German candidate calls for private equity rules

Peer Steinbrueck, who will reportedly challenge Chancellor Angela Merkel next year, laid out a platform of financial reforms, including restrictions on banks’ relationships with private equity.

Germany’s former finance minster, Peer Steinbrueck, who was reportedly chosen by the opposition Social Democrats as a candidate for Chancellor Friday, believes banks should be effectively prohibited from lending into private equity deals.

Steinbrueck, who served as Germany’s finance minister from 2005 to 2009 in the administration of Chancellor Angela Merkel, released his proposal earlier this week for greater regulation over the economy, specifically what he calls the “shadow banking system”.

In the proposal, called “Regain confidence: A new attempt to curb the financial markets is necessary!”, Steinbrueck argues more oversight is needed over the shadow banking system, as well as traditional financial institutions. That would include subjecting bank lending into private equity deals to strict capital requirements, as well as separating investment banking activity from retail banking activities.

Peer
Steinbrueck

Steinbrueck, who will challenge Chancellor Merkel next year for Germany’s highest political office, did not return a request for comment.

“We are very disappointed about Peer Steinbrueck’s proposal,” said Ulrike Hinrichs, managing director of the Germany Private Equity and Venture Capital Association (the BVK), in a statement. “Private equity firms cannot be considered as part of the shadow banking sector. It’s simply wrong to claim that private equity is not regulated and is engaged in banking or credit activities.”

Steinbrueck’s suggestion was viewed as more of an internal Social Democrat election proposal, as the party had not yet chosen a candidate, according to a spokesperson from the Association. However, now that Steinbrueck has been nominated as the party’s official candidate, it remains to be seen if, or how much, of his proposal will be part of an election platform, an industry source said. 

Attacks by politicians on private equity are nothing new in Germany. Former chairman of the Social Democrats

Private equity cannot be considered as part of the shadow banking sector. It's simply wrong to claim that private equity is not regulated and is engaged in banking or credit activities.

Ulrike Hinrichs

Franz Muentefering once famously referred to private equity firms as “locusts”, which sparked a national debate on the merits of the asset class.

Earlier this year, PEI sat down with three general partners, Daniel Flaig of Capvis, Andreas Rodin of P+P Pollath +Partners and Permira’s Martin Weckwerth, to discuss opportunities for private equity in Germany. The overall feeling at the time was one of cautious optimism that regulators were starting to back off from the view that private equity created systemic risk.

“Private equity is not in the headlines as much anymore, because it’s become clear that it doesn’t create systemic financial risks. People have learned that systemic risk is related to hedge funds and overleveraged banks, but not private equity,” Flaig said.

“Unfortunately for us, regulators have taken a long time to understand the differences between private equity and, say, hedge funds; it’s only now that we’re beginning to see regulators differentiating more clearly,” he added.

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