a high level of certainty. its jurisdiction of incorporation and subject or board arrangements under which
Addressing tax in a Transfer pricing advisory offices, fund managers should

revisit their TP models as historic
transfer of shares in a Mauritius company
on the basis that the profit arose from the
wider world In recent years, transfer pricing (TP) has
attracted a lot of attention from taxing
methodologies, e.g. cost plus may no
longer be appropriate; transfer pricing is
underlying shares in an Indian company.
The matter is currently pending before the
authorities around the world, particularly in neither an exact science nor a static target. Bombay High Court, and the Indian revenue
the asset management space. A robust TP authorities have proceeded to issue notices
policy should be a critical component of any Treaty-based structures to several other multinational companies in
global private equity manager’s overall tax similar situations. In light of the prevailing
risk management strategy. While TP is Most private equity houses employ treaty- uncertainties, fund managers should tread
primarily an issue for the manager, in terms based structures to mitigate exposure to carefully when structuring in to India.
of how to allocate management and source country taxation by investing through
performance fees across the management Substance:
09
The term ‘beneficial owner,’ for instance, can be difficult treaty-protected special purpose holding
to define. It is typically an undefined term in double-tax company and sub-advisory structure on an A sustainable treaty-based structure is one
companies. The use of SPVs to obtain
agreements, left to be interpreted under domestic law. arm’s length basis, in some cases weak or that has sufficient legal, operational and
The OECD Working Party 1 will be considering the treaty protection and other tax benefits (e.g.
inadequate TP could adversely affect the economic substance in the jurisdiction in
definition of ‘beneficial owner’ as a result of some recent reduced withholding taxes) is subject to
cases in this area. See, for example, the Indofood case in fund. In Japan, for instance, where an which the SPV (or SPVs) is incorporated.
ever-increasing scrutiny by taxing authorities
the UK, where it was held that an interposed company independent agent was introduced earlier If there is ‘insufficient’ substance in the SPV,
would not have been entitled to treaty benefits. Indofood across the world. In the UK, for example, a
this year, TP for the investment manager is a taxing authority in an investee jurisdiction
International Finance v. JP Morgan Chase Bank, [2005] nonresident treaty lender, who wishes to use
EWHC 2103 (Ch.) rev’d [2006] EWCA Civ 158. expected to be critical to its application. could seek to deny it treaty benefits and
a double-tax agreement to exempt UK-
10
Prevost Car Inc. v. Her Majesty the Queen, 2008 TCC other domestic exemptions. The difficulty is
sourced interest payments from withholding
231. This case considered the meaning of the term A recent judicial pronouncement in India that substance requirements are determined
‘beneficial owner’ in the context of Canada’s income tax tax, must first obtain treaty clearance before
further underscores the importance of primarily by the countries where the assets
treaty with the Netherlands. A Dutch holding company interest can be paid gross.
received dividends from a Canadian company and made robust TP, as an Indian court held that are located, rather than by the territory
distributions to its shareholders in Sweden and the UK. where a foreign enterprise has a dependent In India, the tax authorities have been where the entity is established. This makes
The Canadian tax authorities attempted to deny benefits
under the Canada-Netherlands treaty and levy the higher
agent in India (and thus an agency PE), then scrutinising private equity investments and it difficult to provide a universally accepted
rates of withholding tax applicable under the nothing further is taxable in India in the have been aggressively investigating deals definition of substance as the requirements
Canada–Sweden and Canada–UK treaties. It was hands of the foreign enterprise if the correct vary from country to country.
ultimately held that the Dutch company was in fact the involving the transfer of interests in
beneficial owner of the dividends and entitled to the arm’s length price is applied and paid. As companies with underlying Indian
reduced withholding tax rate applicable under the private equity houses expand their global Building sufficient substance for tax
investments. In the high-profile Vodafone
UK–Netherlands treaty. The court concluded that the management company footprint and deploy purposes can give rise to practical
beneficial owner of a dividend is the person who case, the Indian tax authorities attempted to
more senior executives to local sub- difficulties and challenges, particularly as
‘assumes and enjoys all the attributes of ownership’ of tax a nonresident on the profit from the
the dividend. there are no agreed-upon standards.9
Tax authority practice is a very important ‘Super’ holding company platforms: GAAP) must now formally document and Outlook
aspect of determining whether the level of Private equity houses have traditionally assess their inventory of Uncertain Tax
substance in an SPV is sufficient, and employed treaty platforms on an investment- Positions (UTPs). The issues discussed As investors become more sophisticated,
treaty-based structures can be vulnerable to by-investment basis. Building sufficient above – PE, residency, TP and treaty coupled with the arrival of FIN 48, fund
sudden changes in tax authority practice. substance in each SPV can be challenging shopping issues – are all, by their nature, managers are under increasing pressure to
What constitutes ‘sufficient’ substance is and in some cases simply not practical. potential UTPs. effectively manage tax risk. The advent of
highly fact-specific and must be assessed For this reason, PE groups are now globalisation has only confounded this
on a case-by-case basis. There are, considering the use of ‘super’ holding Investments in certain jurisdictions can challenge, as fund managers are confronted
however, certain best-practices that can platforms where substance is built in a single cause specific issues from a FIN 48 with increasingly complex tax structuring
be implemented to evidence substance for entity, rather than across many. If properly perspective. For example, for nonresident and compliance challenges in emerging
tax purposes, for example, holding regular implemented, such a structure may be less funds (hedge and private equity) making and, in some cases, frontier markets, as well
board meetings in the jurisdiction of susceptible to challenge by a foreign taxing investments in Australia, gains may be as disparate sources of tax risk, which they
incorporation, having local directors and a authority than the traditional multiple holding considered at Australian source and are obligated to monitor and manage.
local office with local employees. It is also company model. Private equity houses technically subject to tax at 30%. In
important to respect the form of the should consider ‘super’ holding company practice, this tax may never be collected, As taxing authorities become increasingly
structure chosen and the underlying structures, recognising that pooling yet an accrual could still be required for sophisticated, the risk of triggering a tax
transactions. For example, ensuring that investments through a single holding financial statement purposes, resulting in a nexus or filing obligation in an onshore
funds flow through local bank accounts company can pose practical complications potential noneconomic liability, which jurisdiction for the fund is only likely to
owned by the SPV is very important. and fiduciary issues and may, depending on directly reduces the fund’s NAV and could heighten and, therefore, whatever FIN 48’s
Further, following recent cases like the investor mix, be impractical. cause a myriad of problems if the liability destiny, fund managers across the globe
Prevost,10 the SPV should have as much still exists when liquidating the fund. should build and develop robust internal
‘dominion’ and ‘control’ over the funds and procedures to holistically manage tax risk
FIN 48 Despite the challenges arising from FIN 48, and stay abreast of key developments in the
incomes it receives; conduit arrangements,
some would argue that the standard has territories in which they invest or deploy
whereby the SPV is contractually compelled The advent of FIN 48 (the Financial ameliorated the operational effectiveness of investment professionals. Fund managers
to pay out any income received, should Accounting Standards Board’s clarification many in-house tax functions, as companies should also look to take advantage of the
be avoided. The notion of beneficial of accounting for uncertainty in income must now evaluate potential tax issues on a opportunities that have surfaced as
ownership in the international tax context is taxes) has served to heighten the real-time basis and not, as historically may competition between financial centres, to
a fluid concept which fund managers should importance of managing global tax risk, as have been the case, upon audit. attract asset management firms, intensifies.
monitor in light of their structures. private equity houses (whose funds use US
02 Analysis BRIC opportunities – and

the accompanying risks
11
Fund investment in the fast-growing economies of Brazil, Russia,

India, China (BRIC) and other emerging markets has been growing
rapidly, as the data in the final section of this report shows.
Furthermore, the expansion of private equity portfolio companies into
these markets has been pronounced.
With rapid economic growth and the expansion of the middle classes, private equity firms
have been attracted to these countries by the significant earnings growth prospects that do
not exist to the same extent in developed countries.
Yet these opportunities are accompanied by a different set of risks to those experienced in
Europe and the US. These business risks are specific to each country and generally relate to
regulatory and fiscal regimes.
Clearly, all international private equity firms have needed a BRIC strategy over the past few
years. At the same time, however, they have needed to be highly aware of the challenges in
each country.
The articles below outline the growth of each of these markets, and some of the
issues faced.
11
Source of acronym: Dreaming With BRICs: The Path to 2050, Goldman Sachs, 1st October 2003
Brazil Fundraising for dedicated regional/country

funds climbed by 54% to US$19.20 billion.
in 2004, the Comissão de Valores
Mobiliários (CVM – Brazil’s financial
With Brazil by far Latin America’s largest regulator) introduced regulation of private
After a long period of improving economy, it has taken a fair share of this equity activity. This regulation requires a
macroeconomic fundamentals, Brazil amount. high level of corporate governance and
achieved an investment grade credit rating transparency.
in April 2008, when Standard & Poor’s Many of the global private equity giants
raised the country’s long-term rating to have entered the market – joining other Additionally, Brazilian authorities are
investment grade BBB-. This was granted in international and local players that have following the trend towards accountability
recognition of sustained economic, fiscal been investing for some time. All of these and transparency seen in other countries.
and political stabilisation. Significantly, the firms have been competing vigorously for They are currently considering what
rate of inflation has been substantially opportunities among themselves and with constitutes best-practice for evaluating
reduced and the external current account strategic investors. private equity portfolio investments.
and public sector deficits have been
brought under control. A significant part of this activity has involved
consolidation opportunities. In 2007, the Improved tax treatment
Against this background, economic GDP main acquisition targets for funds were real
growth was 5.4% in 2007 and the Brazilian Recently, Brazil’s high tax burden has been
estate/shopping malls, as well as
real appreciated strongly. Furthermore, there reduced in order to encourage investment.
companies in the construction, food and
was significant M&A activity, setting a This particularly affected Brazilian private
consumer goods, IT, education, finance and
positive context for private equity. The equity funds and foreign investments made
mining sectors. Additionally, deal size
number of announced deals increased by in the stock market.
started to increase from the small- to mid-
25% to 718, compared to 573 in 2006. market transactions that have historically Broadly speaking, provided some specific
Market data also indicates a stable deal dominated the market. requirements are followed, the income
flow for 2008, which is positive given the derived from private equity funds – paid,
turbulent global financial conditions.
Modernised regulation credited or remitted to nonresidents – is
Private equity has been increasingly active, exempt from taxes in Brazil. Certainly, this
gaining share within the Brazilian M&A In the past three years, regulations have more favourable tax treatment to foreign
market. Our survey data shows the value of been improved, taking into account the investments has encouraged the growth of
funds invested in Latin America rising an sophistication and complexity of private private equity.
enormous 74% to US$35.61 billion. equity transactions today. Most importantly,
BRIC opportunities – Conclusion There is, however, no certainty that Brazil,

along with all other countries, will not be
and the accompanying In the first months of 2008, private equity
investment activity gained momentum, even
affected by the credit crisis. Furthermore,
trends in inflation and commodity prices
risks compared with 2007’s high level. Economic
GDP growth is expected to be in the region
may impact economic growth. Longer term,
however, the government’s hard-won
of 4.5% and the market is excited about economic reforms remain in place, and
concentration opportunities and the ‘new’ there is a substantial amount of private
credit market (i.e. the availability of credit in equity capital waiting to be invested.
the real estate and auto markets, with
assets being financed for the long term at
Alexandre Pierantoni
reasonable interest rates).
PricewaterhouseCoopers (Brazil)
The main sectors for investment are likely to +55 11 3674 3666
be healthcare and outsourcing services, [email protected]
agribusiness/ethanol and biotechnology,
real estate/shopping malls, food and João Gandara
consumer goods, IT, education and finance PricewaterhouseCoopers (Brazil)
– these last ones for consolidation/bolt-on +55 11 3674 3899
strategies. Infrastructure, given Brazil’s [email protected]
public sector deficit, is also a sector where
there may be opportunity.
Russia has benefited from rising global demand

and prices for the many commodities
Private equity expansion infrastructure, manufacturing, construction
and real estate, and financial services.
dominated by local players
it produces.
With favourable macroeconomic conditions,
Russia has been increasingly viewed as an Consequently, rapid growth, high margins
The Russian private equity market has Five challenges when closing
attractive investment destination. It is not grown rapidly over the last five years. private equity deals in Russia
and low competition – and numerous
always perhaps the simplest place globally Transactions have become larger, reaching
attractive target opportunities – add up to
to invest, but the potential rewards can an average of US$60 million in the first eight Yet Russia presents substantial challenges
an attractive environment for private equity.
more than adequately compensate for the months of 2008, and the number of deals as well as compelling opportunities. Private
Since foreign direct investment has been
necessary additional effort. has steadily risen, with 28 closed.12 Local equity firms should be prepared to
comparatively low and the consolidation
players have dominated so far, with an understand these challenges and adjust
process still under way, there are many
The Russian economy for the last decade estimated US$10 billion under management, their business approach in order to address
first mover advantages for new entrants.
has been a remarkable story of resurrection but potentially as much as US$40 billion at them successfully.
Private equity investors can still make
and transformation. The economy has their disposal. Some are arms of investment
substantial gains from introducing higher
grown for the last five years at average banks. Others are connected to leading 1. Local business practice and culture
quality management and controls. In more
annual rates exceeding 7%. During this financial industrial groups. will significantly influence the structure
developed markets, operational gains
time, the Russian rouble has also and timing
often come from cost-cutting measures – However, foreign players have struck many
consistently strengthened, as the country’s in Russia the major challenges are
foreign currency reserves have grown from of the largest private equity deals. The An understanding of ‘soft’ or cultural
frequently coping with growth and with largest was the April 2008 US$800 million differences is often a key to success in
US$55 billion in 2003 to US$581 billion as upgrading technology.
of August 2008. In short, Russia has acquisition by a US buyout group of a 50% negotiations with vendors. Proper due
become a more stable and extremely stake in SIA International, Russia’s largest diligence is even more important in Russia
Although the world financial crisis is also
profitable place for business. pharmaceutical distributor. Prior to this, the than in developed markets in order to have
affecting Russian companies’ liquidity
largest private equity transaction was the a clear picture of a company’s finances,
positions, it may reduce valuations of
Prudent fiscal policy and sound economic October 2007 US$500 million acquisition of operations and competitive position.
Russian companies and open up
reforms, such as the comprehensive tax Nidan Soki, Russia’s leading juice producer,
opportunities for private equity to finance
simplification, have supported this by a UK buyout specialist. However, most
companies that were previously planning to
economic renaissance. And public and transactions have ranged between US$10
raise finance through initial public offerings
private investment in infrastructure and million and US$50 million. The most active
(IPOs) or have outstanding short-term
construction has increased the economy’s sector has been consumer products and
debt instruments.
efficiency. Rising real wages are driving retail, but activity has been robust also in
strong consumer demand. Further, Russia 12
www.capitaliq.com
BRIC opportunities – Many targets are unfamiliar with the due

diligence process and are often surprised at
Typical tax issues related to leveraged
buyouts (LBOs), such as deductibility of
Tax risks are an important area of focus
during the due diligence, since aggressive
and the accompanying the detailed list of documents they have to
provide. Inexperienced vendors tend to rely
interest on acquisition debt and VAT
treatment of transaction costs are often not
‘tax optimisation’ methods applied by
potential targets often result in substantial
risks on the private equity firm to arrange advice
on the transaction structure as well as how
explicitly covered by the legislation. The
treatment is, therefore, based on general
historic tax risks for buyers. To decrease tax
obligations, companies sometimes transact
to address historical tax risks, identified provisions of the law, which are sometimes business through SPVs at non-market
during the due diligence. Target ambiguous. prices. Even companies that prefer to
representatives may have limited experience operate transparently are sometimes
of dealing with international holding Determining market level interest rates on pressed to engage in such practices, merely
structures. Commonly, Russian targets shareholder loans and guarantee fees, to remain competitive in the marketplace.
prefer Cyprus or Cyprus-BVI as a location which is usually required in LBOs, is also a Such practices can distort the financial
for holding companies, and rarely have challenge in countries where limited public condition and performance of the
experience with the Netherlands or information is available. In particular, tax enterprise, making valuation of potential
Luxembourg. authorities sometimes do not understand acquisitions more difficult.
the underlying concepts of pricing debt,
Also, dealmaking can be more complex and different levels of security, subordination of However, the extent of aggressive tax
take longer than in other, more orthodox loans and other factors, which explain the avoidance schemes began to fall
markets. Some regulatory processes (e.g. variance in interest rates on different types substantially after 2005. This is particularly
anti-monopoly clearances) may play a of debt. important, as the statute of limitations for
significant role in the transaction timing. most tax-related matters is three years; so
Binding rulings, which are widely used in as of this year, the potential tax exposure for
2. Anticipate a higher level of uncertainty Western Europe, are usually not available in past transgressions is substantially reduced.
Russia. To keep risk at a reasonable level it Another way to minimise exposure to
It is important to understand that tax is crucial to understand both the wording of historic tax risks is through careful
legislation in Russia was put in place only the law and the approach of the tax structuring of the transaction. For example,
approximately 15 years ago and is still authorities, as well as the trends in it is possible to purchase only selected
developing. Lack of official interpretations, legislation and practice. Upfront discussions companies or assets, leaving potentially
guidelines and precedents add to the with the tax authorities are largely unhelpful, riskier elements of the business outside of
uncertainty in assessing tax risks associated because of their inexperience, somewhat the transaction.
with investments. bureaucratic approach and propensity to
change their opinions later.
3. Presume complex debt pushdown growth rates have been high enough that minimal tax leakage at completion, during cross-guarantees within the group expose
strategies leverage is not actually a critical element to the life of the investment and upon exit. some loans from third parties to thin-
make a deal profitable. In addition, financing capitalisation restrictions, whereas normally
Pushing debt down into the operating is less readily available, as Russia has not Cyprus is a commonly used jurisdiction; in this would not be the case.
companies is a typical requirement of yet developed high yield bond or mezzanine many cases the targets already have Cypriot
lending banks, since they require direct finance markets. Eventually, however, as the holding companies. However, other popular
access to cash for debt servicing and to the locations for intermediary holding and Conclusion
Russian market matures, leveraged deals
assets in the case of default. Moreover, the will probably become more common for the financing companies are also possible, e.g.
There are plenty of opportunities for private
tax savings from deduction of acquisition same reasons leverage is a value driver the Netherlands due to their beneficial
equity in today’s Russia, as long as
debt interest at the level of operational elsewhere. holding regimes.
investors understand and mitigate the risks.
companies may have a considerable impact
5. Expect more complex security Doing so requires patience, careful study
on the economics of the deal for private 4. Manage cash flows with more care
packages for banks and due diligence, and advisors who know
equity investors.
While the deal structure usually does not the local market and conditions.
Tax grouping, one of the simplest methods directly affect the generation of cash from The provision of debt financing is
for achieving tax deduction of interest on operations, it may significantly affect the conditional on providing an adequate
Galina Naumenko
acquisition debt in Western Europe, is practicality of moving cash quickly for security package to banks. This is most
PricewaterhouseCoopers (Russia)
nonexistent in Russia – although there is servicing the debt. If the acquisition loan is commonly achieved through a combination
+7 495 232 5784
draft legislation that may introduce it soon. provided to a holding company, the legal of pledges on shares and assets, and
[email protected]
restrictions on paying dividends and making provision of guarantees, ideally by target
Traditional debt pushdown techniques other cash transfers from operational companies.
generally do not work, mainly for accounting subsidiaries to the parent company need to Andrey Shpak
and legal reasons (for example, technical On the one hand, Russia does not have any PricewaterhouseCoopers (Russia)
be taken into account.
insolvency). Therefore, more complex financial assistance rules, which often +7 495 967 6244
alternatives need to be devised, often Since Russia is not part of the EU, it cannot complicate structuring security package in [email protected]
involving group restructuring at acquisition. rely on the EU Parent-Subsidiary Directive some European countries. On the other
This significantly affects the timing of the to avoid taxation of distributed dividends. hand, banks typically require that extensive
cross-guarantees be provided by Richard Gregson
transaction and may increase overall risk. Therefore, the double-taxation treaty
operational and holding companies. In PricewaterhouseCoopers (Russia)
network and withholding tax rates on
This is one of the reasons why, unlike in Russia, the tax treatment of provision of +7 495 967 6327
interest and dividend payments must be
more mature markets, leverage is not guarantees free of charge is unclear and [email protected]
taken into account when developing holding
commonly used. However, historically, and financing structures. This ensures may lead to a tax exposure. In addition,
BRIC opportunities – India 60% of the total population – continuing for

15 years before declining.
mid-market firms. At the same time, some
large Indian firms have been established.
and the accompanying India is a trillion-dollar economy and a major India is the third largest economy in the Investments have included late stage,
emerging global market. Economic GDP world in terms of purchasing power parity. venture capital and private investment in
risks growth has been 8-9% for each of the last And McKinsey & Co predicts that if India public entities (PIPE).
four financial years, making India one of the continues its current growth path, it may
world’s fastest growing economies. The become the world’s fifth largest consumer Respectable returns have been achieved
government has targeted an annual growth market by 2025. over the past two years (2006 and 2007),
rate of 9% till 2012, although it has revised encouraging more investment. Furthermore,
its GDP estimate to 7.8% for FY09. the average deal size has increased
Private equity doubles in a year remarkably from about US$16 million in
Healthy characteristics of India’s growth 2005 to US$36 million during 2007.15
have been the consistently increasing Such rapid growth has caught the attention
savings and investment rate, as well as its of global and domestic private equity Regulatory aspects
broad-based nature. Both ‘new economy’ players alike, leading to an upsurge in the
industries like information technology and activity from 2004. In 2007 alone, private Private equity funds are controlled by
biotechnology, and ‘old economy’ sectors equity investment rose by a staggering regulations, which specify how and where
like metals and capital goods have 136% to US$17.5 billion.14 they can invest.
been major contributors. Signifying the During 2005 and 2006, activity was primarily
strength of India’s economy, by May 2008 Foreign Direct Investment:
concentrated around IT and outsourcing. Most private equity funds make foreign
foreign exchange reserves reached However, since then sectors like engineering
US$316.2 billion. direct investment (FDI) under the automatic
and construction, banking, financial route, which does not require any prior
There is a rising middle class and large services, insurance, manufacturing, energy, approval. There are exceptions, however.
working age population. Roughly a quarter real estate and telecom have all become Some sectors investments have caps on
of the world’s population under the age of active. There has also been progress in the investment (e.g. 26% in insurance, 74% in
25 live in the country – and 80% of Indians development of infrastructure projects, banking, etc.). And in others, specific
are under 45. The BRICs report13 estimated especially in transport, power and telecom. conditions must be satisfied (e.g.
13
Dreaming With BRICs: The Path to 2050, Goldman
Sachs, 1st October 2003. that India’s working-age population (15–60 construction development projects,
A number of international private equity
14
PricewaterhouseCoopers/AVCJ Guide to Venture Capital years) would peak around 2020 at just over non-banking finance companies). FDI is
in Asia. firms have entered the market in recent
prohibited in a few sectors (such as
15
Venture Intelligence. years – both large houses and smaller
multi-brand retail trading, gambling and including exemption from certain pricing
betting, etc.) and in certain other sectors guidelines prescribed by the Reserve Bank
‘Private equity will
(such as broadcasting, courier services,
print media, etc.), it is only allowed with the
of India. Further, while SEBI guidelines
for public share issues require a minimum
become a more
approval of the Foreign Investment
Promotion Board (FIPB).
one-year lock-in after IPO, FVCIs are
exempted from this lock-in requirement if
important source of
Foreign institutional investors:
they have held the shares for at least one
year before the IPO. They can, therefore,
capital going forward –
Foreign institutional investors (FIIs),
including private equity funds so registered,
exit immediately. given it is stable and
investing in the public markets, have to
comply with the Securities and Exchange Taxation aspects longer term in nature
Board of India (SEBI) (Foreign Institutional
Mitigating the risk of Permanent coupled with the fact
Investors) Regulations, 1995. These limit
Establishment (PE) status arising is essential
FII investment in an Indian company to
if a fund is to avoid paying local tax.
that a lot of alternative
10% of the capital, and limit the aggregate
investments of all FIIs and its sub-accounts
In particular, it is important to take care
since more value-added asset management
sources such as hedge
to 24%, the latter limit being amenable to
modification subject to sectoral limits.
functions are being carried out in the
country. The structure and operations of the
funds and proprietary
Foreign venture capital investors: fund, the asset management company and
the Indian adviser all need to be carefully
investments by banks
Foreign venture capital investors (FVCIs) are
governed by the SEBI (Foreign Venture considered. As an observer member in the will certainly be hit
Capital Investor) Regulations, 2000, which OECD, India has provided comments in
require at least two-thirds of all investments the 2008 update of the OECD Model Tax on account of the
to be made in unlisted equity shares or Convention. Some of these comments
equity-linked instruments. Under this route, which impact the PE status deviate from recent crises.’
a foreign investor registered as an FVCI can OECD positions and need to be carefully
invest in a Venture Capital Undertaking, considered while structuring investments Amit Chandra, Managing Director,
either directly, or through a Domestic into India. Bain Capital Advisors (India)
Venture Capital Fund. The FVCI structure
has advantages over the pure FDI structure,
BRIC opportunities – A recent telecom deal has brought to the

fore a new tax issue. India’s revenue
equity inflows into India in the next few
months. Private equity in India has presently
and the accompanying authorities have sought to tax the capital
gains arising on the sale of shares of an
adopted a cautious wait-and-watch
approach. However, private equity is
risks offshore holding company, claiming that the
controlling interest in an Indian telecom
expected to continue to be active, given
that the long-term India story remains intact
company was being transferred. The case is and the Indian economy will continue to be
currently being contested before the Indian attractive, clocking higher growth rates
Courts. In the interim, one needs to relative to the mature developed economies.
consider its implication while structuring the Further, a strong demand for stable capital
investment into India. by Indian companies to fund their high-
growth plans, an uninspiring IPO market,
The Apex tax court in India, a few years high interest rates and an expected
ago, rendered a landmark ruling where it reconciliation by Indian promoters to the
accepted the tax residency certificate as new market realities, will all support private
sufficient evidence to claim treaty benefits. equity’s growth trajectory. This will continue
Newspaper reports have however surfaced to be maintained in the future…albeit, at a
time and again around negotiations of slower pace in the short- to medium-term.
treaties offering capital gains tax protection.
Recently, another favourable ruling was
delivered where the court held that the Bimal Tanna
payment of a correct arms-length price by a PricewaterhouseCoopers (India)
foreign entity to a dependant agent in India +91 22 66691555
would mitigate any further tax liability to the [email protected]
foreign entity.
Gautam Mehra
Outlook PricewaterhouseCoopers (India)
+91 22 6689 1155
The current turmoil in global financial [email protected]
markets is bound to adversely impact
overall investment sentiment and private
China Opportunities in a complex market Controlling interests are difficult to acquire,

as entrepreneurs often have no need to sell
In spite of the country’s rapid growth, out and, broadly speaking, have yet to face
Famously, the country’s growth rate has private equity investment only increased by succession issues. For this reason, the
been sustained at a high level since the 3% to $10.62 billion in 2007, according to majority of deals are in the venture and
government introduced free market reforms our survey data. Capital raised for investing growth capital categories – with buyouts
in 1978. In 2007, GDP growth was 11.4%. in the country climbed by 19% to US$11.0 growing, but still relatively uncommon. With
China’s rapidly expanding middle class, and billion. For private equity investment, China equity markets depressed, private equity
increasing disposable wealth, provide a was ranked seventh in Asia during the year. investors are increasingly looking at public-
healthy long-term backdrop for many to-private transactions and considering
The 2006 and 2007 bull market in equities backing the long queue of companies that
companies – particularly those targeting reduced the attractiveness of private equity,
domestic consumption such as food, did not manage to list their shares in the bull
as high valuations – 40x price/equity ratios – market. Investing in state-owned-
beverage, entertainment and construction were routine for IPOs. Coupled with the
and infrastructure. Additionally, the Chinese enterprises (SOEs) remains a challenge for
large amount of money targeting too few foreign investors, due to local sentiment and
renewable energy industry is becoming a China opportunities, this lifted asset
significant exporter. government regulations.
valuations to levels that many private equity
The economy is not immune, however, houses found unattractive. The domestic private equity industry is
from global financial markets and in developing rapidly. Certain financial
Since November 2007, however, capital has institutions are allowed to make proprietary
particular the impact of rising commodity become less freely available. Domestic
prices. Furthermore, it has to deal with private equity investment. Provincial and
equity markets have fallen significantly and municipal governments in more affluent
rising labour costs, following the companies are willing to sell at more
introduction of the new labour law at the areas are investing a small amount of their
reasonable valuations. Furthermore, bank substantial reserves in local companies, and
beginning of 2008. These factors are driving liquidity has been tight, following successive
significant cost pressures, which need to be SOEs are making strategic investments into
hikes in interest rates and increases in bank noncompeting companies and domestic
factored into the growth story. reserve ratios – although this trend may be industrial funds.
reversing with the first rate cut in six years
amid the market turmoil in September.
BRIC opportunities – The private equity market is largely shaped

by the participation of three types of players
International firms face regulatory Most international private equity firms have
tended to invest through SPVs, based in a
disadvantage
and the accompanying – large international private equity houses
(foreign funds), domestic boutique fund
low-tax offshore jurisdiction, for example
Barbados or the Cayman Islands. More
Due to its soaring trade surplus the
risks houses and large domestic onshore funds
such as industrial funds, institutional
government continues to tighten controls on recently, though, Hong Kong has updated
its tax treaty with Mainland China, and is
foreign capital inflows, which is slowing the
investors and the sovereign fund (domestic investment process for overseas investors. becoming a popular domicile. This is
funds). Both the foreign funds and the To mitigate this problem, some international particularly the case following the
domestically based boutique funds houses, private equity firms are establishing introduction of a new PRC corporate
which traditionally offer offshore products, renminbi-denominated funds. Even so, income tax law, which no longer offers
are increasingly looking to set up onshore restrictions on what they can invest in, and withholding tax exemption on dividend
renminbi funds to tap into the plentiful local the proportion of foreign capital they can repatriation. Effective 1 January 2008, the
capital and to remain competitive in accept, remain major hurdles. Chinese government introduced a 10%
executing deals (see ‘International firms face dividend withholding tax on repatriation of
regulatory disadvantage’). During 2007, new regulations were dividend income to foreign investors from
introduced to encourage private equity. Chinese corporates; however, there is a
Some foreign private equity players have These allowed qualified domestic securities preferential treaty rate of 5% for payments
partnered with large domestic players with companies and certain insurance to Hong Kong.
extensive local connections. Deal sizes tend companies to invest in private equity.
to be smaller for domestic private equity Additionally, a new limited partnership Investing as a foreign fund via an SPV
players – frequently below US$10 million. structure was created (comparable to the structure requires a longer timeline for
Foreign private equity investments tend to partnership law in many other countries), regulatory approvals than would be typical
be larger. A few leveraged buyouts have which many domestic funds are adopting. in Europe and the US. Even incorporating a
been completed, but they are usually However, this structure does not allow local fund using a limited partnership of a
funded offshore. foreign investors to participate as limited foreign-invested venture capital enterprise
partners. Additionally, most domestic private does not entirely level the playing field with
equity funds still use a limited liability domestic players. Typically, joint venture
company structure because the regulatory partners are used by foreign investors to
framework for limited liability companies is leverage their local experience.
much more developed.
Due diligence is typically more time-

consuming and deeper in China, as the Shirley Xie ‘Every time we look
PricewaterhouseCoopers (Hong Kong)
quality of financial information is generally
poor and significant, tax, employee, +852 2289 1196 at investing in a
[email protected]
social welfare and other exposures are
not uncommon. Additional time is often
business, we ask
required around intellectual property rights,
and the various required licences and land
Matthew Phillips ourselves what the
PricewaterhouseCoopers (China)
use rights. +86 21 6123 2303 impact of Asia is on it.
[email protected]
Local governments may affect the local
operations of renminbi funds, due to their
Is Asia a threat or an
inexperience in dealing with such funds, opportunity?’
especially in the area of taxation status.
This may discourage investment, or distort Marc St John, Partner,
returns over the investment cycle. CVC Capital Partners
Conclusion
There are considerable opportunities for
private equity as China’s economy
continues to grow rapidly and sectors
continue to open. However, there are
regulatory and due diligence issues to
overcome. Deal sizes are continuing to
increase and there are signs that control
deals, once considered too risky, may
become more common, although buyouts
will remain the exception until the local debt
markets fully mature.
03 Statistics Statistics
PricewaterhouseCoopers’ most recent survey of private equity data
from across the world confirms the rise of the emerging markets as a
destination for private equity investment. It also illustrates the generally
buoyant level of private equity activity globally, as at the end of 2007.
Demonstrating the rapid growth of private equity investment in emerging markets, eight out
of the ten fastest growing countries for private equity investment in the ten years to end
2007 were either from the Asia Pacific or Africa (the data does not break out Latin America
or Eastern Europe by individual country).
In 2007, India ranked third in terms of funds invested with US$17.5 billion invested,
representing a growth of 136% over the previous year. China ranked third, with US$10.62
billion invested, although the year-on-year expansion here was only 3%.
In Asia Pacific as a whole, private equity investment rose by 36% to US$86.3 billion in 2007,
which was equivalent to 0.68% of GDP – almost as high as in North America, the home of
private equity.
Global growth
By comparison, approximately US$297 billion of private equity was invested globally in
2007, over a quarter more than the US$235 billion invested in 2006. As a percentage of
global GDP, 2007 investment was equivalent to 0.55%.
Fundraising reached a record US$459 billion South Africa (+270% to US$4.65 billion) and Reflecting its position as the most mature Buyouts grow – high-technology
globally for 2007, rising 5% to exceed even Hong Kong (+220% to US$2.87 billion). private equity market, the annual compound
and expansion capital are flat
the US$437 billion total for 2006. Our survey average growth rate for investment from
data details activity in 2007, and provides The amounts invested in individual countries 1998 to 2005 was just 11.50%. Funds Buyouts, the largest sector, were the only
what is probably the most comprehensive were small by the standards of today’s huge raised expanded at a higher rate of 13.63% sector to show material growth in 2007.
global picture of private equity activity. transactions, but they undeniably show a as the continent exported capital to the Investment activity totalled US$197 billion
We aggregate the data from leading industry significant shift in investment. Once again, rest of the world. This average masks globally, up from US$146 billion in 2006.
sources across North America, Europe, Asia investments made exceeded locally raised considerable volatility, with investment
Pacific, Central and South America, and the funds, showing that capital has been peaking at US$129.6 billion in 2000 Activity in high-technology and expansion
Middle East and Africa. transferred from North America and Europe and touching a low of US$42.7 billion in capital was static. High-technology
over the study period of 1998 to 2005. For 2002. Funds raised peaked at US$180.5 investment totalled US$84 billion in 2007,
As such, we are able to provide detailed example, in the Asia Pacific US$265.77 billion in 2000, but bottomed at US$57.1 compared with US$82bn in 2006, while
regional comparisons of data. Our data billion was invested in the 10-year period, billion in 2002. expansion capital totalled US$42 billion for
tracks investment and fundraising back compared with just US$190.68 billion of both years.
over 10 years, to 1998. It shows that funds raised.
global annual investment has grown at Europe stalls Over the period 1998 to 2007, buyout
a compound average rate of 17.44% North America remains largest investments expanded at an annual average
European activity moved sideways in 2007,
since our data collection started in compound rate of 23.06%. Expansion
1998 when investment was US$70 billion. market – and primary source with US$86.5 billion of private equity
capital investment grew at 8.23% and
invested, up just 3% on 2006. Meanwhile,
Fundraising has expanded at the slightly of funds high-technology at 12.72%.
US$92.5 billion of funds were raised, down
lower rate of 14.70%.
North America remains far and away 30% on 2006. Investment was equivalent to
the largest private equity market. 0.50% of GDP.
Rise of emerging markets Funds raised continued to climb in 2007
to US$302.8 billion, a rise of 18% on 2006.
The most striking finding from the report is
Some US$107.1 billion was invested
the continued rise of the emerging markets
in the country, up 35% on 2006. This
as investment destinations. In addition to
was equivalent to 0.71% of North
India and China’s rises as investment
American GDP.
destinations, the following countries stand
out: Malaysia (+608% to US$5.40 billion),
Singapore (+157% to US$5.35 billion),
03 Statistics The world view

Investment & fund raising trends
Full Year 2007

Main Headlines
• Approximately $297 billion of private equity and venture capital was invested globally
in 2007 – an increase of 26% on the 2006 level of $235 billion.
• This is equivalent to 0.55%* of the world’s gross domestic product.
• A record $459 billion of funds were raised globally in 2007 – up 5% from $437 billion
in 2006.
Sub Headlines
• Technology investments totalled approximately $84 billion in 2007 – 28% of
total investment.
• Approximately $42 billion was invested in expansion stages in 2007 – up 1.5% on
2006 levels.
• Just under $197 billion was invested globally in buyouts in 2007 – an increase of 35%
on 2006.
*Based on 2007 GDP, from World Bank Development Indicators – $54,347 billion
Note: Historical data has been revised based on amendments published in 2007. Data converted to US dollars using a fixed
exchange rate from 1998 obtained from oanda.com.
Investment and fund raising trends (US$ billion) The world view Top 20 Countries (Based on Investment)
500
459
450
400 437 North America Asia Pacific
350
1. USA (1) 3. India (7)
300 297
262 4. Japan (5)
250 277 Europe 5. Australia (3)
200 177 235
154 7. China (6)
150 191 134 2. United Kingdom (2)
133 123 117 157 9. Malaysia (-)
93 6. France (4)
100
103 112
70 87 88 10. Singapore (16)
50 8. Germany (9)
11. Taiwan (11)
0 12. Sweden (8)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 15. Korea (17)
14. Netherlands (15)
17. Hong Kong (-)
16. Spain (13)
Investments Funds raised 18. New Zealand (14)
19. Italy (10)
Investment: Compound average growth rate = 17.44%
20. Denmark (-)
Funds Raised: Compound average growth rate = 14.70% Central & South America
Note: The data for Eastern Europe (investment only), Middle East & Africa and Central & South America has been
up-weighted to take account of under-reporting in these regions Middle East & Africa Note: Individual country data is not available
Note: Israel did not raise any funds in 2002, but returned $145 million
for Central and South America.
Source: The PricewaterhouseCoopers/Venture Econmics/National Venture Capital Association MoneyTreeTM Survey / 13. South Africa (18)
Thomson Financial / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistcal Review / EVCA Yearbook / AVCJ
Guide to Venture Capital in Asia / Venture Equity Latin America / LAVCA / SAVCA Private Equity Survey / IVC Online
Note: Figures in brackets indicate their position in 2006

The world view Top 20 Countries (Based on Investment) US$ billion The world view % Change in Investment 06/07 US$ billion
Country Ranking Investment Value Funds Raised Country Ranking Investment Value % Change
1. USA 105.72 302.00 1. USA 105.72 +35%
2. UK 40.10 48.52 2. UK 40.10 -16%
3. India 17.51 5.94 3. India 17.51 +136%
4. Japan 14.71 4.62 4. Japan 14.71 +28%
5. Australia 14.61 6.46 5. Australia 14.61 -12%
6. France 14.40 7.68 6. France 14.40 +22%
7. China 10.62 11.00 7. China 10.62 +3%
8. Germany 8.73 6.63 8. Germany 8.73 +112%
9. Malaysia 5.40 1.29 9. Malaysia 5.40 +608%
10. Singapore 5.35 4.03 10. Singapore 5.35 +157%
11. Taiwan 4.93 0.11 11. Taiwan 4.93 +23%
12. Sweden 4.89 5.49 12. Sweden 4.89 -2%
13. South Africa 4.65 2.79 13. South Africa 4.65 +270%
14. Netherlands 4.60 3.68 14. Netherlands 4.60 +64%
15. Korea 4.28 0.85 15. Korea 4.28 +130%
16. Spain 3.58 3.86 16. Spain 3.58 +8%
17. Hong Kong 2.87 15.52 17. Hong Kong 2.87 +220%
18. New Zealand 2.73 - 18. New Zealand 2.73 -8%
19. Italy 1.71 2.82 19. Italy 1.71 -57%
20. Denmark 1.42 0.42 20. Denmark 1.42 +228%
Source: The PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™ Survey / Source: The PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™ Survey /
Thomson Financial / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistical Review / EVCA Yearbook / AVCJ Thomson Financial / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistical Review / EVCA Yearbook / AVCJ
Guide to Venture Capital in Asia / Venture Equity Latin America / LAVCA / SAVCA Private Equity Survey / IVC Online Guide to Venture Capital in Asia / Venture Equity Latin America / LAVCA / SAVCA Private Equity Survey / IVC Online
The world view Top 20 Countries (Based on Growth – CAGR 98-07) The world view Cumulative Investments and Funds Raised (98-07) US$ billion
Region Investment Value Funds Raised Overhang
Global 1,490.88 2,215.34 724.46

North America Asia Pacific
North America 709.83 1,410.92 701.09
Note: The US compound average growth 1. India (79%) Europe 451.91* 569.03 117.12
rate is 12%. Canada compound average 2. Malaysia (67%) Asia Pacific 265.77 190.68 -75.09
growth rate since 1998 is 2%.
4. Australia (53%) Middle East & Africa 27.75* 25.51* -2.24
5. Pakistan (51%) Central and South America 35.61* 19.20 -16.41
Europe
7. Japan (36%)
3. Denmark (56%) 8. Singapore (33%)
6. Sweden (40%) 10. China/Hong Kong (29%)
11. Spain (27%) 12 Korea (24%)
12 France (24%)
14. Norway (22%) Central & South America
15. Finland (20%)
Note: Individual country data is not available
16. UK (19%) for Central and South America.
17. Switzerland (17%)
18 Netherlands (16%)
19 Germany (16%)
20. Belgium (15%)
Middle East & Africa

Note: *The data for Eastern Europe investment, Middle East & Africa and Central & South America has been upweighted to
9. South Africa (31%) take account of under-reporting in these regions
Note: Only countries with investments of at least $1.00 Source: The PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™ Survey /
billion shown – other than Pakistan which went down to Thomson Financial / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistical Review / EVCA Yearbook / AVCJ
$0.08 billion in 2007. Guide to Venture Capital in Asia / Venture Equity Latin America / LAVCA / SAVCA Private Equity Survey / IVC Online
The world view

High-technology investment trends
High-Technology Investment trends (US$ billion) The world view Top 20 Countries (Based on high-tech investment)
300
297
250 North America Asia Pacific

235
200 191 1. USA ($35.49) 3. India ($5.17)
15. Canada ($1.18) 4. Korea ($3.18)
150
123 157 6. Singapore ($2.89)
117
103
100 119 112
Western Europe 9. New Zealand ($2.13)
84
87 82 10. Japan ($1.93)
70 2. United Kingdom ($10.50)
50 58 11. China ($1.41)
59 50
29 39 42 46 5. France ($3.11)
12. Hong Kong ($1.24)
0 7. Sweden ($2.52)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 16. Australia ($1.07)
8. Germany ($2.18)
14. Spain ($1.20)
Investments High-Technology Central & South America
17. Netherlands ($1.03)
18. Switzerland ($0.71) Note: Individual country data is not available
High-Technology: Compound average growth rate = 12.72%
19. Denmark ($0.64) for Central and South America.
Please not 2007 high-tech data Canada is not yet available. Estimated based on previous 5 years
Source: The PricewaterhouseCoopers/Venture Econmics/National Venture Capital Association MoneyTree SurveyTM / 20. Finland ($0.59)
Thomson Financial / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistcal Review / EVCA Yearbook /
AVCJ Guide to Venture Capital in Asia
13. Israel ($1.20)
Please note 2007 high-tech data for Canada is not yet

available. The Canadian estimate in this slide is based on
data for the previous 5 years.
The world view

Expansion investment trends
Expansion Investment trends (US$ billion) The world view Top 20 Countries (Based on expansion investment)
300
297

235
200 191 1. USA ($10.85) 2. India ($7.18)
11. Canada ($0.78) 4. China ($4.69)
150
157 5. Korea ($2.32)
123 117
103
100 112
Western Europe 9. Japan ($1.01)
70 86
87 10. Australia ($0.84)
3. United Kingdom ($4.86)
50 29 42 15. Vietnam ($0.48)
46 42
39 21 22 7. France ($1.22)
21
24
0 8. Spain ($1.03)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Central & South America
12. Germany ($0.75)
13. Netherlands ($0.55) Note: Individual country data is not available
Investments Expansion for Central and South America.
14. Sweden ($0.53)
17. Finland ($0.35)
Expansion: Compound average growth rate = 8.23%
Source: The PricewaterhouseCoopers/Venture Econmics/National Venture Capital Association MoneyTree SurveyTM / 18. Switzerland ($0.32)
Thomson Financial / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistcal Review / EVCA Yearbook / 19. Italy ($0.32)
20. Belgium ($0.26)

6. South Africa ($1.30)
16. Israel ($0.36)
Please note 2007 expansion data for Canada is not yet

available. The Canadian estimate in this slide is based on
data for the previous 5 years.
The world view

Buyout investment trends
Buyout Investment trends (US$ billion) The world view Top 20 Countries (Based on buyout investment)
300
297

235
200 191 197 1. USA ($76.31) 3. Australia ($12.66)
5. Japan ($9.68)
150
123
117
157
146
Western Europe 7. Malaysia ($4.80)
103
100 112 8. Singapore ($3.92)
2. United Kingdom ($31.98)
87 73 89 11. Taiwan ($3.10)
70 4. France ($12.42)
50 66
13. New Zealand ($2.23)
30 41 40 45 6. Germany ($7.23)
32 15. Korea ($1.68)
0 9. Netherlands ($3.85)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 17. Hong Kong ($1.25)
10. Sweden ($3.82)
19. India ($0.97)
14. Spain ($2.10)
Investments Buyouts 20. China ($0.82)
16. Italy ($1.30)
18. Denmark ($1.17)
Expansion: Compound average growth rate = 23.06% Central & South America
Source: The PricewaterhouseCoopers/Venture Econmics/National Venture Capital Association MoneyTree SurveyTM /
Thomson Financial / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistcal Review / EVCA Yearbook / Middle East & Africa Note: Individual country data is not available
for Central and South America.
12. South Africa ($3.02)
Data sources North America: The PricewaterhouseCoopers / Venture Economics / National Venture Capital Association
MoneyTree™ Survey www.pwcmoneytree.com
Thomson Financial Investment Analytics Report (ad-hoc data)
Buyouts, a Venture Economics publication www.ventureeconomics.com
The Private Equity Analyst, published by Asset Alternatives, Inc., Wellesley Massachusetts
www.assetnews.com
Canadian Venture Capital Association (CVCA) Annual Statistical Review, prepared by

Macdonald and Associates Limited www.cvca.ca
Europe: European Private Equity and Venture Capital Association (EVCA) Survey www.evca.com
Asia Pacific: Asian Venture Capital Journal (AVCJ) Private Equity and Venture Capital Review 2008
and estimates from the AVCJ www.asianfn.com
Private Equity Analyst, Thomson Financial www.thomson.com
Central/South America: Latin American Venture Capital Association www.lavca.org
Venture Equity Latin America Year-End Report www.ve-la.com
Middle East and Africa: The Kesselman and Kesselman PricewaterhouseCoopers™ MoneyTree Survey, Israel
www.pwcmoneytree.com
Israel Venture Capital Research Centre Annual Survey www.ivc-online.com
KPMG and the South African Venture Capital Association (SAVCA) Private Equity Survey
www.savca.co.za
03 Statistics North America

Full Year 2007
Main Headlines
Data Sources:
• $107.1 billion of private equity and venture capital was invested in North America in 2007
The PricewaterhouseCoopers/Venture Economics/ – an increase of 35% on 2006.
National Venture Capital Association MoneyTree™
Survey www.pwcmoneytree.com
• This is equivalent to 0.71%* of North American GDP.
Thomson Financial Investment Analytics Report
(ad-hoc research) • $302.8 billion funds were raised in North America in 2007 – up 18% on 2006 levels.
Buyouts, a Venture Economics publication
www.ventureeconomics.com Sub Headlines
The Private Equity Analyst, published by
Asset Alternatives, Inc., Wellesley Massachusetts • Approximately $36.7 billion was invested in technology investments in North America in
www.assetnews.com 2007 – an increase of 17% on 2006.
Canadian Venture Capital Association (CVCA)
Annual Statistical Review, prepared by Macdonald
• Approximately $11.6 billion was invested in expansion stages in 2007 – a decrease of 4%
and Associates Limited www.cvca.ca on 2006.
• Approximately $76.3 billion was invested in buyouts in 2007 – an increase of

47% on 2006.
*Based on 2007 GDP for USA and Canada, from World Bank Development Indicators – $15,138 billion
Note: Historical data has been revised based on latest amendments
Investment and fund raising trends (US$ billion) Investment trends by stage (US$ billion)
350 140
129.6
302.8
300 120
256.1 107.1
250 100
78.3 79.6
200 180.5 80 76.3
59.4 64.6
61.5 61.9
150 60
129.6 117.9 160.5 46.5
103.6 107.1 41.0 51.9
100 95.9 40 30.8
78.3 40.2 42.7
57.1 61.9 23.8 22.9 44.4
91.4 59.4 85.9
79.6 19.0
50 40.2 64.6 36.7 20 18.0 12.1
44.5 42.7 50.6 46.5 22.5 20.1 10.6 9.8 9.2 11.6
19.1 39.9 11.0 16.4 13.2
23.8 24.4 23.9 26.4 31.3
0 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investments Funds raised High-technology Investments Expansion Buyout
Investment: Compound average growth rate = 11.50% Investment: Compound average growth rate = 11.50%
High-Technology: Compound average growth rate = 7.54% Expansion: Compound average growth rate = 0.65%
Funds Raised: Compound average growth rate = 13.63% Buyout: Compound average growth rate = 17.40%
Please not 2007 high-tech data Canada is not yet available. Please not 2007 high-tech data Canada is not yet available.
Canadian estimate expansion on this is baesd for based on data for previous 5 years Canadian estimate expansion on this is baesd for based on data for previous 5 years
Source: The PricewaterhouseCoopers / Venture Econmics / National Venture Capital Association MoneyTree SurveyTM / Source: The PricewaterhouseCoopers / Venture Econmics / National Venture Capital Association MoneyTree SurveyTM /
Thomson Financial / Venture Economics Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistcal Review Thomson Financial / Venture Economics Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistcal Review
% stage of investment 2007 (US$ billion) Investments and funds raised by country 2007 (US$ billion)
$107.1 Total invested 0.77% 0.10% Investment as

100 (billions) 320 % of GDP
6%
90 11% 280 302.0
80
12% 240
70
60 200
50 160
40 120
71%
30 105.7
80
20
10 40
1.4 0.8
0 0
2007 USA Canada
■ Early stage ■ Expansion ■ Other late stage ■ Buyout ■ Investments ■ Funds Raised
Data for North America has been created by adding data from MoneyTreeTM / Thomson Financial and CVCA Total investment: $107.1
Source: The PricewaterhouseCoopers/Venture Econmics/National Venture Capital Association MoneyTreeTM Survey / Total funds raised: $302.8 billion
Thomson Financial / CVCA Annual Statistcal Review Source: The PricewaterhouseCoopers/Venture Econmics/National Venture Capital Association MoneyTreeTM Survey /
Thomson Financial / CVCA Annual Statistcal Review
03 Statistics Europe
Full Year 2007
Main Headlines
Data Sources:
• Approximately $86.5 billion of private equity and venture capital was invested in Europe in
European Private Equity and Venture Capital 2007 – a 3.7% increase on 2006.
Association (EVCA) Survey www.evca.com
Data converted to US dollars using a fixed exchange • This is equivalent to 0.50%* of European GDP.
rate from 1998 obtained from oanda.com.
• At least $92.5 billion funds were raised in Europe in 2007 – down 30% on 2006 levels.
Sub Headlines
• Technology investments in Europe totalled approximately $23.7 billion in 2007 – down
15% on 2006 levels.
• Approximately $11.0 billion was invested in expansion stages in 2007 – a decrease of

17.9% on 2006.
• The buyout market totalled a record $68.3 billion in 2007 – up 15.8% on 2006.
*Based on 2007 GDP for Europe as calculated using The World Bank Development Indicators – $17,137 billion
Note: Actual data shown – not upweighted nor including Russia. Data converted to US dollars using a fixed exchange rate
from 1998 obtained from oanda.com.
140 140
131.5
130 130
120 120
110 110
100 100
90 84.1 92.5 90
83.4 83.4 86.5
86.5
80 80
70 70 68.3
56.3 55.1
60 60
46.9 43.3
50 55.1 50 43.3 59.0
41.0
40 32.4 34.1 40 32.4 34.1
29.8 28.5
41.0 29.4 37.6
30 32.2 30
23.8 29.4 32.3 31.7 30.2
20 28.5 27.9 20 16.9 15.5 16.9 12.8
16.9 23.7 19.8 21.6
10 7.5 17.1 17.2 10 8.7 11.0
4.7 11.0 9.1 11.3 13.1 5.1 15.2 9.4 12.0 13.3
8.7 8.0 7.3 9.2
0 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
High-Technology: Compound average growth rate = 19.63% High-Technology: Compound average growth rate = 8.92%
Funds Raised: Compound average growth rate = 16.26% Funds Raised: Compound average growth rate = 25.76%
Source: EVCA Yearbook Source: EVCA Yearbook
% stage of investment (total invested - billions) Investments by country (top 5)
$86.5 1.47% 0.56% 0.26% 1.10% Investment as

100 0 50 % of GDP
3
90 13%
0.61%
80 5% 40
40.1
70
60 30
50
40 79% 20
30
14.4
20 10
10 8.7
4.9 4.6
0 0
2007 UK France Germany Sweden Netherlands
■ Seed ■ Start up ■ Expansion ■ Replacement Capital ■ Buyout Total investment: $86.5 billion
Source: EVCA Yearbook GDP*: UK - $2,727.9 France - $256.3 Germany - $3,297.2 Sweden - $444.4 Netherlands - $754.2
The top 5 countries account for 84% of total investment in Europe.
*Based on 2007 GDP, as calculated using The World Bank Development Indicators
Source: EVCA Yearbook
03 Statistics Asia Pacific

Full Year 2007
Main Headlines
Data Sources:
• Approximately $86.3 billion of private equity and venture capital was invested in the Asia
Asian Venture Capital Journal (AVCJ) Private Equity Pacific region in 2007 – up 36% on 2006 levels.
and Venture Capital Review 2008 and estimates from
AVCJ www.asianfn.com
• This is equivalent to 0.68%* of Asian GDP.
Asian Venture Capital Journal (AVCJ) Guide to
Venture Capital in Asia and estimates from the AVCJ • $51.6 billion of funds were raised in Asia Pacific in 2007 – up 25% on 2006 levels.
for previous years www.asianfn.com
Sub Headlines
• Technology investments in Asia Pacific totalled an estimated $19.2 billion in 2007 – down
1.4% on 2006 levels.
• Approximately $17.3 billion was invested in expansion stages in 2007 – an increase of

18.4% on 2006.
• The buyout market totalled $41.5 billion in 2007 – up 37% on 2006.
*Based on 2007 GDP, as calculated using The World Bank Development Indicators – $12,435 billion
No GDP data available for Taiwan
90 90
86.3 86.3
80 80
70 70
60 60
63.5 63.5
50 51.6 50
40 40 4.5
33.6 33.6
41.2
30 30
18.1 28.3 18.1 30.2
20 16.6 17.9 17.6 20
19.2 17.6
11.2 11.5 12.3 17.3
9.1 9.1 19.5 11.2 9.1 11.2 9.2
10 7.4 10 9.1 8.5 14.6
12.3 9.9 3.3 4.9 6.0 4.6 4.9
4.9 3.7 4.1 2.5 2.1
1.8 4.0 5.6 5.2 5.0 7.2 5.0 2.4 1.0 6.8
0 3.0 0 0.4 0.8 2.0 1.9
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
High-Technology: Compound average growth rate = 30.48% Expansion: Compound average growth rate = 24.51%
Funds Raised: Compound average growth rate = 24.02% Buyout: Compound average growth rate = 67.82%
Source: AVCJ Private Equity and Venture Capital Review Source: AVCJ Private Equity and Venture Capital Review
Investment by trends stage (Total invested - billions) Investments by country (top 5)
$86.3 1.50% 0.34% 1.78% 0.32% Investment as

100 20 % of GDP
8%
90 18
20% 17.5 2.99%
80 16
70 3 14 14.7 14.6
60 20% 12
50 10
1 10.6
40 8
30 6
48%
20 4 5.4
10 2
0 0
2007 India Japan Australia China Malaysia
■ Start-up/early stage ■ Expansion ■ Mezzanine ■ PIPE financing ■ Turnaround ■ Buyout Total investment: $86.5 billion
Source: AVCJ Private Equity and Venture Capital Review GDP*: India - $1,171.0 Japan - $4,376.7 Australia - $821.7 China - $3,280.1 Malaysia - $180.7
*Based on 2007 GDP, as calculated using The World Bank Development Indicators
Source: EVCA Yearbook
04 Disclaimer and contacts

Disclaimer
This report has been prepared by PricewaterhouseCoopers International Survey Unit.
The data presented in the report has been generated via a range of independent surveys
and from other ad hoc sources of information. PricewaterhouseCoopers conducts surveys
in the USA and Israel and data from these surveys has been used extensively within this
study. For these surveys, PricewaterhouseCoopers has taken responsible steps to
ensure that the information has been obtained from reliable sources. However,
PricewaterhouseCoopers cannot warrant the ultimate validity of data obtained in this
manner. PricewaterhouseCoopers does not accept responsibility for the other data sources
used in this study.
While PricewaterhouseCoopers has assembled the data, this has not been subject to
independent review or audit by PricewaterhouseCoopers.
PricewaterhouseCoopers does not accept responsibility for any of the data included in this
report, nor responsibility as regards any use that could be made of the data contained in
this report by third parties.
Except to the extent prohibited by law PricewaterhouseCoopers and their related

partnerships and corporations, and their partners, agents or employees disclaim all liability
for any decision made or action taken or not taken by any person in reliance on the
information in this report.
Global Investment Management & Real Estate Leadership Team Global Private Equity Industry Group Leadership Team
Marc Saluzzi Robert Grome Colin McKay Chao Choon Ong
PricewaterhouseCoopers (Luxembourg) PricewaterhouseCoopers (Hong Kong) PricewaterhouseCoopers (US) PricewaterhouseCoopers (Singapore)
Global IMRE Leader Asia Pacific IMRE Leader Global Private Equity Industry Group Leader Asia Pacific Private Equity Industry
Telephone: +352 49 48 2511 Telephone: +852 2289 1133 Telephone: +1 646 471 5200 Group Leader
Email: [email protected] Email: [email protected] Email: [email protected] Telephone: +65 6236 3018
Email: [email protected]
Henrik Steinbrecher Pars Purewal Timothy Hartnett
PricewaterhouseCoopers (Sweden) PricewaterhouseCoopers (UK) PricewaterhouseCoopers (US) Chris Hemmings
Global Real Estate Leader UK IMRE Leader US Private Equity Industry Group Leader PricewaterhouseCoopers (UK)
Telephone: +46 8 555 330 97 Telephone: +44 20 7212 4738 Telephone: +1 646 471 7374 Global Corporate Finance Leader
Email: [email protected] Email: [email protected] Email: [email protected] Telephone: +44 20 7804 5703
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PricewaterhouseCoopers (UK) PricewaterhouseCoopers (US) PricewaterhouseCoopers (UK)
Global IMRE Tax Leader Global Hedge Funds Leader UK Private Equity Industry Group Leader
Telephone: +44 20 7804 2069 Telephone: +1 646 471 7830 Telephone: +44 20 7213 1133
Email: [email protected] Email: [email protected] Email: [email protected]
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European IMRE Leader Global IMRE Private Equity Leader European Private Equity Industry
Telephone: +352 49 48 48 2059 Telephone +44 1534 838 234 Group Leader
Email: [email protected] Email: [email protected] Telephone: +49 69 9585 1251
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Telephone: +1 410 783 7623
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Investment Management and Real Estate

Seeking differentiation at a time of change*

04 Disclaimer and contacts 54

01 Introduction/ Differentiating private

PricewaterhouseCoopers1 believes private equity is embarking on a new phase – that the

02 Analysis Sustainable growth

Competition increases not just cost savings. Private equity

Sustainable growth Some firms are using buy and build as a

in these countries are often nervous of Changing the resource mix

implementation, bringing in relevant

Securing a profitable exit

02 Analysis Building the

Profiting from and protecting Brand is particularly important in today’s

Building the There is huge scope for infrastructure

Controlling diversity Clearly then, private equity players will

02 Analysis Reconciling responsibility

Data shows clearly how energy technology

reducing risk, therefore achieving a lower There is an increasingly clear focus on

Reconciling With a growing acceptance that doing

02 Analysis Fair value challenges in

• The most difficult economic conditions in years;

• A significant decrease in stock market values across most sectors;

• An increased focus on debt values; and

• A decrease in the number of transactions.

Fair value challenges in In addition, it emerged that only around

02 Analysis Addressing tax in a

Addressing tax in a Trading safe harbours are favourable

Addressing tax in a Transfer pricing advisory offices, fund managers should

02 Analysis BRIC opportunities – and

Fund investment in the fast-growing economies of Brazil, Russia,

Brazil Fundraising for dedicated regional/country

BRIC opportunities – Conclusion There is, however, no certainty that Brazil,

Russia has benefited from rising global demand

BRIC opportunities – Many targets are unfamiliar with the due

BRIC opportunities – India 60% of the total population – continuing for

BRIC opportunities – A recent telecom deal has brought to the

China Opportunities in a complex market Controlling interests are difficult to acquire,

BRIC opportunities – The private equity market is largely shaped

Due diligence is typically more time-

03 Statistics The world view

Full Year 2007

Note: Figures in brackets indicate their position in 2006

1. USA 105.72 302.00 1. USA 105.72 +35%

2. UK 40.10 48.52 2. UK 40.10 -16%

3. India 17.51 5.94 3. India 17.51 +136%

4. Japan 14.71 4.62 4. Japan 14.71 +28%

5. Australia 14.61 6.46 5. Australia 14.61 -12%

6. France 14.40 7.68 6. France 14.40 +22%

7. China 10.62 11.00 7. China 10.62 +3%

8. Germany 8.73 6.63 8. Germany 8.73 +112%

9. Malaysia 5.40 1.29 9. Malaysia 5.40 +608%

10. Singapore 5.35 4.03 10. Singapore 5.35 +157%

11. Taiwan 4.93 0.11 11. Taiwan 4.93 +23%

12. Sweden 4.89 5.49 12. Sweden 4.89 -2%

14. Netherlands 4.60 3.68 14. Netherlands 4.60 +64%

15. Korea 4.28 0.85 15. Korea 4.28 +130%

16. Spain 3.58 3.86 16. Spain 3.58 +8%

18. New Zealand 2.73 - 18. New Zealand 2.73 -8%

19. Italy 1.71 2.82 19. Italy 1.71 -57%

20. Denmark 1.42 0.42 20. Denmark 1.42 +228%

Region Investment Value Funds Raised Overhang

Global 1,490.88 2,215.34 724.46

Middle East & Africa