The Brussels Task Force, which comprises 10 representatives from European private equity, has responded to calls for cross-border private equity regulation by proposing an enforced code of professional standards for private equity firms in Europe.
The proposal, which is part of a 300-page submission to be discussed at a European Parliament debate later today, suggests a principals-based regulatory framework to be created and put in place within a timeframe of 12 months.
We came to a very clear conclusion that the only way to tackle this was through all-encompassing codes of conduct and disclosure.
The submission goes beyond self-regulation to suggest an enforcement regime either at European or national levels.
Javier Echarri, secretary general of the EVCA, said in an interview that an enforced code had become a necessary step to allay political and public concerns about the role of private equity firms.
“We came to a very clear decision that the only way to tackle this was through all-encompassing codes of conduct and disclosure,” he said, “If we want to be part of the solution [for the financial crisis in Europe], we need to be an accepted partner of the population, the politicians, the regulators etc.”
The Brussels Task Force was formed specifically to respond to a European Parliament resolution calling for an examination and strengthening of the regulatory regimes affecting hedge funds and private equity.
“This is the beginning of an engagement on rational terms. We are starting to have a pragmatic debate, rather than a politically colourful one,” Echarri said.
The call for increased regulation has been driven mainly by a group of socialist members of European Parliament led by Poul Nyrup Rasmussen, president of the Party of European Socialists and former Danish prime minister.
Rasmussen has railed against private equity since the controversial €13 billion take-private of Danish telephone operator TDC by a consortium of financial sponsors in 2006 when he was still prime minister.
The areas covered by the EVCA’s suggested principle-based regulation comprise: a code of conduct; corporate governance guidelines for portfolio company management; investor reporting; valuation guidelines; transparency and disclosure guidelines; and governing principles for the establishment and management of private equity funds.
Walker is a blueprint for transparency and disclosure, but there is a likelihood it would be extended to cover not just large private equity houses.
Elizabeth Ward of law firm Linklaters was part of the Brussels Task Force working group that produced the submission. She said that many of the proposed principles are already covered by country-specific rules, and that this would be taken into account.
“It was clear that the concerns the European Parliament had are dealt with effectively in the UK already. We have the Financial Services Authority [which regulates private equity firms], the Companies Act [covering corporate governance] and the Walker Guidelines,” she said.
“From a UK perspective Walker is a blueprint for transparency and disclosure, but there is a likelihood it would be extended to cover not just large private equity houses,” she added.
How many firms would be covered by the proposed regulation remains to be discussed, but Echarri stressed the need for “proportionality”.
“You cannot expect a small venture firm to have the same disclosure constraints as there are in the Walker Guidelines,” he said. “Industry is diverse, and that needs to be taken into account.”
Echarri warned that political agendas will become a factor in the ongoing debate, because the European parliamentary elections are approaching in June. He believes, however, that the submission will keep the dialogue on track: “When it comes to concrete measures, we believe we have done an enormous amount of homework so that the debate can happen in very pragmatic terms.”