This week the European Parliament voted through a significantly watered-down resolution proposing cross-border regulation on both the private equity and hedge fund industries in Europe.
The report, which recognises that private equity and hedge funds “provide liquidity, foster market diversification and market efficiency” in Europe, proposes, 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 industry owes a vote of thanks to German academic Oliver Gottschalg, whose research published in November 2007 concluded that 91 percent of private equity transactions produced growth-oriented initiatives.
It went a long way to defusing the alarmist machinations of Poul Nyrup Rasmussen, head of the European Socialists party and former prime minister of Denmark, who in June said: “Long before the financial crisis we were warned about the systemic risks and excessive debt of hedge and private equity funds,” when he presented his private equity report to the European Parliament's Economic and Monetary Committee.
Rasmussen’s anti-buyout stance was forged in 2006 when Denmarks’s 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, Kohlberg Kravis Roberts, Permira Advisers and Providence Equity Partners.
And while mega-firms continue raising mega-funds, witness this week’s revelation that TPG has closed on roughly $30 billion for three new funds, investment strategies have changed significantly since the TDC deal.
Thanks to the credit crunch, headline-grabbing, multi-billion mega-deals and aggressive refinancings have largely disappeared, leaving the less controversial mid-market, energy and infrastructure deals to become the acceptable public face of private equity.
Better still, as the banks have suffered crippling sub-prime losses, the capital in private equity coffers has proved a vital alternative to state bail-outs, as with Lone Star Fund’s recent acquisition of ailing German bank IKB or TPG’s capital infusion into US savings and loan Washington Mutual. Private equity has even been mooted as an unlikely saviour for the stricken investment bank Lehman Brothers.
So should the industry worry that Rasmussen has reportedly met with US presidential hopeful Barack Obama, as well as influential Democratic congressman Barney Frank, head of the House Financial Services Committee, with the aim to structure complementary cross-border regulation of the industry?
The meetings raised for the first time the real fear of a regulatory pinch, with legislators either side of the pond lining up to give the buyout industry a simultaneous kicking. In the past, they have more sportingly taken turns.
But if the resolution before the European Parliament is any indication of the legislation to come, then GPs can breathe a sigh of relief on both sides of the Atlantic.