Regulators in a friendly mood?

While welcoming the developmental benefits of venture capital and direct investment, not to mention the straightforward FDI, Asian officialdom has often balked at the prospect of seeing trophy national assets taken over by financially-driven foreign investors. This applies particularly in the many Asian states where governments owe their mandate to govern less to the will of the people than to their track record in delivering economic growth, as well as those even ostensibly free-market states with a strong tradition of industrial planning and a sizeable state sector.

Now there is evidence of a shift in institutional mood across the region. Partly there is the example of China, with the new RMB fund platform and its associated outreach to foreign LPs through the “QFLP” scheme just one plank of an initiative to attract foreign private equity expertise, and even money, into the Chinese domestic ecosystem. A softening of attitudes in China towards foreign private equity investment in other areas, especially financial services, also suggests an easier regulatory ride for private equity in future.

Just across the Strait in Taiwan meanwhile, regulators who have been closely policing the consortium acquisition by Primus Financial Holdings and China Strategic Holdings Nan Shan Life Insurance appear closer to granting approval, at least in some commentators’ eyes. And in Korea Lone Star’s longstanding investment in Korea Exchange Bank, held for years in the teeth of regulatory probes and even criminal investigations, seems finally about to reach its exit, under the aegis of a new Korean government regarded as the friendliest to FDI and foreign interests in years.

Governments may also have made things easier for private equity as much by error as by design. The sudden exodus of Kevin Rudd as Australian prime minister, primarily thanks to an unrelated tax controversy, implies that taxation issues in general, and populist attempts to pillory foreign investors in particular, are going to be shunned by Australia’s politicians in future. This may or may not have a positive impact on the still-awaited private equity tax policy determinations, but the signs are cautiously favorable.
Asian governments may have moderated their attitudes towards private equity, but they are still a long way from embracing it wholeheartedly. Regulators and governments will still tend to favor investors with longer-term horizons and less profit-driven priorities than private equity firms, no matter how good the latter’s track record.

Some private equity businesses might argue that a dose of stronger market discipline is precisely what many Asian investee targets need. This, after all, is part of the value enhancement that they are supposed to bring to their investees. But many regulators still side with the companies in this calculation. The grand social contract, whereby Asian governments gave business groups – often closely allied to them – stewardship of large areas of the economy to deliver high employment in often politically protected high-growth markets, still holds sway in many jurisdictions. Though there may have been a regulatory and political thaw towards private equity across the region, it is nothing like a warm embrace – and probably never will be.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Regulation
• Lone Star Funds
• Primus Pacific Partners