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'Stop telling us that everything is lovely with Private equity. People are getting angry with the EU Commissioner Charlie McCreevy and his hand picked experts from the industry who simply close their eyes to criticism and sing the praises of the profiteers.' That was the message of Leke van den Berg kicking off a debate at a public seminar organised by the Socialist group of the European Parliament , Brussels, 29 March.



The former Prime Minister of Denmark, Poul Nyrup Rasmussen said that P.E, leveraged buy outs have grown on the back of excessively high liquidity and historically low interest rates. 'Nobody, not even the head of the European Central Bank is prepared to say these rates will continue.' Then there are real fears of systemic risk.



The estimates of how much money is available to PE for investment vary greatly. At this meeting, different experts mentioned figures starting at $220 billion and rising to three or four times that figure. Whichever figure you believe the real question is whether this money is being used wisely in a way which will benefit the European economy in terms of long term investment, money going into research and development and using processes that are transparent and open for all to see.



Rasmussen's conclusion was that there ' is no smooth interplay between our ambition for the real economy and the financial markets.'



Even more clear according to John Monks, General Secretary of the ETUC is that today, every business, even the best, the biggest and the most efficient are operating under the shadow of the threat of a takeover tomorrow by private equity. There is no business too big for PE to take over. so even the best companies now find there is little incentive to plan or even think long term. PE is making short-termism the order of the day.



The industry frequently claims that PE takeovers actually allow management to escape the straight jacket of the quarterly reporting of results. They dismiss allegations that they dump companies debt-laden back onto the market after a few months or years. They claim it would not be in their interest as they need to sell at as high a price as possible to recoup this investment. Rasmussen pointed out that in fact the more than 80% of deals, with their management fees and the 'carry' , recuperate all their investment and more within 24 months. so the final selling price rather that crucial to the deal simply is the icing on the cake.



The accidentally amusing contribution of Javier Echarri, eneral Secretary of the European Venture Capital Association, EVCA, tried to show with a hot shower of statistics how PE funds in providing thousand of companies with start up capital or money to expand their business resulting in millions of jobs. The only problem with this vigorous defence is that nobody disagrees. Venture capital is essential and its purpose is good. But as other speakers pointed out, at present venture capital amounts to only about 5% of all the funds available to PE. You cannot defend the excesses of PE by citing its provision of venture capital.



Everybody recognises that PE benefits from the fact that it escapes normal regulation. Mr. Echarri can see this criticism of PE for escaping regulation is hurting its public image so he rattled off at great pace the names of all the financial regulatory agencies in some 27 countries in a smokescreen to give the impression that their activities are regulated. The effort was somewhat spoiled by his admission at the end that most of the financial regulators had no power over the private equity funds.



The period of denial that there is any fault with private equity might to be coming to an end. The establishment of the Walker Committee in the UK to look at possible voluntary codes of conduct for the industry is recognition by the industry itself that it does have problems.



Dan Waters, Director of the FSA, UK provided another interesting insight into the possible problems and areas where a quick mea culpa from the industry may help to find a constructive way forward, He began be explaining that questions of employment or social rights were not in his remit and he could not comment on these aspects. However this did not stop him from later defending PE against any regulation on the ground that it would lead to a loss of jobs except perhaps for a legion of lawyers. He recognised a difference between venture capital and leveraged buy-outs but insisted this would be impossible to define in regulations and so should be left alone.



Despite his vigorous defence of the status quo other comments he made gave just a glimmer of a suspicion that even he can recognise that there are genuine worries about private equity and the consequences of the current mania.



He said that evidence from surveys of banks show an increasing appetite to fund PE debt and that more and more of acquisition costs are debt. In his guarded words this may not be ' entirely prudent.' Similarly increasing debt just to pay increased management fees is 'not necessarily prudent.' And finally he admitted that banks may be extending the boundaries of prudent lending.



These are very guarded statements but perhaps at least a beginning to seeing that there are real concerns with current developments that must be tackled. Charlie McCreevy in the European Commission and numerous government representatives at the national level need to take note, stop their blanket and blind defence of the industry and begin an essential debate on change and reform.



The report for the seminar was commissioned by the Socialist Group of the European Parliament and is entitled ' Hedge Funds and Private Equity--a critical analysis.'