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The Convergence of Public and Private Equity Markets: Cyclical or Structural?

The Convergence of Public and Private Equity Markets: Cyclical or Structural? B T implementation of the Sarbanes-Oxley Act, along with new governance restrictions imposed by the NYSE and Nasdaq, has added significant costs and oversight to public companies, particularly smaller ones. Equity sold to Qualified Institutional Buyers (QIBs) through Rule 144A doesn’t have to be registered with the SEC or listed on an exchange. An over-thecounter market that offers roughly similar financing benefits without the regulation and disclosure required of a public listing has obvious appeal. Some private companies considering the 144A market are viewing it as “for life” status, while others are using it as an intermediate step in raising capital, on their way to a public listing. As the 144A market grows and the platform for trading among QIB investors becomes more efficient and standardized, the regulatory changes over the past few years may well make this quasi-public ownership structure a permanent and substantial feature of capital markets. The second force driving convergence is the changing economics of private equity, and the asset management industry in general. In the vein of “success is its own worst enemy,” the substantial returns earned by prominent private equity firms have flooded the industry with new capital. With limited partners expecting http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

The Convergence of Public and Private Equity Markets: Cyclical or Structural?

Journal of Applied Corporate Finance , Volume 19 (3) – Jun 1, 2007

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Publisher
Wiley
Copyright
Copyright © 2007 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/j.1745-6622.2007.00153.x
Publisher site
See Article on Publisher Site

Abstract

B T implementation of the Sarbanes-Oxley Act, along with new governance restrictions imposed by the NYSE and Nasdaq, has added significant costs and oversight to public companies, particularly smaller ones. Equity sold to Qualified Institutional Buyers (QIBs) through Rule 144A doesn’t have to be registered with the SEC or listed on an exchange. An over-thecounter market that offers roughly similar financing benefits without the regulation and disclosure required of a public listing has obvious appeal. Some private companies considering the 144A market are viewing it as “for life” status, while others are using it as an intermediate step in raising capital, on their way to a public listing. As the 144A market grows and the platform for trading among QIB investors becomes more efficient and standardized, the regulatory changes over the past few years may well make this quasi-public ownership structure a permanent and substantial feature of capital markets. The second force driving convergence is the changing economics of private equity, and the asset management industry in general. In the vein of “success is its own worst enemy,” the substantial returns earned by prominent private equity firms have flooded the industry with new capital. With limited partners expecting

Journal

Journal of Applied Corporate FinanceWiley

Published: Jun 1, 2007

There are no references for this article.