I was at a Conference today in Brussels organised by the European Commission to bring together widely varying views on how private equity and hedge funds should be regulated in the European Union (ostensibly in light of the current financial crisis - although in realty as a result from the European Parliament early last year). The Internal Market Commissioner, Charlie McCreevy - in a keynote speech continues to warn his fellow-policy makers that we cannot regulate our way out of the financial crisis and in any case private equity investment was never part of the problem - but can be part of the solution. Despite bring criticised from within the Commission for being too supportive of private equity, he again made a point of separating private equity from hedge funds. He knows very well it suits his opponents to some-times lump them together.
The Commissioner was generous enough to share his slot with another key-note speaker - his most ardent critic, former Danish PM and leading Socialist in the European Parliament, Poul Nyrup Rasmussen. The Danish MEP continues to push for heavy regulation for the sector. He gave a withering attack on the European Venture Capital Association (EVCA) who, in its submission to the Commission's consultation said that any company that does not abide by the industry's code of conduct could be excluded from its membership. He took this as a reason for why self-regulation would not work - ie: the consequences for non-compliance are too small. (This was more than a little unfair to EVCA since their submission was highly detailed and well thought-through)
It was up to Sir Michael Rake to explain just exactly what self-regulation means in practice and how it should work. He should know - he is the Chairman of the private equity oversight group in the UK - the "Guidelines Monitoring Group", set up following the Walker Review. Since the Walker Review into private equity governance, the UK has set the standard in bringing about higher levels of transparency. Sir Michael told us that compliance is actually rather high. In other words, self-regulation actually works.
However, what Rasmussen really wants is more conditions to be put on Private Equity. The risk for the industry is that when the Commission does come up with its recommendations on improving transparency, that Socialist MEPs would add yet other cumbersome conditions. Rasmussen is clearly paving the way for this. Although he will not get very far while Charlie McCreevy is still in charge, he and his supporters in the Socialist Group may fare better under his successor before he or she puts their feet under the table this Autumn.