The assessment: contracts and competition

A significant recent development has been the extension of marketprocesses to activities which were previously provided by thepublic sector. A central feature of newly privatised marketsis the emergence of widespread forms of contracting. Explicitcontracting is used where in the past transactions had takenplace internally within a public enterprise of a governmentdepartment. The design of efficient forms of contracting hasbeen an essential component of the development of new marketsand quasi-markets such as those in defence and health. Thispaper examines evidence of the structure of contracts and theextent to which they contribute to or detract from the efficientoperation of markets, discusses the role of contracts in somenewly emerging markets, and evaluates contracts in utilitieswhere regulation rather than competition policy is widespread.     

Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors

We examine the costs and benefits of the global integrationof initial public offering (IPO) markets associated with thediffusion of U.S. underwriting methods in the 1990s. Bookbuildingis becoming increasingly popular outside the United States andtypically costs twice as much as a fixed-price offer. However,on its own, bookbuilding only leads to lower underpricing whenconducted by U.S. banks and/or targeted at U.S. investors. Formost issuers, the gains associated with lower underpricing outweighedthe additional costs associated with hiring U.S. banks or marketingin the United States. This suggests a quality/price trade-offcontrasting with the findings of Chen and Ritter, particularlysince non-U.S. issuers raising US$20 million–US$80 millionalso typically pay a 7% spread when U.S. banks and investorsare involved.     

Can investors time their exposure to private equity?

Private equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low performance. Despite this seemingly predictable variation, we find modest gains, at best, to pursuing realistic, investable strategies that time capital commitments to private equity. This occurs, in part, because investors can only time their commitments to funds; they cannot time when commitments are called or when investments are exited. There is a high degree of time-series correlation in net cash flows even across commitment strategies that allocate capital in a very different manner over time.     

Private Equity: Accomplishments and Challenges

The authors provide an overview of the main accomplishments of private equity since the emergence of leveraged buyouts in the 1980s, and of the challenges now facing the industry—challenges that have been encountered before during three major growth waves and two full boom‐and‐bust cycles. In so doing, the authors review a large and growing body of academic studies responding to questions like these:

• (1) How have PE buyout companies performed relative to their public counterparts? And to the extent there have been improvements in operating performance and productivity gains, how have such gains been achieved? What role have PE firms played in this process?
• (2) Especially in light of the large fees and profit shares paid to the PE firms, or GPs, and the significant “control” premiums over market paid to the selling companies, how have the returns to the LPs that provide the bulk of the funding for PE funds compared to the returns earned by the shareholders of comparable public companies?
• (3) Apart from the high fees earned by its GPs, why is PE so controversial? Beyond their effects on productivity and benefits for investors, what are the employment and other social effects of buyouts and PE?
• (4) What are the prospects for future PE returns to their LPs, especially in light of the volume of capital commitments and high purchase multiples that were being paid, at least until the onset of the COVID pandemic? And what role, if any, should PE activity be expected to play in the recovery from the pandemic?

     

The assessment: introducing competition into regulated industries

The introduction of competition into utilities is currentlybeing pursued in the many countries, including the UK. Competitioncan take various forms, such as competition for outputs, inputs,franchises, and outright takeovers. Attention is currently focusedon output competition, whereby customers are being given a choiceof final supplier in many industries. We consider the implicationsof the introduction of such competition, including the effectson industrial structure and contracts, cross-subsidies and distributionalconcerns, and uncertainty and stranded contracts. We also analysethe transitional problems encountered as competition is introducedand suggest that the UK regulators and government have, in somekey respects, failed to define a clear and consistent policy.