Archives For private equity

When I last wrote on the carried interest debate I commented on the NYT’s Andrew Sorkin’s support for characterizing private equity managers’ carried interest as ordinary income rather than capital gains. This is supposed to be a simple change that cuts fat cat fund managers down to size and fairly distinguishes what is essentially compensation for managing a business, just like executives’ stock options, from investment income. But what if the distinction isn’t all that straightforward? I noted that

the fund managers are getting paid for the same sort of acumen or luck that underlies any successful stock market investing.  Why should it matter that they happen to be investing through a partnership, essentially borrowing from the investors and paying them interest in the form of the substantial share of the gains the investors get to keep?  * * * Of course none of these nuances matter if what you really want to do is to punish rich capitalists. 

I also observed that on policy grounds it makes no sense to target this efficient form of compensation. And more ominously I previewed the horse-trading that would accompany this supposedly straightforward change:

The high-powered compensation that Congress is considering attacking is common in venture capital and real estate, two industries whose health is important to any recovery.  * * * If they win their carve-outs, the new tax looks more like Swiss cheese than a return to economic reality. In general, this whole thing looks a lot more complicated than Sorkin would have us believe.

Today’s WSJ makes that clearer:

[The tax change] would be a huge hit to the estimated 6.5 million folks invested in real-estate partnerships, who own assets ranging from a local house to a commercial shopping center. The legislation also potentially hits any partnership invested in certain specified assets, including families who own, say, an auto dealership, fishing boat, construction company or securities. * * *

[B]ecause Democrats chose to target individuals who provide “investment management services,” and because this definition can easily encompass individual family members who manage family projects, entire partnerships could be subject to the higher taxes. Even worse, the higher rates would apply not only to investment gains, but to any gains from the sale of the partnership itself. So the provision would deny families the ability to sell their business at the normal capital gains rate. * * *

Democrats understand this problem, which explains why the House version included a specific carve-out for family farms and ranches held in partnership. The other family partnerships were told to sit back and let the Treasury Department clarify the legislation—and exempt them—via regulation. But if this tax hike is supposed to be about equitable treatment, why exempt some partnerships but not others? * * *

Democrats are rewriting a half century of partnership tax law with no hearings, no analysis and little debate. And they wonder why businesses are creating so few jobs.

In other words, it’s increasingly obvious that this change was never really about fairly treating like income alike but about fleecing fat cats. Indeed, I speculated three years ago that the move was just a way to gin up campaign contributions. Whether or not there was really any theoretical basis for taxing carry like ordinary income (and I’ve been skeptical) mattered little when the proposal got to the Congressional sausage factory. And now we find that it’s not so easy to target the fat cats without causing considerable collateral damage or ending up with even less defensible distinctions than we started with.

Maybe this carried interest move wasn’t such a great idea after all.

The venerable debate over carried interest compensation of private equity managers is heating up again. The NYT’s Andrew Sorkin is predicting Congress will vote to tax it as ordinary income rather than capital gains, which Sorkin thinks is a good thing:

Under their current partnership structure, however, [private equity] general partners * * * receive 20 percent of any profits and they have been treating that as a capital gain even though their own money is not at risk. A lot of people, including me, have been arguing for years that their cut of the winnings is really income, not capital gains. (Of course, profits that executives make by investing their own money in the deals should be considered capital gains.)

But Sorkin says “Wall Street executives are ready”:

If we’ve learned anything from the financial crisis, it seems that new regulations on Wall Street always have a way of breeding another generation of “financial innovation” meant to circumvent them.

These “machinations being whispered about in the industry” include selling the carried interest to a third party and using the cash to invest directly in the deal.  Since the managers would own the interest as investors, they’d be taxed on the interest at the lower capital gains rate.  Or investors would make a loan to the manager, who would then use the loan to buy into the fund, again taxed on the increase as capital gains.  But Sorkin notes that’s specifically ruled out by the latest bill.

Vic Fleischer, whose  “Two and Twenty” paper is a basis for the proposed change, tells Sorkin “[a]ny time there is a new section of the tax code there are going to be lawyers who will try to manipulate the rules.”  Fleischer adds another slippery thing the managers could do:  dismantle the partnership and invest “in companies on behalf of their investors on a deal-by-deal basis,” getting founders’ shares and, again, getting taxed at the capital gains rate.

Sorkin concludes with a warning:  “Whether certain industries get excluded or not, Congress beware: Wall Street will find a loophole.”

I observed three years ago when the idea was first bandied about that it “might have been all along just a tactic to extract campaign contributions.”  Well, Congress got their contributions and now they’re back.

Politics and pejoratives like “loophole” and “machinations” aside, it might be useful to take a deeper look at economic realities.  Three years ago I noted David Weisbach’s paper (since published) that the fund managers are getting paid for the same sort of acumen or luck that underlies any successful stock market investing.  Why should it matter that they happen to be investing through a partnership, essentially borrowing from the investors and paying them interest in the form of the substantial share of the gains the investors get to keep?  From this perspective, “machinations” like loans and founders’ shares really disassemble the transaction back to what it is in reality.

Of course none of these nuances matter if what you really want to do is to punish rich capitalists.  But even then you might consider the effects of the plan.  If carried interest compensation really is just compensation for investing, then there should be a lot of ways to restructure the compensation to accomplish almost the same thing. Congress might try to close one exit (e.g., by explicitly covering loans) but others will remain. At best Congress is just increasing transaction costs.

Even if carried interest compensation is just that, and fundamentally different from investment gains, then you should consider whether, as I’ve argued, it’s an efficient form of compensation that minimizes agency costs between investors and managers and helps make private equity viable.  Indeed, hedge and private equity funds incentive structure arguably helped it avoid the problems that beset ill-managed corporate banks in the meltdown.  It would be ironic if financial “reform” targeted the very firms that least needed reforming.

Another effect of the tax change, as Fleischer told Sorkin, might be to drive the funds offshore. The jurisdictional competition angle is becoming more important as countries get more aggressive in regulating highly mobile capital.

Finally, some influential political oxen will get gored.  The high-powered compensation that Congress is considering attacking is common in venture capital and real estate, two industries whose health is important to any recovery.  Sorkin quotes the National Venture Capital Association as noting the folly of “discouraging investment in new companies at a time when Congress should be doing all it can to support the start-up ecosystem.” They’re seeking exemptions from the tax and they have some significant Congressional support.  If they win their carve-outs, the new tax looks more like Swiss cheese than a return to economic reality.

In general, this whole thing looks a lot more complicated than Sorkin would have us believe.

The Wall Street Journal is reporting that major institutional investors — CalPERS, CalSTRS, the Teacher Retirement System of Texas, etc. — have collectively adopted a set of recommended practices that is “rankling” private equity firms. Had I not discussed the article in my Antitrust class, I’d use it as the basis for an exam question. Here are the basics:

Private equity funds are normally organized as limited partnerships, where the investors are the limited partners (i.e., they lack management control, but their liability is limited to the amount of their investment in the firm) and the managers that make investment decisions are affiliated with a general partner, whose liability is unlimited. The rights of limited and general partners are set forth in a limited partnership agreement. The limited partners — largely institutional investors like pensions, endowments, etc. — typically compensate the managers by paying annual management fees and allowing them to collect “carried interest,” which is a share of the profits of the fund’s investment (assuming that the investment reaches a minimum rate of return or “hurdle rate”). Because limited partnerships are creatures of contract, all these arrangements are agreed upon from the outset. So are the rights of the limited partners.

In the last few months, a group of major institutional investors, the Institutional Limited Partners Association (ILPA), promulgated a set of investor principles that call for certain caps on fees, increased disclosure, particular methods for calculating carried interest, and greater investor oversight. The ILPA has 215 members controlling $1 trillion in private equity assets. In addition, the ILPA seems to be soliciting other (non-member) private equity investors to endorse its principles.

On first glance, this resembles a buyers’ side conspiracy: Multiple “buyers” of investment services have agreed not to purchase from “sellers” who do not adhere to preferred terms, including preferred pricing terms. If that’s what’s going on, then the arrangement among the institutional investors violates Section 1 of the Sherman Act, even if the parties to the agreement collectively lack market power. (See Footnote 59 of Socony-Vacuum.)

Not surprisingly, the members of ILPA insist that they haven’t “agreed” to withhold investments from funds that decline to follow the recommended principles. Instead, they say, their principles simply “reflect suggested best practices and are intended to serve as a basis for continued discussion among and between the general partner and limited partner communities with the goal of improving the private equity industry for the long-term benefit of all its participants.” They further maintain that “the authors, sponsors and the groups … that have provided an endorsement of these Principles are not specifically committing to (nor seeking the commitment of) [sic] any private equity investor to each and every outlined term.” Thus, they conclude, their mutual endorsement of a set of best practices does not constitute a contract, combination, or conspiracy to withhold investment funds from fund managers who fail to adhere to the recommended practices.

According to the Journal, though, the most prominent institutional investors are using these widely endorsed principles for more than just “a basis for continued discussion” with fund managers:

The nation’s two largest pension funds — the California State Teachers’ Retirement System and Calpers — have held discussions with each other about whether to insist that private-equity firms agree to the principles, according to people familiar with the talks. Texas Teachers has told at least one firm that the principles were non-negotiable and had to be accepted, according to people familiar with the situation.

Lawyers for private-equity firms also point to a public remark made by Calpers spokesman Clark McKinley in trade publication Pension & Investments. “We are collaborating with other investors in an effort to get better alignment with private-equity partners, including more favorable fees. This requires more than a unilateral action by any one investor,” Mr. McKinley said.

If the point of the principles is merely informational — i.e., to set forth a set of best practices that will minimize agency costs — then why solicit public “endorsements” of the principles? On this question, Mr. McKinley’s remarks are pretty revealing. They suggest that a single investor’s insistence on adherence to the principles wouldn’t work; fund managers would find other, more accommodating investors. But if all the major institutional investors adopted the same stance, the fund managers might have to give in to their demands. Could we infer an Interstate Circuit-like agreement from institutional investors’ parallel action in adhering to the principles?

If there’s no “agreement” to adhere to the principles themselves, could liability arise from the concerted action of signing on to the principles, thereby creating a “facilitating device”? I’m analogizing here to the data exchange cases, where the mere exchange of cost or price information among competitors can create antitrust liability even if there’s no agreement to adhere to specified prices. Data exchanges, unlike horizontal agreements to adhere to price schedules, are not per se illegal; instead, they are evaluated under a rule of reason that looks hard at the nature of the information exchanged (the degree to which it could facilitate price-fixing) and the structure of the market in which the competitors participate (the degree to which it is susceptible to cartelization). If a court were to analyze the principles as a facilitating device, it would likely examine their content — e.g., the degree to which they are specific enough to form the basis for price-fixing — and the “cartelizability” of investors in private equity funds. Under such a rule of reason analysis, liability is unlikely.

Even if a court were to conclude that actual price-fixing had occurred, it’s hard to imagine that it would impose liability on the institutional investors:

Buyout executives acknowledge that even if there are legal problems with ILPA members’ conduct, there is likely to be little sympathy for the plight of private-equity firms.

“Even if there was an antitrust problem from a legal perspective,” said one senior private-equity executive at a large firm, “I don’t see the Justice Department coming to the rescue of Henry Kravis and Stephen Schwarzman.”

Still, I think, this arrangement could form the basis for a pretty good Antitrust exam question.

UPDATE: Danny Sokol pointed me to this release from law firm Bingham McCutchen (or is it just “Bingham” now?). The antitrust lawyers there appear to agree that there are some tricky antitrust issues here.

I’m delighted to report that the Liberty Fund has produced a three-volume collection of my dad’s oeuvre.  Fred McChesney edits, Jon Macey writes a new biography and Henry Butler, Steve Bainbridge and Jon Macey write introductions.  The collection can be ordered here.

Here’s the description:

As the founder of the Center for Law and Economics at George Mason University and dean emeritus of the George Mason School of Law, Henry G. Manne is one of the founding scholars of law and economics as a discipline. This three-volume collection includes articles, reviews, and books from more than four decades, featuring Wall Street in Transition, which redefined the commonly held view of the corporate firm.

Volume 1, The Economics of Corporations and Corporate Law, includes Manne’s seminal writings on corporate law and his landmark blend of economics and law that is today accepted as a standard discipline, showing how Manne developed a comprehensive theory of the modern corporation that has provided a framework for legal, economic, and financial analysis of the corporate firm.

Volume 2, Insider Trading, uses Manne’s ground-breaking Insider Trading and the Stock Market as a framework for many of Manne’s innovative contributions to the field, as well as a fresh context for understanding the complex world of corporate law and securities regulation.

Volume 3, Liberty and Freedom in the Economic Ordering of Society, includes selections exploring Manne’s thoughts on corporate social responsibility, on the regulation of capital markets and securities offerings, especially as examined in Wall Street in Transition, on the role of the modern university, and on the relationship among law, regulation, and the free market.

Manne’s most auspicious work in corporate law began with the two pieces from the Columbia Law Review that appear in volume 1, says general editor Fred S. McChesney. Editor Henry Butler adds: “Henry Manne was an innovator challenging the very foundations of the current learning.” “The ‘Higher Criticism’ of the Modern Corporation” was Manne’s first attempt at refuting the all too common notion that corporations were merely devices that allowed managers to plunder shareholders. Manne saw that such a view of corporations was inconsistent with the basic economic assumption that individuals either understand or soon will understand the costs and benefits of their own situations and that they respond according to rational self-interest.

My dad tells me the sample copies have arrived at his house, and I expect my review copy any day now.  But I can already tell you that the content is excellent.  Now-under-cited-but-essential-nonetheless corporate law classics like Some Theoretical Aspects of Share Voting and Our Two Corporation Systems: Law and Economics (two of his best, IMHO) should get some new life.  Among his non-corporations works, the classic and fun Parable of the Parking Lots (showing a humorous side of Henry that unfortunately rarely comes through in the innumerable joke emails he passes along to those of us lucky enough to be on “the list”) and the truly-excellent The Political Economy of Modern Universities (an updating of which forms a large part of a long-unfinished manuscript by my dad and me) are standouts.  And the content in the third volume from Wall Street in Transition has particular relevance today, and we would all do well to re-learn the lessons of those important contributions.

The full table of contents is below the fold.  Get it while it’s hot! Continue Reading…

Antitrust & Private Equity

Josh Wright —  24 February 2008

WSJ Deal Journal reports some important movement on the antitrust and private equity front.  Specifically, Judge Richard Jones (W.D. Washington) granted the defendants’ motion to dismiss in Pennsylvania Avenue Funds v. Borey, dismissing the plaintiffs’ allegations that two private equity firms had violated the Sherman Act by bidding jointly on the target company (Watchguard Technologies) in order to “artificially fix the price … or rig the tender offer bids for WatchGuard shares” after initially submitting independent bids.

Wilson Sonsini, who argued the successful motion, has posted an informative Client Alert summarizing the highlights of the decision.  Apparently, the Court rejected the per se characterization of joint bidding because it recognized the potential for joint bidding to increase rather than suppress competition in some circumstances.  The court found that the bidding arrangement could not survive a motion to dismiss on the alternative rule of reason characterization because “dozens of other suitors who expressed interest in WatchGuard refused to make bids. . . . The result was a contest for corporate control in which it appeared that there were only two bidders, but the appearance is a mirage. An acquiror who believed that WatchGuard was worth more than [the] bid could have made a topping bid. The agreement between [the funds] would have had no effect on such a bid. Moreover, had WatchGuard’s shareholders believed that the [] bid was too low, they retained power to reject the merger by voting it down.”  Finally, it is worth noting that Judge Jones did find that the bidding arrangement was not impliedly immune from the antitrust laws because of overlapping securities regulations.

Private equity deals have been the subject of a good deal of speculation in antitrust circles in the past several years as bidding arrangements are the subject of pending litigation and have come under the scrutiny of the Department of Justice.  Its just one decision, but this one seems pretty dismal for plaintiffs in these private equity collusion suits.  Judge Jones’ decision seems to suggest that in the post-Twombly world, and with the market definition problems inherent in a rule of reason type case in the “market for corporate control,” plaintiffs are going to have a difficult time surviving the pleading stage without a plausible story that a specific “club deal” is tainted by collusion with a tangible impact on acquisition price.   I just don’t know if that kind of evidence is out there.  Its certainly tough to get without the benefit of discovery.  Anyway, I thought that the “club deal” collusion story was about facilitating tacit or explicit collusion on a series of deals (you don’t bid here, I won’t bid there).  That might be much harder to identify in practice.

But this is not the last of these suits.  It will be interesting to see how the plaintiffs antitrust bar adjusts to this ruling in future cases.

Two and Twenty-five?

Bill Sjostrom —  9 April 2007

See here.

I leave tomorrow for Tulane’s Annual Corporate Law Institute.  This conference is viewed by many as the top annual deal conference, so I am expecting great things (this will be my first time attending the conference).  Indeed, the speaker line-up is incredible.  Chief of OMA at the SEC, Chief Justice of the Del. Supreme Court, Vice Chancellor Strine, Richard Breeden, Justice Jack Jacobs, a medley of deal lawyers from super firms, Patrick McGurn from ISS… the list goes on.

While the topics are hot (exec. comp., SOX, shareholder activism), what will be most interesting to me is the interplay between the practicioners, the jurists, and the regulators.  I have worked for all three at different times, and the differences in perspective I noted were. . . vast.  This should be a fun conference.

(I participated in a recent Going-Private conference where the organizers – Frank Aquila and Nancy Wojitas – similarly did an incredible job with respect to representation.  For example, there was a hugely successful s/h-plaintiffs’ attorney sitting on a panel with corporate counsel.  And both parties were candid about where they stood on going-private transactions.  It was fascinating.)

 I will try to take bloggable notes.  And I hope those of you reading who are also going to the conference will introduce yourselves to me (either at the conference or via an advance e-mail at nowickie[insert “@” sign]!

Rent a CFO?

Darian Ibrahim —  26 February 2007

This recent article in the NYT (log in required) caught my eye. It discusses the growing market for temporary financial services to companies. Since SOX this market has grown by 68% to $8.9 billion, and is expected to grow another 10% this year. The companies looking for temporary help include nonprofits, public corporations, and start-ups.

While the post-SOX boom suggests that public companies are the largest user of these services, the article also notes that start-ups have been renting CFOs for the past fifteen years. This practice makes a lot of sense from the entrepreneur’s perspective. Start-ups are short of cash and may be unable to keep a permanent finance person on staff. But when it comes time to solicit angel or venture capital funding, bringing in an expert can help entrepreneurs with financial projections in a business plan and during negotiations over valuation, all at an hourly rate. This hire-as-needed model works well for lawyers – why not for finance types? The article was quite rosy on the idea, but I wonder if there are any downsides? Perhaps liability concerns for the temp (the article mentions the possible need for a D&O policy)?

Structuring Start-ups

Darian Ibrahim —  23 February 2007

Choice of entity is a standard topic in courses on small or start-up businesses. The usual materials cover the basic tax, liability, and governance issues relevant to the choice. These materials are fine for pointing students toward the LLC or S corporation forms for the typical small business, or “lifestyle” firm, as both forms enjoy limited liability and flow-through taxation. (Although my one quibble here is that insufficient attention is devoted to the ultimate choice between LLCs and S corps, where items such as the LLC self-employment tax can be relevant.) The general advice doesn’t hold, however, for start-ups seeking or potentially seeking venture capital.

In this paper, Vic Fleischer explains why start-ups are a different animal, and why they actually prefer C corps despite double taxation and the inability of shareholders to use significant corporate losses during the early years (think R&D expenses). The most interesting reason, to me, requires looking to the ultimate investors in venture capital funds. The VC funds are limited partnerships, so any gains/losses that flow through the start-up to the VC fund also flow through the VC fund to the fund’s limited partners. The majority of limited partners are tax-exempt entities such as pension funds, endowments, and foundations. These investors don’t care about flow-through losses, because they have no tax liability to offset. Also, they try to avoid flow-through gains, which are unrelated business taxable income (UBTI) that, because these entities are tax-exempt, can trigger an audit. Therefore, these investors prefer start-ups to be C corps, venture capitalists will aim to please these favored investors, and start-ups will aim to please the venture capitalists.

On another note, I think Vic’s article is instructive on the craft of writing. It’s tempting to find irrational reasons for start-ups to form C corps (we’ll never have losses!), and as Joseph Bankman documented in The Structure of Silicon Valley Start-Ups, 41 UCLA L Rev 1737 (1994), a “gambler’s mentality” probably does have something to do with it. But when sophisticated players like venture capitalists are involved, I tend to favor rational over irrational explanations for behavior. In fact, I’m taking this approach in a new paper to explain the puzzling behavior of angel investors (no draft yet, although blogged about at Conglomerate).

Venture Debt

Darian Ibrahim —  19 February 2007

Thanks to everyone at TOTM for having me.  I’m a big fan of this blog, and look forward to visiting here for a short time.

I was intrigued by a recent article in the Wall Street Journal on venture debt, or the practice of lending to start-ups as opposed to the standard practice of investing for equity.  According to the article, debt made up 7% (or nearly $2 billion) of the money invested in venture-backed companies last year, up from 2% the year before.  The article also shows that venture debt was nearly $4 billion at the height of the venture capital market in 2000.

Venture debt is interesting — and puzzling.  Investments in start-ups are risky, plagued by extreme levels of uncertainty, information asymmetries, and agency costs.  A VC fund invests in a number of start-ups in the hopes that its portfolio will contain the next Google or eBay, to offset the inevitable duds.  VC-fund investors expect a better-than-market rate of return, and most profits come from the IPOs of a small number of highly successful start-ups (like Google and eBay).  The VC model works because of the potential for a huge upside.  Can venture debt work, when by definition it does not offer this huge upside?

Perhaps.  While the start-up is solvent, venture debt commands a high interest rate (double digits, according to the WSJ article).  The article also mentions that lenders get warrants, convertible into equity, which allows them to share (to some extent) in a huge upside.  Also, if the start-up liquidates, debt has first priority over the preferred stock of VCs.  Therefore, venture debt makes sense by offering some upside, although of a different makeup, and by limiting the downside.  But venture debt also presents problems.  First, the typical high-tech start-up must spend available cash on R&D and other growth activities, not interest payments.  Venture debt is unlikely to be the “patient capital” that start-ups need for long-term success.  Second, and perhaps more importantly, venture debt is likely to complicate a start-up’s chances with VCs.  VCs fund relatively few companies.  If a start-up comes with venture debt, I can’t imagine it’s very attractive to the VCs, whose money would go to pay off the debt during solvency, and who would now be second in liquidation preference during insolvency.  Unless the amount of venture debt is sufficient to eliminate the need for venture capital – and by current levels it is nowhere close – do start-ups carrying venture debt really have a chance for long-term success?  Venture debt may make sense for some companies, but in general it seems like a bad idea.

Henry Manne is back with another article in the WSJ.  This time Manne goes toe-to-toe with the “corporate democrats.”
Profs Ribstein (“Shareholder democracy is just one of the burdens that public corporations have to bear these days”)  and Bainbridge (“it’s a brilliant spanking of the shareholder activists, which I highly commend to your attention”) have already chimed in on this one.  Still, it is worth posting a few key paragraphs:

The hidden agenda of many corporate democrats is even more apparent when they argue that large corporations are indeed like small republics and should, therefore, like all governments, be democratized or constitutionalized. This is usually no more than an assertion that the large size of an otherwise private enterprise is sufficient to convert what would otherwise be a private ordering into something suffused with a public interest — in other words, an argument for more socialism. The very success of a private concern becomes the reason for destroying its privateness — a neat rhetorical trick if it was not so patently absurd.

Sometimes this argument is made a bit more logical by saying that large size necessarily means that external costs will be visited on the rest of society. This is the basis for the currently popular claim that so-called “stakeholders” should have a real voice in how the corporation conducts its affairs. But even if there are occasional costly externalities associated with corporate activities, rearranging corporate governance, which is obviously functioning adequately for investors now, is an irresponsible and costly way to solve that real political problem.

We need corporate activists today more than ever, but we need them to lobby and argue for repeal of our many costly and ill-serving bits of corporate regulation. They might start with Sarbanes-Oxley, then go back in time to cover the Williams Act and state anti-takeover provisions, the Investment Company Act of 1940, the Securities and Exchange Act of 1934 and the Securities Act of 1933. I know this is pie-in-the-sky idealism, but it does not change the fact that, on balance, the world would be a far better place without these laws or anything like them.

I don’t have anything to add to this other than a recommendation to go read it in full.

I’d like to thank everyone at Truth on the Market for allowing me the opportunity to guest-blog over the past two weeks. I’ve really enjoyed the chance to share some of my thoughts and contribute in some way to this wonderful forum.

Before departing, I wanted to tie-up a loose end that I left dangling in my earlier post on private equity regulation (I’m sure folks have been up nights awaiting resolution of this issue). As my prior post discussed, I generally find little merit in the recent calls for subjecting the private equity industry to greater regulatory oversight. (You can read my prior post here). I suggested, however, that there are some market imperfections in the private equity industry that may merit some reform. What are these market imperfections? In general, they are the information asymmetries that result from the challenge of valuing privately-held corporations. Continue Reading…