هماهنگ سازی و توسعه بازار سهام خصوصی

This paper introduces a new dataset from 100 Dutch institutional investors’ domestic and international asset private equity allocations. The data indicate that the perceived comparative dearth of regulations of private equity funds impedes institutional investor participation in private equity funds, particularly in relation to the lack of transparency. The data further indicate that the perceived importance of regulatory harmonization of institutional investors has increased Dutch institutional investor allocations to domestic and international private equity funds. The Financieel Toetsingskader (regulation of portfolio management standards such as matching of assets and liabilities) has had the most pronounced and robust effect, followed by Basel II (regulation of risk management and disclosure standards) and the International Financial Reporting Standards (regulation of reporting standards and transparency).

The purpose of this study is to facilitate an understanding of the factors that motivate institutional investors to allocate capital to private equity.1 Our analyses build on a growing law and economics literature on venture capital and private equity on engineering venture capital markets (Black and Gilson, 1998 and Gilson, 2003) and the role of the law in influencing venture capital and private equity investment (e.g., Bigus, 2006, Hege et al., 2003, Kanniainen and Keuschnigg, 2004, Keuschnigg, 2003, Keuschnigg, 2004, Keuschnigg and Nielsen, 2001, Keuschnigg and Nielsen, 2003a, Keuschnigg and Nielsen, 2003b, Keuschnigg and Nielsen, 2004, Mayer et al., 2005, Schwienbacher, 2002, Lerner and Schoar, 2005 and Cumming et al., 2006). We empirically study institutional investors in The Netherlands. The consideration of Dutch institutional investors is particularly timely in that there have been significant changes in the regulation of institutional investors in The Netherlands. Our particular interest in this paper is in assessing the role of the institutional investors’ perceived importance of law versus economics in driving institutional investor capital allocation decisions to private equity. First, we study the effect of a comparative dearth of regulations of private equity funds on institutional investor allocations to private equity. The dearth or lack of regulations in private equity to which we refer is related to the fact that investors in private equity funds are institutional investors and high net worth individuals (not the so-called unsophisticated retail investors) and therefore these funds do not receive the same degree of scrutiny as other types of retail based funds, such as mutual funds. Private equity funds regularly justify their opaque or less than transparent disclosure of their activities and returns (particularly unrealized returns on unexited investments not yet sold in an IPO or acquisition 2) to their institutional investors as necessary in the interest of their private investee companies. The only actual oversight that private equity funds face includes the fact that private equity funds, if structured as a corporate body or limited partnership, are subject to the requirements of all other like institutions, and if registered with a government ministry for tax purposes (tax deductions for subsidizing R&D and the like), also subject to the ministry’s requirements. In every practical sense, therefore, the operations of private equity funds are not regulated above and beyond that of any corporate body. This is in sharp contrast to mutual funds, for example. In the second major component of this empirical study, we consider the extent to which the changes in regulation of institutional investors by regulators seeking to “harmonize” the existing regulations affecting financial institutions are important to institutional investor’s decisions to allocate capital to private equity. We examine three primary regulatory changes: the new International Financial Reporting Standards (“IFRS”) in 2005, the proposed new Financieel Toetsingskader (“FTK”) for 2006, and the new Basel II regulations in 2004. These regulations are explained in Section 2 of this paper. Harmonization of regulations faced directly by institutional investors facilitates investment in private equity through enabling different types of institutional investors (pension funds, banks and insurance companies) to act as limited partners for the same private equity fund, and by enabling different institutions in different countries to act as limited partners in private equity funds. This is expected to affect institutional investors’ asset allocation decisions in private equity, the geographic region in which institutional investors invest, and the mode of private equity investment (direct private company, direct fund, and fund-of-fund investments). Our paper is in part motivated by the fact that prior work has shown financial market regulation and harmonization affect investment volume and portfolio allocations in areas other than private equity, such as stock exchanges (e.g., Charemza and Majerowska, 2000 and Errunza, 2001; more generally, see La Porta et al., 1997, La Porta et al., 1998 and Berkowitz et al., 2003). It is natural to consider whether regulation and harmonization impacts private equity markets, particularly in a European setting. Practitioner reports of venture capital markets around the world are consistent with the view that regulation is one of the most important factors hindering the development and internationalization of private equity markets (Deloite Touche Tohmatsu, 2006). Our paper is also inspired by prior work on venture capital and private equity fundraising. Gompers and Lerner (1998b) have shown that private equity fundraising is facilitated by economic (stock market conditions and real GDP growth) and legal conditions (taxation and the prudent man rule), based on data from the United States (“US”) (see Poterba, 1989a and Poterba, 1989b; see also theory in Keuschnigg and Nielsen, 2003a and Keuschnigg and Nielsen, 2003b). Subsequent evidence has documented international differences in private equity fundraising using aggregate industry datasets (Jeng and Wells, 2000, Leleux and Surlemont, 2003, Allen and Song, 2003 and Armour and Cumming, 2006).3 Our study differs from these prior papers in that rather than examining data from a private equity fund as in Gompers and Lerner (1998b) or international aggregate industry-wide datasets, we instead focus on data from institutional investors that contribute capital to private equity funds. We study for the first time the effect of (1) institutional investors’ perceived importance of the comparative dearth of regulations pertaining to private equity funds for capital commitments to private equity and (2) institutional investors’ perceived importance of harmonization of regulations pertaining to institutional investors on institutional investors’ allocations to private equity. In order to empirically study the two primary issues addressed herein, we introduce a new dataset from a survey of Dutch institutional investors that was carried out in 2005. The survey data comprise information from 100 Dutch institutions, 29 of which are currently investing in private equity and 35 of which plan on investing in private equity over the period 2006–2010. The data comprise extremely specific details on the institutions’ portfolio management practices, as well as their perceptions of the importance of various economic, legal and institutional factors that influence portfolio allocations. The data indicate a number of interesting findings. First, institutional investors’ perceived importance of the comparative dearth of regulations pertaining to private equity funds is in fact a hindrance to institutional investor private equity investment. In particular, the data indicate that an increase in the ranking of the importance of a comparative dearth of regulations in private equity by 1 on a scale of 1 (lowest importance) to 5 (highest importance) reduces the probability that the institutional investor will invest in private equity by up to 30%, and reduces the amount invested by up to 0.8% of the institutions’ total assets. The lack of regulations coupled with the high risk and illiquidity in private equity gives rise to extra screening, governance and contract costs, which in turn requires specialized skills on the part of the institution to participate in the private equity asset class. Therefore, institutions that perceive the comparative dearth of regulations in private equity to be more important for their investment allocation decisions are essentially ranking the potential agency problems as being more pronounced and are less likely to invest in private equity. The second primary new finding in this paper is that an institutions’ perceived importance of the FTK (2006) regulations of institutional investors all appear to facilitate or better enable investment on the part of the institution in private equity, as well as fund-of-fund investments and cross-border investments in private equity. The data indicate that an increase in the ranking of the importance of this regulatory harmonization measure on a scale of 1 (lowest importance) to 5 (highest importance) increases the probability that the institutional investor will invest in private equity by up to 20%, and increases the amount invested by up to 0.9% of the institution’s total assets. As well, we find evidence that an increase in the ranking of the FTK increases the amount invested in fund-of-fund investments as well as international private equity in Europe (outside The Netherlands) and in the US. The results are robust to a variety of specifications, including regressions in levels and differences in levels, and for different subsamples of the data, among other things. The data further indicate that Basel II (2004) has had a similar impact on institutional private equity investment, but the statistical significance is not as robust as that for the FTK. As well, univariate evidence indicates the IFRS (2005) is relevant for facilitating institutional private equity investment, but that evidence is not statistically significant in the multivariate regressions, unlike the evidence for the FTK and Basel II. Overall, therefore, the FTK has had the most robust and pronounced impact on investment in private equity for Dutch institutional investors. This paper is organized as follows. Section 2 outlines the theoretical propositions and testable hypotheses. The data are introduced in Section 3, and summary statistics are provided in that section. Section 4 provides the multivariate empirical analyses of private equity allocations by Dutch institutional investors and regulations. Section 5 considers the issue of why incumbent private equity funds may oppose disclosure despite the evidence that greater disclosure would bring more capital into the private equity industry, as well as extension and future research. Concluding remarks follow in the last section.

In this paper we study for the first time the relation between regulation and institutional investment in private equity, more specifically the level of investment, geographic concentration and vehicle for investment. We introduced a new detailed dataset from a survey of Dutch institutional investors. The data indicated evidence consistent with the view that Dutch institutional investor participation in private equity is negatively affected by the comparative dearth of regulations in private equity, which is due to an increase in screening, search and monitoring costs associated with low disclosure standards for private equity investment. The new data introduced herein also provided support for the view that regulatory harmonization facilitates investment in private equity, as well as international investment in private equity. In particular, the data supported the propositions that harmonization of standards from the FTK (regulation of portfolio management standards such as matching of assets and liabilities), has facilitated clarity and certainty for institutions that desired to invest in private equity. While our data do not enable an examination of the question as to whether there could exist better regulatory harmonization measures that would better facilitate private equity investment, our data are nevertheless consistent with the view that the FTK has had a more robust and pronounced effect than Basel II, which in turn has had a more robust and pronounced effect than the IFRS. The FTK has clearly had the greatest impact for Dutch institutional investors investing in private equity within the Netherlands and abroad. As discussed in Section 5 of this paper, further research could consider other aspects of private equity fund disclosure and evidence from investors in other countries.