Wruck presents at AEI conference in Washington

A two-day conference in Washington, D.C. examining private equity featured a presentation by Fisher College of Business ’ Karen H. Wruck, associate dean for MBA programs and Dean’s Distinguished Professor, discussing its impact on corporate control.

Hosted by the American Enterprise Institute for Public Policy Research on Nov. 27-28, the event brought together leading financial economists and practitioners for a detailed evaluation of the private equity sector, which included presentations and panel discussions on significant historical events and various perspectives on future trends.

In Wruck’s presentation, she discussed how the so-called “Golden Age” of private equity has led to two major achievements. The first she identified is the reinvention of the market for corporate control. According to recent data, private equity was involved in up to 30 percent of the merger and acquisition market in 2006. As a result, providers of capital now compete for the right to govern corporations.

“This private equity cycle is different than what we experienced in the ‘80s,” Wruck told the audience. She said private equity’s reinvention “will be a permanent feature of the way the market for corporate control works here in the United States.”

The second major achievement of private equity players has been greater influence on corporate reorganization. Calling the second achievement “routinization,” Wruck said private equity players are acting as a bridge between capital markets and corporate management and strategy.

On the surface, the private equity sector appears to be about markets and transaction, Wruck said. However, research and case studies of corporate buyouts have offered evidence that the sector’s objectives are focused on value creation.

According to Wruck, the private equity sector is driving trends such as governance by smaller boards with directors who have significant equity ownership; decentralized decision-making; and performance measures that emphasize cash-flow generation and long-term value creation.