Key Australian finance officials have defended private equity to a senate inquiry, insisting that specific legislation is not necessary to regulate the industry, according to Australian media sources.
Their testimony came in response to the committee’s concerns about the capital gains relief provided for buyout firms in the country, and also about the growing use of offshore debt, which is tax deductible in Australia. Senator Steve Fielding said: “The Reserve Bank of Australia doesn’t know how much private equity is driving tax revenue loss for this Government. It’s a huge tax black hole.”
However, Reserve Bank of Australia deputy governor Ric Battellino told the hearing that it was unnecessary to create specific legislation for the asset class.
The Australian Prudential Regulation Authority, the Australian Institute of Company Directors, and industry trade body the Australian Private Equity & Venture Capital Association also opposed further regulation.
Jeremy Cooper, the deputy chairman of the regulator Australian Securities and Investments Commission said: “Private equity is a recognised asset class around the world and it would be totally inappropriate if Australian investors were blocked out of that type of investment.”
Cooper also defended the level of scrutiny private equity firms receive. Buyout groups must show their annual results to ASIC, he pointed out. They also come under constant scrutiny from their lenders, while their performance is regularly audited by superannuation funds, he added.
However, Battelino did agree with the growing consensus that the current buyout boom is unsustainable, particularly given the recent problems in the debt markets. Leveraged buyout activity had been fuelled this year by investment banks offering cheap loans and the benign economic conditions, he said.
“I think these conditions are already starting to change, so it’s very unlikely that LBO activity will continue at the pace we saw last year,” Battellino suggested.