EUROPE - Commission holds hearing on PE regulation

According to Javier Echarri, EVCA secretary general and a member of the task force: "The paper shows that the industry is prepared to engage with regulators and wants to have a proper discussion about its activities. It also shows that we strongly believe private equity is part of the solution to the current economic difficulties, as this is one of the few finance industries that still has capital."

The hearings are the result of a debate that was kick-started in the spring of last year, when former Danish prime minister and prominent socialist MEP Poul Nyrup Rasmussen presented a draft report that was damining in its criticism of both private equity and hedge funds. This echoed the calls of a similar report presented at the same time by Christian Democrat MEP Klaus-Heiner Lehne, which focused on issues of transparency.

These were almost unanimously passed following a vote in the European Parliament in September. However, following the increased turmoil in the financial markets in the intervening period, the reports that were passed to the commission were materially different from those that had landed so abruptly earlier in the year. "There were some favourable amendments in the revised documents, not least a clear differentiation between hedge funds and private equity," comments Echarri.

Indeed, the Commission has reinforced this division by holding two seperate hearings on the asset classes, with the second on hedge funds to be held tomorrow.

The task force that produced the submission on behalf of the private equity industry was formed by a representative group comprising 30 professionals from fund managers, associations, advisory firms and LPs, which was created following an EVCA meeting in October. The report itself is broadly designed to provide the Commission with a full account of the risk and already existing national regulation relating to the industry, as well as to show a willingness to participate in the debate.

"The findings of the report show that private equity cannot be considered the same as hedge funds; that it poses no systemic risk; and that it is a myth that the industry is unregulated," Echarri asserts. "The issue for some is that much of the regulation is all at national level and varies widely in different jurisdictions."

To answer this the report calls for a single set of principles-based unifying professional standards to be imposed across Europe. Moreover, and in contrast to any previous rulings governing the asset class, these would move beyond a voluntary code and be enforceable by a newly created independent body. "Its about moving up a gear, with principles being brought in at European level and implemented at national level, which will allow sufficient flexibility and will fit with the existing regulation already in place in different countries," explains Echarri.

This, though, does not mean that the Commission will not still decide to regulate at EU level, though Echarri suggests that this would simply to be a case of "headlining" the already exisiting regulation. This is not unlikely, after all it is election year.

Indeed, developments going forward are likely to be defined by the EU parliamentary elections taking place later in the year, in which (significantly) the socialist bloc is expected to do well. "I would expect a final decision some time between now and the election date in June, but the ball is in the court of the Commission," Echarri concludes.

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