Nervous in the Netherlands

Private equity is not exactly on the run in the Netherlands, but practitioners could nonetheless be forgiven for casting an anxious glance or two over their shoulders.
Toward the end of February, De Nederlandsche Bank (DNB), the Dutch central bank, said it was drawing up “guiding principles” to help financial institutions with the risk management of private equity and other alternative investments.
On the face of it, the announcement was innocuous enough. The DNB insisted that its proposals would not take the form of a “checklist” with specific compliance demands. Instead, it billed them as merely useful guidance, with “points of interest and best practices”.
Nonetheless, private equity firms may have taken fright a little at the accompanying comments: “The DNB is concerned that private equity funds are not under any direct supervision, which can make it harder for institutions to obtain an overview of the performance assumptions and the risk profile of investments.”
Those familiar with a prior document from the DNB—its semi-annual “Overview of Financial Stability in the Netherlands”, published in September 2006—may have been even more worried. In the back of their minds, they would still have had the DNB’s warning in that report that “private equity offers benefits, but also gives rise to risks”.
In a similar vein to concerns expressed by the Financial Services Authority in the UK, the DNB warned that leveraged buyouts were causing financial instability by creating “greater corporate indebtedness” and “greater interest rate sensitivity”. It said it would “closely monitor developments in this leveraged buyout market”.
If this wasn’t enough, the DNB recently displayed its capacity for intervention against alternatives firms amid a row over the future of Dutch bank ABN AMRO. Hedge fund shareholders in the bank, including the UK’s The Children’s Investment Fund (TCI), have been agitating for a break-up of the bank.
The DNB issued a letter expressing concern at TCI’s actions and claiming that the bank represented broad public interests protected by law.
The European Commission in turn reprimanded the DNB’s intervention, saying that it should limit itself to its supervisory role and not participate in discussions of ABN Amro ’s future.
Whether the DNB retreats from that debate remains to be seen, but for Dutch private equity the message is clear: this is one organisation not afraid to speak out against the activities of alternative investors. More may be heard from it in future.