27 February 2007

McCreevy rules out private equity regulation

The EU Commissioner for the internal market, Charlie McCreevy, has told the private equity industry that has ruled out additional EU regulations. At a merger and acquisitions conference in Dublin he told delegates that private equity funds “have helped to keep publicly quoted companies on their toes”, have created shareholder value and helped companies adapt to modern market conditions.

“There is not room in the modern world for hush-puppy fund managers watching passively as complacent management teams erode shareholder value,” McCreevy said.

He pointed out that investors – very often members of pension funds and other institutions – choose these funds precisely because of the high returns. In turn, it is investors to whom private equity funds are accountable.

McCreevy is convinced that no further regulation of private equity investment is necessary. In order to deal with the perceived risk inherent in these funds it has to be ensured that “financial supervisors are vigilant in the supervision of the risks” and that the best risk-management strategies are put in place.

“As Commissioner for the internal market I have no intention whatever of trying to change the nappies of either banking supervisors, the financial institutions that they supervise, or of the professional investors who invest in them,” McCreevy said.

The only changes he will draw up are for the creation of a pan-European private placement framework. This is to “free up cross border transactions in private equity funds between suitably qualified investors”. He is convinced that this framework “can contribute to the deepening of European markets for institutional products”.

A few days before both Paul Myners, the former Gartmore chairman and author of the 2000 Myners report for the UK Treasury, and Brendan Barber, head of the UK Trade Union Congress, issued warnings on private equity.

In a letter to the New Statesman, Myners demanded that private equity companies “should be obligated to maintain the same standard of reporting as is required of all companies” to end their secrecy. He then pointed out to pension fund trustees and other investors that “huge sums [are] being earned by intermediaries from the movement of money from publicly quoted companies to private equity”.

Barber called private equity funds “casino capitalists” and “amoral asset strippers”, echoing sentiments from the recent German debate over private equity investors as “locusts”. The problem, said Barber, is that “private equity can avoid the responsibilities that a public company has to live up to”.

Speech McCreevy

© IPE International Publishers Ltd.