Like last year, the reasons include cost, diversion of management time and the sheer volume of regulatory initiatives. But this year’s survey also reveals growing concern about the politicisation of regulation, and interference by governments.
The survey, in association with PricewaterhouseCoopers, was based on 468 responses from 60 countries covering all spectrums of the financial community. Credit risk remains the number two banana skin, sharpened this year by growing worries over interest rates (up from 12 to five) with the focus not just on loan portfolios (particularly housing and consumer debt) but also on leverage and private equity.
In the 2006 list, derivatives remain a big concern, particularly credit derivatives, as is the role of hedge funds in these markets. Commodities are also producing increasing worries, particularly in energy markets. And there is fear that the developed world may be over-exposed to emerging markets.
The top 10 risks in 2006 are (2005 placing in brackets):
- Too much regulation (1)
- Credit risk (2)
- Derivatives (4)
- Commodities (14)
- Interest rates (12)
- Dependence on technology (8)
- Hedge funds (5)
- Corporate governance (3)
- Emerging markets (15)
- Risk management techniques (9).
EIU REPORT:PRIVATE EQUITY IN JAPAN, FUELLING THE NEXT M&A WAVE?
Many obstacles to traditional private equity funds still exist in Japan, according to an Economist Intelligence Unit (EIU) report. Although observers have predicted that private equity investments in Japanese companies may soon take off, fuelling Japan’s M&A market further, the EIU suggests that such a take off is some years away.
Although the presence of private equity funds is starting to change the way deals are done in Japan, with more auctions and bids by consortia taking place, the EIU says there are still many obstacles. These include: competition from well-backed, well-connected domestic buyers attached to major financial institutions; a lack of talent in the private equity industry; a lingering resistance to the concept of handing substantial management control to outsiders; and a regulatory outlook that seems destined to discourage traditional private equity firms.
Although M&A activity in Japan was the second largest market by volume and third-largest by value in 2005, according to Thomson Financial, private equity deals remain relatively scarce.
