The International Organization of Securities Commissions (IOSCO) has today published the report of its Technical Committee’s Task Force on Private Equity. The task force was mandated to conduct a preliminary review of private equity markets in order to identify any suitable issues which could be addressed through future IOSCO work.
In addition to identifying specific potential risks posed by private equity for the financial markets, the Task Force has pinpointed two particular pieces of work to be undertaken in future Technical Committee work programs, namely a survey of the complexity and leverage of capital structures used in leveraged buyout transactions and an analysis of conflicts of interest arising in the course of private equity business and the controls used across relevant IOSCO jurisdictions. Michel Prada, Chairman of the IOSCO Technical Committee, said "The growth of private equity in recent years poses a number of challenges for regulators charged with the oversight of international capital markets. This report has identified a number of areas where private equity may pose potential risks to financial markets, however many of these issues have already been the subject of regulatory examination and to avoid duplication the Technical Committee will focus on two specific areas in its future work.
"We will recommend that the Joint Forum analyzes the complexity and leverage of buyout vehicles and IOSCO will analyze the conflicts of interest that arise during private equity transactions and how these are addressed. IOSCO will seek to engage the industry and investors in this work."
Future IOSCO Work
IOSCO’s future work will include:- Recommending a survey of the complexity and leverage of capital structures employed in leveraged buyout transactions to the Joint Forum, to allow for an assessment of the potential impact that the default of large private equity portfolio companies could have on the efficient operation of related public debt securities markets and any systemic issues which may arise as a result; and
- Analysis of conflicts of interest which arise during the course of private equity business and the controls utilised across relevant IOSCO member states which aim to provide appropriate levels of investor protection. Key areas of focus will be public-to-private transactions and the listing (or subsequent re-listing) of private equity portfolio companies.
