Regulatory arbitrage meet the historical inevitability. The crew at breakingviews (via WSJ.com) examines the reasons why American private equity firms have chosen the Amsterdam exchange to list their private equity vehicles. From breakingviews:
That these paragons of American capitalism would even consider Amsterdam over New York highlights the competitive decline of U.S. equity markets as a place to raise risk capital. But this is a problem that neither the NYSE nor the Nasdaq can rectify easily at home. The only solution would be to stamp out many of the protections that make the U.S. a desirable place to invest. Going shopping is the answer.
Private-equity firms are choosing Amsterdam over New York — or even London for that matter — to avoid shareholder litigation and Sarbanes-Oxley-style regulation. Amsterdam also offers another bonus — lax corporate governance. There are few channels for shareholders to change management at public companies in Amsterdam. In the U.S. and U.K., investors have far more capacity to do so.
When we originally wrote on the topic we thought the NYSE would go after the LSE, but Nasdaq pre-empted any such move. Euronext became, if it already wasn't, the next logical merger partner. it is not clear that, absent a crisis, that the SEC and Congress will do what it takes to make the U.S. capital markets pre-eminent again.
The larger question is to what degree this race to bottom takes hold. A few years ago there was a upcry when U.S. based companies were looking to re-incorporate in tax-friendly domiciles in the Caribbean. Will we actually see a prominent domestic company flee overseas to avoid the regulatory and liability issues in the U.S.?
Going Private is back(!) and commenting on this issue of private equity firms raising permanent capital. They look on with admiration at the skill in which KKR was able to float such a large and profitable (for themselves) deal. Indeed KKR's success may have made it all the more difficult for their competitors to do equivalent deals. A choice excerpt from the post:
Suddenly, in a declining and overbought market for private equity vehicles, the key feature of the IPO, a new independence from the distractions of the private equity fund raising cycle, seems to be worth far more than was, at least initially, obvious. Locking up funding for several years right on the verge of what will likely be a continued hike in interest rates, a decline in IRRs and a downturn in fundraising prospects was a bit of genius. If you look at it from a competitive landscape perspective it was a brilliant move, even if mostly accidential with respect to the timing.
It seems that the capital markets are mutating faster than we can keep up with. In that regard it is helpful to keep an eye on the smart money to see where the winds are blowing. For now the wind is definitely blowing offshore.
