Introduction
Private equity (PE) represents a form of investment in venture capital, through which an investor acquires stakes in unlisted companies with the aim of improving their performance and subsequently selling these stakes at a higher price. This essay analyzes the nature and role of private equity, with a particular focus on Italian and foreign regulations and relevant jurisprudence.
Definition and Structure of Private Equity
Private equity is a source of financing that involves acquiring stakes in private companies through funds managed by PE management companies. These funds can invest in various stages of a company’s lifecycle, from start-ups to mature companies.
According to renowned economist Josh Lerner (2012), private equity plays a crucial role in innovation and economic development by providing long-term capital and managerial expertise. Lerner emphasizes that PE is often associated with significant improvements in company performance.
Italian Regulations on Private Equity
In Italy, private equity is primarily regulated by Legislative Decree no. 58/1998 (TUF – Consolidated Law on Finance) and Legislative Decree no. 108/2018. These decrees govern the activities of asset management companies (SGRs) and establish the requirements for the establishment and management of alternative investment funds (AIFs).
An important ruling by the Italian Supreme Court, no. 12693/2012, clarified that private equity operations must comply with principles of transparency and fairness, highlighting the need for proper valuation of acquired stakes.
Private Equity in the International Context
In the United States, private equity is regulated by the Investment Company Act of 1940 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. These regulations aim to protect investors and ensure the stability of the financial system.
An emblematic case is Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), which had a significant impact on corporate governance and PE operations, emphasizing the importance of directors’ duty of care in acquisition transactions.
Economic Role and Criticisms
Private equity plays a crucial role in providing long-term capital and managerial support to businesses, contributing to economic development and innovation. However, it is also subject to criticism for leveraged buyout (LBO) practices, which can pose significant risks to acquired companies and their employees.
According to Steven Kaplan and Per Strömberg (2009), while PE can lead to operational improvements and growth, there are concerns related to high levels of debt and potential conflicts of interest between fund managers and investors.
Conclusion
In conclusion, private equity is an essential component of the global financial system, with specific regulations varying across jurisdictions. Its operations must be managed carefully to maximize economic benefits and minimize associated risks. Italian and foreign jurisprudence provides important guidelines to ensure transparency and fairness in PE operations.