The canary in the coal mine

The US House Committee on Financial Services recently held a hearing to examine the risk posed by hedge funds to financial markets. Many of the concerns raised in the hearing with regards to hedge funds could have been easily applied to private equity, and may foreshadow future moves to regulate other alternative assets (or to leave them alone).

The hearing began with representatives arguing that the industry warranted their interest for two reasons. First, the hedge fund industry has seen massive expansion over the past five years, with multiple members of Congress citing 400 percent growth in that time. Second, pension funds, among other institutional investors, are highly committed to the asset class, and, many suspect, without the workers and retirees aware of the risks involved. But representatives made pointed critiques of the President's Working Group findings, particularly its recommendations against regulatory oversight.

The President's Working Group advised investors in hedge funds to gather all necessary information on the ?strategies, terms, conditions and risk management? before making any commitments and found that no government agency should require any information on hedge fund activities.

Congressman Michael Castle, a Republican from Delaware, argued that hedge funds investors may not get sufficient information with the current disclosure guidelines. Rep. Castle also noted that the last President's Working Group that examined hedge funds in the wake of the collapse of Long Term Capital Management in 1999 recommended that very large hedge funds be required to disclose their financial activities. He inquired as to why the subsequent group would be less cautious, when the industry has grown so much.

Many of the witnesses testifying on behalf of the industry responded that pensioners, and investors of all stripes, had lost far more due to the collapse of ordinary stocks than through any involvement with hedge funds.

On the issue of disclosure, Gerald Corrigan of Goldman Sachs expressed skepticism on the value of public disclosure demands for hedge funds. Far more important, he said, are three forms of disclosure at which hedge funds and other private pools of capital already excel: highly detailed disclosure counterparties such as prime brokers, disclosure to investors and disclosure to regulators when requested.

According to Corrigan, public disclosure ?even something as mild as registering with the US Securities and Exchange Commission?can create a moral hazard. It gives the impression to some that the government is vouching for the safety of a set of funds, where no such safety can possibly be determined, or given.

But most telling for the fate of other alternative assets was how frequently congressmen and witnesses alike noted that one cannot discuss ?hedge funds? without also including the many other forms of private investment pools, including venture capital, and yes, private equity.

UK Treasury to undertake private equity enquiry
In the wake of the controversy surrounding private equity that has been raging in the UK, the Government's Treasury Select Committee has announced plans to conduct an inquiry into the industry. The Committee appears to include a mix of likely private equity supporters and opponents. For example, one would expect to find Conservative MP Brooks Newmark in the former camp as a senior adviser to buyout firm Apollo Management, while the latter camp will likely include Labour MP Sally Keeble, a former head of communications at the GMB union, which has been at the forefront of recent attacks on private equity. The Treasury has given few details of the inquiry at this stage, with little known about timing and terms of reference. The Committee is expected to talk to leading figures from the private equity world before reporting back to the Treasury.

Private Company Index CEO report released
?Private Company CEOs: Reality, Trends & Expectations,? the first annual report on private-sector CEO trends from the Private Company Index (PCI), was released in March. The survey project was developed in response to numerous media requests for greater information about the experiences and demands of CEOs heading private companies, according to PCI. The survey said that 92 percent of private CEOs indicated strategic policy planning as their most increased area of demand, with business development ranked second. Public CEOs reported that regulatory compliance and reporting to the company's board took up the majority of their time, with strategic policy ranked third. Both groups, however, cited their management team and operational efficiencies as the top two factors that would influence company performance over the next five years. PCI is run by the Chicago-based entrepreneurial consultancy Entrex

BVCA launches transparency initiative
The British Venture Capital Association (BVCA) has launched a working group to explore how the industry can become more transparent. The initiative is spearheaded by Sir David Walker, former chairman of Morgan Stanley, and includes 23 of the biggest private equity firms active in the UK, including Apax Partners, The Blackstone Group and Permira. In a joint statement, the firms said the industry was proud of its achievements and growth but accepted that more transparency was required. It said: ?We believe that there would be real benefit to all stakeholders if a regime of more effective disclosure took hold. This is why the industry is committed to undertaking this review.? The BVCA said the working group would produce a voluntary code addressing the level of disclosure in the industry and how it should communicate with a wide range of stakeholders. It said it would distinguish between all different segments of the industry, from small start-up financing to large buyouts.

Vestar brings in head of IR
New York-based private equity firm Vestar Capital Partners has hired Patrick Shattenkirk as a managing director and head of investor relations. In a newly created role, Shattenkirk will be responsible for coordinating communication between Vestar and its investors. Shattenkirk joins from Cogent Partners, an investment bank specializing in liquidity advisory services for institutional private equity investors, where he was managing director. Previously, Shattenkirk worked at Deutsche Bank in its private equity placement group and Morgan Stanley in institutional fixed income sales. Vestar, which was founded in 1988 and has offices in New York, Denver, Boston, Paris, Milan and Tokyo, closed its latest fund, Vestar V at $3.5 billion in January 2006.