Est. 2min 11-09-2008 (updated: 28-05-2012 ) Euractiv is part of the Trust Project >>> Languages: Français | DeutschPrint Email Facebook X LinkedIn WhatsApp Telegram Hedge funds and private equity could be forced to abide by minimum capital requirement rules in future if a report adopted by an influential European Parliament committee becomes EU legislation. The Parliament’s Committee for Economic and Monetary Affairs voted on Wednesday (10 September) in favour of a resolution recommending tougher regulation on hedge funds. The decision was almost unanimous, with just one vote against and one abstention. The report, drafted by former Danish Prime Minister Poul Nyrup Rasmussen, was negotiated until the last minute by MEPs, with over 200 amendments brought to the original. It is widely expected to be confirmed when it is brought before the Parliament’s plenary for a final vote on 23 September. The revised text, although non-binding from a legal standpoint, carries significant political weight. It asks the European Commission to present a legislative proposal by the end of the year to regulate hedge funds and private equity funds, based on the principles agreed by the MEPs. In particular, it calls for capital requirements to imposed on such financial mechanisms, as already requested for other financial institutions such as banks or insurance companies. The report also calls for more transparency of so-called ‘alternative’ funds, which MEPs said should be required to disclose their debt exposure and their investment strategies. The report also calls for measures “to avoid unreasonable asset stripping in target companies” during takeovers by private equity investors or hedge funds. Excessive borrowing should also be avoided when it is used to cover leverage, MEPs said. Read more with Euractiv Ailing heavyweights bring EU close to recessionThe European economy looks set for a further downturn as Germany, Spain and the UK are expected to fall into recession, according to Commission estimates presented yesterday (10 September). The news is likely to put a downer on EU finance ministers' talks in Nice, where the ailing economy and turmoil in financial markets are on the agenda. Subscribe now to our newsletter EU Elections Decoded Email Address * Politics Newsletters Positions Socialist MEP Poul Nyrup Rasmussen, the author of the report, described the adopted text as "fair and balanced". He told EURACTIV that he is now waiting for the Commission to respond before the deadline indicated in the report. "Otherwise there will be problems," he said. "The door is now open for better regulation that will increase the transparency of financial markets. All major financial actors, including hedge funds and private equity, will have to provide information about their investment strategies, the source and amount of funds raised and also on the remuneration of their managers, including stock options." EU Internal Market Commissioner Charliee McCreevy, who is responsible for the dossier and has so far shown little interest in regulation, told MEPs in the Committee for Economic and Monetary Affairs that he "will study the text" with interest. "We are carefully following the debate that the Parliament is currently having on the future of supervision," McCreeevy said. "Where possible, I will be ready to try to incorporate some of your recommendations into the Commission decisions". Kurt Joachim Lauk, a Christian Democrat MEP from Germany who follows the dossier for the centre-right EPP-ED Group in Parliament, agreed that more regulation was needed. Voluntary codes of conduct are "not enough", he said, stressing that the Commission is now "requested" to submit proposals by the end of the year. He said the proposal should cover hedge funds and private equity and "be expanded to all relevant actors in financial markets, too". "There is a clear requirement for legal adjustment on the European level," Lauk insisted. Representatives of the industry told EURACTIV that "the parts of the text which were too unfavourable to the industry have been removed". However, some concerns remain, not least regarding mandatory disclosure of such funds' investment strategies. When applied in the US, this has brought about massive demands for information from competitors rather than from investors, they say. Justin Perrettson, of the European Private Equity and Venture Capital Association (EVCA), said in a statement: “The detailed text of today’s ECON report is far better for private equity than the industry had initially expected. It incorporates over 200 amendments and a new compromise text, on all of which we have provided advice”. "In spite of the long and sometimes controversial road to today’s agreement, the report as it stands today is unlikely to affect the present model and operations of private equity, although there are clauses open to interpretation which EVCA will continue to work on with all parties", she added. BackgroundPrivate equity and hedge funds are private capital pools. Private equity investment funds invest in companies, mainly by acquiring businesses to sell them at a higher price, the so-called 'buy-out'. Hedge funds are investment vehicles which exploit market imperfections to make returns even when the market is going down. Private equity and hedge funds are very lightly regulated. This allows them to make investments and take risks that other actors cannot take. Following the credit crisis in the US, the European Parliament decided to draw up an own-initiative report calling for them to be regulated more tightly. Although the crisis was not determined by hedge and private funds, some believe they may have made it worse. Party of European Socialists (PES) President and former Danish Prime Minister Poul Nyrup Rasmussen presented his draft report in April. Further ReadingEU official documents European Parliament:Original Rasmussen's report(18 April 2008) European Parliament:Revised and approved Rasmussen's report(10 September 2008) Political Groups Socialists:EU urged to promote better regulation of hedge funds and private equity(10 Sept. 2008) Non-assigned links Parliament (Press release):Economics Committee calls for legislation to improve financial market supervision(10 Sept. 2008) Commission:Speech by Charlie McCreevy(10 Sept. 2008)
