An increase in foreign investment in the US comes with trade-offs

May 10, 2019
There's a trade-off between welcoming foreign investment and protecting national security, and that's becoming a more common consideration in the private equity world, where foreign investors are keen to get involved in direct investments. However, those efforts are running into roadblocks from US regulators—particularly in this political climate.

The Committee on Foreign Investments in the United States is the group responsible for national security reviews of any PE deals that would result in foreign investors controlling a US company. Even minority transactions that could give access to board seats and decision-making are closely reviewed.

US regulators appear to be taking this all very seriously, as shown by the numbers in the featured chart. PE deals with direct involvement from at least one foreign investor take visibly longer to close than transactions with only US investors. Relatively few foreign direct investments have been explicitly blocked by the US government, but far more deals have been quietly killed by the investors themselves.

Thanks to the rise in direct investments from LPs, it's likely this issue won't go away any time soon, especially with such a large number of foreign LPs chomping at the bit to participate directly in PE deals. That would inevitably include sovereign wealth funds, which have played a major role in financing the industry going back several years. You can expect to see the acronym CFIUS from time to time when reading the news, as the trade-off between security and foreign investment is only going to be discussed more in the years ahead.

Featured image via Easyturn/iStock/Getty Images Plus

This column originally appeared in The Lead Left.

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