The European Commission has published a speech by Charlie McCreevy (European Commissioner for Internal Market and Services) at the EC conference on private equity and hedge funds.
At the beginning of his speech Commissioner McCreevy discusses the role of hedge funds and private equity in the financial crisis. He states that he does not believe that they were central to the crisis and that this has been confirmed in the report published by the de Larosière group. However, in line with that report Commissioner McCreevy does state that there are reasons for taking another look at how hedge funds and private equity are regulated.
Commissioner McCreevy then discusses six lessons that need to be looked at when considering regulatory or legislative initiatives in respect of hedge funds and private equity:
- Any action should make the necessary distinctions between hedge funds, private equity and other forms of alternative investment.
- Any policy intervention needs to be clear about which problems it is trying to solve.
- Action should build on the extensive regulatory experience of European alternative investment managers. What is needed is a clearer view of how authorities should supervise alternative investment managers.
- When it comes to thinking about protecting investors in hedge funds and private equity, it must be remembered that these funds raise the bulk of their money from experienced or institutional investors. It is important to ensure that they receive such information as is needed to perform effective due diligence on the fund's liquidity and risk management, valuation process as well as on the basic investment proposition.
- Any action should recognise that the first line of defence against undesirable levels of leverage in hedge funds, or excessive lending to private equity managed companies is to limit the flow of credit at source.
- Any action should recognise that many of the criticisms and accusations levelled at hedge funds and private equity are not unique to them.
- Any action must recognise the highly trans-national character of the hedge fund and private equity industries.
- Action taken should ideally be supported by international consensus to the greatest extent possible.
View Commissioner McCreevy speech at EC Conference on private equity and hedge funds, 26 February 2009