European Private Equity to Get Regional Code of Conduct

February 26, 2009

The European Commission Conference on Private Equity and Hedge Funds met today (Private Equity was the focus today, hedge funds tomorrow.  It’s a least a step in the right direction that Internal Market Commissioner Charlie McCreevy got the commission to recognize that the two industries are in fact unique and separate…although I’m sure there are still quite a few socialists in denial about that bit of reality).

The EVCA is offering to accept an oversight and enforcement regime for a regional code of conduct as the industry has apparently recognized the need to move to a “supervisory model” from a system of self-regulation.  

The EVCA also submitted a report that found that private equity and venture capital can help overcome the current funding crisis and contribute to the recovery of European economies (amen! There’s been much talk concerning this in the US, see any of the recent debate about Thomas Friedman’s editorial from this past weekend just for starters, and yet Europe has been slow to see the situation in the same light. Am I surprised by this? No. But come on Europe, it’s time to wake up) that the industry is already highly regulated at national and EU level and does not pose systemic risks, and that private equity is a distinct type of investment and is markedly different from other investment strategies, particularly hedge funds. 

The submission concluded that the regulatory framework should consist of unified professional standards and an effective enforcement regime with oversight by the appropriate EU or national supervisory bodies. 

Many national Private Equity associations have adopted guidelines of their own, however the problem has been, as with much else in Europe, a resulting effect of 27 different approaches with varying degrees of success. And given the bewildering level of attention that a certain Scandinavian leftist member of the European Parliament wishes to attract on this subject, this is an issue that’s far from over!


European Private Equity Industry Establishes “Brussels Taskforce”

October 18, 2008

The EVCA has set up a taskforce to act as a unified voice for the industry in Europe to react to a report recommending regulations concerning private equity that was passed by the European Parliament and suggested to the European Commission.

European Parliament Adopts Somewhat More Rational Private Equity Stance

September 12, 2008

This week the EU Parliament’s Economic and Monetary Affairs Committee voted through a softened paper on proposed Private Equity regulations. The vote took place after compromises were reached via the inclusion of some 200 amendments. The European Parliament will vote on the issue later this month.

Among the more controversial (and odd) proposals is that leverage should be “fair” for both the buyout firm and the company being acquired and that capital should be held by investment firms according to the level of risk on an investment. The interests of investors and loan originators should be aligned by obliging investors to retain a portion of securitized loans on their books.

Now, how they manage to determine what “fair” is will be entertaining. Are they going to want to place caps on leverage levels? Are they going to come up with some set of debt/equity ratios? This is classic reactionary overregulation. Why would a firm determine to buyout a company if it didn’t think it was possible to meet debt obligations? Obviously you wouldn’t invest if you didn’t think it was a fair and achievable amount. Does this always work? No. But neither do other forms of ownership structures. Let the market dictate what the going rate of “fair” is, not the bureaucrats.

More on this later.