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Labor Supplementary Report
Private equity has been an
aspect of international and domestic markets for many years. Labor recognises
the importance of private equity's role in the market and particularly the
provision of venture capital to support emerging business opportunities.
However, of some concern is the sector of the private equity market which makes
highly leveraged acquisitions. Evidence to the Committee disclosed examples of
gearing levels up to 200 per cent higher than the average company. The portion
of the private equity market which related to leverage buyouts increased in
2006 compared to venture capital investment, although leveraged buyouts still
only made up about 1 per cent of the Australian equity market.
Labor also notes that recent
developments in global capital markets as a consequence of exposure to the
non-conforming mortgage sector in the United
States has resulted in a re-pricing of
risk. Some market commentators have noted that this re-pricing of risk is likely
to result in a downtrend in highly leveraged private equity buyout activity.
Although evidence to the
committee indicates that investors in the private equity market, including
leveraged buy outs, are largely sophisticated investors such as institutional
investors, it is still essential that they are full informed of the risks
involved in their investment.
There should also be clear
guidelines to manage private equity proposals to deal with any conflict of
interests issues. Labor welcomes the Takeovers Panel Guidance note 19: Insider
Participation in Control Transactions provides a guide to setting up protocols
to reduce the conflicts of interests for management involved in any takeover
and seeks to address some issues relating to the protection of investors.
Labor agrees with the
conclusion of the main committee's view that no further regulation is required
for private equity activity at this time. In addition, Labor supports the main
committee endorsement of an ongoing watching brief on this issue by the
Treasury, the RBA, the ACCC, ASIC and the FIRB. The position that private
equity holds in the market as well as any effects on the market should continue
to be monitored and reviewed.
Labor members consider that
monitoring by the relevant regulatory bodies should take into account:
- any increase of private equity
leverage buyout activity in the Australian market as there was in 2006;
- the work of the Australian
Taxation Office in terms of taxation implications and compliance as part of its
large business program and compliance plan for 2007-08;
- any impact on revenue;
- any concentration of private
equity leverage buyout activity in particular sectors and its effects, for
example in the health and aged care sector; and
- any impact on employment as a result
of private equity activity.
Senator Ursula Stephens
Deputy Chair |
Senator Annette Hurley |
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| Senator Ruth Webber |
Senator Penny Wong
Participating Member |
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