The European Parliament recently voted through a significantly watered-down resolution proposing cross-border regulation on both the hedge fund and private equity industries in Europe.
The Economic and Monetary Affairs report, which has been tinkered to the tune of more than 200 amendments since its first draft nine months ago, was originally prompted by MEP and president of the European Party of Socialists, Poul Nyrup Rasmussen.
Rasmussen was the prime minister of Denmark in 2006 when its national phone operator TDC was the subject of a controversial €13 billion LBO – then Europe's largest ever – completed by Apax Partners, The Blackstone Group, KKR, Permira Advisers and Providence Equity Partners.
The report, which recognizes that private equity and hedge funds “provide liquidity, foster market diversification and market efficiency” in Europe, proposes that among other things, these asset classes should be subject to minimum capital requirements, provide greater transparency and “inform and consult” a company's employees when its ownership changes hands. The proposed resolution is a compromise between the Socialist Group in the European Parliament, the conservative European People's Party and the Liberals.
The European Private Equity & Venture Capital Association, the European trade body which has been an active participant in the debate over the report's content, says it is unlikely to affect European private equity operations.
“A number of the legislative demands contained within the resolution are already covered by both international and domestic laws and the industry's own guidelines,” Justin Perrettson, head of public affairs at the EVCA told told sister news site PrivateEquityOnline.
As with last year's Walker Report in the UK, which after much public deliberation resulted in a voluntary code of conduct, government bodies are reluctant to prescribe burdensome regulation on private equity. The debate over the current report, for example, was informed by German academic Oliver Gottschalg, who in November concluded that 91 percent of private equity transactions produced growth-oriented initiatives.
But things have changed since Rasmussen first sowed the seeds of this proposal 18 months ago. The €13 billion mega-deals and aggressive refinancings, which caught the eye of the media, have now been consigned to the past, at least for now, leaving the less controversial mid-market as the dominant force in the industry. And in a climate in which banks have suffered crippling sub-prime losses, the capital in private equity coffers has already proved a vital alternative to state bail-outs, as with Lone Star Fund's recent acquisition of ailing German bank IKB.
Having been passed by the European Parliament's Economic and Monetary committee, the resolution will now be voted on by the full Parliament before being passed to the European Commission to assess the likely impact of new legislation and propose new laws if necessary.
3i creates corporate responsibility web site
3i has created a website, separate from its corporate site, which documents how the listed private equity group approaches its corporate responsibility. The site features a step-by-step guide to the private equity fund management process from fundraising to exit, and is not intended to document charitable donations or other philanthropic causes. Instead, it examines the various issues that a private equity firm needs to address at any one stage of the investment process. “There are many interested parties in private equity investment and there is a clear need to raise awareness of how private equity works,” Patrick Dunne, 3i's communications director, told sister news site PrivateEquityOnline. “3i is both an investor and a FTSE 100 company in its own right, and both of these roles bring responsibilities,” he said. “3i has been reporting on its corporate responsibility in for a long time, and this is, in many ways, just a natural evolution,” he said.
UK Treasury proposes tax exemptions for asset managers
The UK Treasury has recently proposed a new tax regime for the asset management industry. Aimed at ensuring the competitiveness of local funds, the proposals would lift several levies and reduce compliance obligations for investors. The first main change is an elective direct tax exemption for Authorized Investment Funds, which would shift the tax burden from the investment funds to the funds' investors. “The fund in itself will remain a taxable entity, [but] defined streams of income will not be taxable within an AIF which elects to be within the new tax regime,” the Treasury said in one of three papers outlining the proposals. The second main change would be the removal of a tax barrier for Qualified Investor Schemes – among them private equity funds. The Treasury would replace the substantial holding rule, which imposes a tax charge on those investors who own 10 percent or more of the net asset value of the QIS. “The government recognizes that the mechanical nature [of the substantial holding rule] in practice has acted as a barrier to the development of QISs,” the Treasury said in one of the papers. “The government proposes that the existing rule should be replaced with the ‘genuine diversity of ownership’ test. The aim is to ensure that the tax advantages are only available where the QIS is widely held.”
HarbourVest hires CFO for Euronext vehicle
Global fund of funds HarbourVest Partners has hired a new principal, Steve Belgrad. Formerly a vice president at Affiliated Managers Group, Belgrad will be chief financial officer of HarbourVest's Euronext- listed vehicle, HarbourVest Global Private Equity Limited. Belgrad replaces interim CFO and principal John Toomey, who will move to the firm's secondary investment team. Belgrad is based in Boston. At Affiliated Managers Group, Belgrad was a vice president in the firm's new investments group. Before, he was senior vice president and treasurer of Janus Capital Group. He was also previously an executive director in the financial institutions group at Morgan Stanley. The listed vehicle raised $830 million from its initial public offering on Euronext Amsterdam in December 2007. The fund listed at $10 per share. Shares are currently trading at $9.50, giving the vehicle a market capitalisation of $788.5 million.