Introduction

One of the main developments in financial markets over the last decade has been the growth of private equity. Thomson Financial reported that approximately 25 percent of all mergers and acquisitions in 2007 were private equity-funded buyouts, compared to 3 percent a decade ago. In 2006, almost $135 billion of private equity was invested, up a fifth from the previous year. The amount of funds actually raised by private equity globally was $232 billion in 2005, up three-quarters on 2004 (International Financial Services [IFSL] 2006). In 2006, private equity firms expanded into Asia outside Japan, investing $28.9 billion in the first nine months of the year, up 78 percent. In Europe, private equity deals were up 70 percent in the first half of 2006. Private equity has become a worldwide movement. In 2005, North America accounted for 40 percent of global private equity investments (down from 68 percent in 2000) and 52 percent of funds raised (down from 69 percent). Europe increased its share of investments (from 17 percent to 43 percent) and funds raised (from 17 percent to 38 percent). The Asia Pacific region's share of investments increased from 6 percent to 11 percent during this period, whilst its share of funds raised remained unchanged at 8 percent.

This expansion was based on a series of financial innovations as regards the structuring of debt and equity and the ability to create secondary financial markets in which risk could be parceled out in new ways in contexts in which there appeared to be a growing glut of savings (particularly from Asia) and a growing number of borrowers (particularly in the USA and the UK).