Private Equity warning from European Union
Pro-private equity EU commissioner Charles McCreevy has warned private equity that its attempts at self regulation are not convincing. If they don’t wake up, he suggests strict national regulation will be handed down by governments throughout the EU. UNI Global Union has argued that self regulation is not sufficient. The Financial crisis has shown the limits of self regulation- governments have to get a grasp of the out of control alternative investment groups. Self regulation will not bring proper transparency, clarity on tax, information on reward systems for executives, or levels of debt for example.
“McCreevy cited a recent BVCA (British Private Equity and Venture Capital Association) survey showing 32 of 200 private equity firms had signed up to the voluntary guidelines on transparency and disclosure published a year ago by Sir David Walker. He also highlighted the limited reach of the Walker code of conduct, saying only 56 of about 1,300 portfolio companies - those that are backed by private equity investment - had reportedly complied with the code.
“These kinds of statistics are not going to impress any trigger-happy regulators," he said. McCreevy said there was scope for greater ambition in the code such as a need to "comply or explain" and more active monitoring of compliance.
He proposed a pan-European code and is due to present a review of existing codes to European MPs in March but warned: "We will undertake a thorough and critical review. The yardstick will be the impact and effectiveness of codes. Policymakers and regulators will want to see evidence that these codes are influencing behaviour and avoiding undesirable outcomes."
He also said that institutional investors and labour organisations would have significant influence on the review.” (The Guardian, David Gow 12/12/08)
Several private equity councils have developed codes for members to follow, such as in the US, Denmark and UK. To date, all codes have been voluntary for private equity members and their portfolio companies. The G20 have called for an overhaul of supervision and regulation of financial institutions and markets. The global unions have argued that the statutory regulation of private equity and hedge funds has to be included if the G20 is serious in its promise that a financial crisis on this scale should ever happen again.