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November 06, 2015

Plunder, profit and private equity - a Trojan horse and the future of regulation

Ancient Greek myth tells the story of the Trojan War, according to which Greek soldiers defeated the city of Troy they had besieged for ten years by means of a giant wooden horse in which soldiers were concealed. The unwary Trojans, thinking it a gift, brought the horse into the city and out popped the soldiers, who pillaged the city, murdered the inhabitants and left Troy in ruins. A Luxembourg court will shortly decide whether the alleged looting of a Greek mobile phone company by two large private equity funds, Apax and TPG, was a financial Trojan horse carried out by fraudulent means.

That decision will presumably impact on a civil lawsuit by the same creditors which will be heard in a US court next year. But it should also serve as a warning to what the financial vultures circling a Greek economy bled dry by successive 'bailouts' may bring. And it should prompt a fresh look at the EU's Alternative Investment Fund Manager Directive (AIMF Directive), which ostensibly safeguards against 'asset stripping' by private equity investors, in view of another potential leveraged buyout bubble.

Continue reading "Plunder, profit and private equity - a Trojan horse and the future of regulation" »

December 03, 2009

Recap Rerun: Short Memories, Missing Regulation

While defaults rise and growing numbers of private-equity backed companies continue their march to bankruptcy (though not necessarily losses for the funds which marched them there), the "creative" financial devices which helped fuel the buyout boom appear poised for a comeback.

Continue reading "Recap Rerun: Short Memories, Missing Regulation" »

April 22, 2009

Private Equity and the European Commission: the Big Bluff

UK private equity funds and their lobbyists, according to press reports, are frantically pressuring the government to "protect its members from imminent EU regulation" ("Private Equity sector lobbies ministers to protect it from EU", The Independent, April 20, 2009). According to the Financial Times report of the same day, Simon Walker of the British Venture Capital Association (BVCA) is "horrified" at "the extent of the burdens imposed." "Under the draft European Union law", writes the FT, "any private equity group managing funds equal to more than €250 million in total would be forced to disclose more information about its structure, strategy, and investors." More information compared with what?

Continue reading "Private Equity and the European Commission: the Big Bluff" »

March 21, 2009

Buy'em, Bleed'em, Buy'em Again Cheap: Could Debt-for-Equity Swaps Secure Continued PE-Ownership of Bankrupt Portfolio Companies?

Private Equity funds may have found a new use for the uninvested funds (known in industry jargon as "dry powder") they're currently sitting on, which are estimated to total from USD 500 billion to as much as a trillion.

Continue reading "Buy'em, Bleed'em, Buy'em Again Cheap: Could Debt-for-Equity Swaps Secure Continued PE-Ownership of Bankrupt Portfolio Companies?" »

December 01, 2008

US Regulatory Changes Pave Way for Private Equity Funds to Acquire Failing Banks

US private equity funds fleeing a dismal buyout scene with piles of uninvested cash have received a shot in the arm from regulatory changes enacted on November 28 which could feed their appetite for acquiring banks. Investment funds were previously limited by federal regulations to a 25% stake in banks but were prevented from owning them. Now the US Office of the Comptroller of the Currency (OCC) has skirted this by creating a "shelf charter" which would permit non-bank investors to form a bank holding company to become eligible for bidding on a full ownership stake in failing banks. The funds, after acquiring all the stock, could then run the banks the way they run their portfolio companies - with no shareholders to stand in the way.

While the OCC's head counsel declared that "Not just anybody can come in and get a charter", one investment group - Hilltop Holdings, backed by three private equity funds - has already received the first charter.

Norwegian Unions, IUF Call on Norway State Pension Fund: Just Say No to Private Equity, Hedge Funds

The IUF and two Norwegian affiliates, the General Workers' Union Fellesforbundet and the Food and Allied Workers' union NNN, have publicly called on Norway's State Pension Fund to maintain existing restrictions on investing in private equity and hedge funds. The government fund, Norway's oil-funded sovereign wealth fund with some USD 300 billion in assets, does not currently invest in either private equity or hedge funds but maintains an ongoing discussion with regard to new investment classes. The fund is regarded as a standard-setter with regard to ethical investment, having disinvested from Wal-Mart (2006) in response to the company's record of labour and human rights violations, and more recently from mining giant Rio Tinto in response to the company's environmental destruction in Indonesia.

The letter, signed by the three organizations' general secretaries and sent to the Finance Ministry on November 29, outlines the risks to both investors and to the global financial system arising from heavily leveraged investments and stresses the destructive employment impact of private equity buyouts. Recalling the global standard-setting role of the Fund, the letter states: "Investment in private equity and hedge funds would take the State Pension Fund into areas which violate its basic principles, add to global financial instability, impact negatively on working people's lives and livelihoods and undermine the standard-setting role of the Fund. We strongly believe that opening even a limited percentage of the Fund's investments to these "alternative assets" would have a destructive impact globally.

"Any discussion of lifting the existing restrictions on investment in 'alternative assets' - which we understand to be ongoing - calls for extensive, wide-ranging public debate which can take into account the many-sided impact, today and tomorrow, of these investments."

The full text is available here.

September 18, 2008

Eurosocialists Push for Comprehensive Regulation of Private Equity, Hedge Funds

The European Parliament is set to vote on a report on Tuesday, September 23, calling on the European Commission to introduce legislative proposals for comprehensive financial market reform before the end of the year. The report, spearheaded by former Danish Prime Minister Poul Nyrup Rasmussen, who also heads the Party of European Socialists (the EU-wide grouping of Social Democratic and Labour parties), sets out clear guidelines for closer regulation of private equity, hedge funds and financial markets as a whole in the European Union.

Continue reading "Eurosocialists Push for Comprehensive Regulation of Private Equity, Hedge Funds" »

September 02, 2008

'Unlocking Value': US PE Chiefs' 2007 Pay At 19,000 Times Average Wage

The latest survey of US CEO Compensation documents the ever-widening gap between executive pay packages and the earnings of the average US worker. Compensation for private equity and hedge fund managers claims a special prize in the inequality sweepstakes.

Continue reading "'Unlocking Value': US PE Chiefs' 2007 Pay At 19,000 Times Average Wage" »

May 23, 2008

Socialist Group in European Parliament Links Financial Crisis to Soaring Food Prices

The Socialist Group in the European Parliament has highlighted the crucial role of financial markets in stimulating the hyperinflation of global food prices and called for urgent action by regulatory authorities. The group tabled three amendments to a motion on EU action to deal with food price inflation.

"The food crisis is closely linked to the financial crisis", said Hannes Swoboda, vice-president of the Group. "It is outrageous that some banks are inviting their clients to speculate on rising food prices. One of our amendments calls for a Europe-wide ban on such speculation. We also want the European Commission to examine the powers of national supervisory bodies to ensure that they can guarantee stable and secure markets and that speculation does not violate the right to food."

More information and a link to the text of the motion are available here.

March 06, 2008

Proposed UK Legislation Extends Acquired Employment Rights to Buyouts

A new legislative proposal in the UK House of Commons seeks to remedy one of the most glaring gaps in existing UK labour law. Under existing law, when a public or limited company changes hands through acquisition by another company or individual, the existing terms and conditions of employment are protected through the Transfer of Undertakings (Protection of Employment) Regulations (TUPE). TUPE does not apply, however, when a controlling shareholding is transferred to a new owner, who effectively becomes the new employer. And this is precisely the mechanism by which buyout funds take companies private.

Continue reading "Proposed UK Legislation Extends Acquired Employment Rights to Buyouts" »

October 01, 2007

Locusts into Vultures: Buyout Firms Turn to Speculating in…LBO Debt

Always in the forefront of financial innovation, the buyout houses are rushing to speculate in the massive debt their activities have generated. Private equity firms are lining up for the heavily-discounted debt – some USD 350 billion of it - the banks are anxious to unload following the collapse of the high-yield debt market

Continue reading "Locusts into Vultures: Buyout Firms Turn to Speculating in…LBO Debt" »

September 26, 2007

The Carlyle Model: Permira Recruits Former Dutch Finance Minister

Gerrit Zalm, the former Dutch Minister of Finance and Deputy Prime Minister who served in various cabinets for the center-right liberal party VVD until February this year has joined Permira as an advisor.

Continue reading "The Carlyle Model: Permira Recruits Former Dutch Finance Minister" »

September 12, 2007

US Private Equity Lobby Claims Progress in Beating Back Calls for Higher Taxes

Mega-billion buyouts may be off the immediate agenda due to the widening credit crisis, but the biggest US-based funds are optimistic about their prospects for beating back proposals to tax fund managers' earnings at a higher rate.

Continue reading "US Private Equity Lobby Claims Progress in Beating Back Calls for Higher Taxes" »

August 23, 2007

TUAC President calls for OECD examination of the role of hedge funds and private equity in current financial instability

TUAC News: In a letter to OECD Secretary-General Ángel Gurría, John Sweeney, TUAC and AFL-CIO President has called for the OECD to undertake a horizontal consultation on the role of hedge funds and private equity investors in the current financial instability.

Continue reading "TUAC President calls for OECD examination of the role of hedge funds and private equity in current financial instability" »

August 22, 2007

Unite urges Sainsbury's board to block takeover

16 Aug 2007 - Britain's largest union, Unite, said today reports from across its 20,000 members in Sainsbury's showed strong opposition to a possible takeover by Delta Two, the Qatar government-backed fund.

Continue reading "Unite urges Sainsbury's board to block takeover" »

August 02, 2007

The Harsh World of Leveraged Buyouts Has Suddenly Gotten Harsher

The abundance of cheap credit which has fueled the leveraged buyout boom is evaporating.

Continue reading "The Harsh World of Leveraged Buyouts Has Suddenly Gotten Harsher" »

July 19, 2007

UK Unions Slam Walker Commission for Silence on Worker Rights

Trade unions in the UK have criticized the report commissioned by the UK Venture Capital Association - the Walker Review of Disclosure and Transparency in Private Equity published earlier this week – for the voluntary, "self-regulatory" character of its proposals and have highlighted the report's silence on crucial issues concerning worker and trade union rights in the companies targeted for takeover

Continue reading "UK Unions Slam Walker Commission for Silence on Worker Rights" »

June 27, 2007

Taxes are only half the story, the other is DEBT: Proposals to tax private equity firms are just the beginning, not the end of the debate

Few would doubt that closing tax loopholes which allow private equity firms to deprive public revenues of billions is an important and necessary step. There’s also no doubt that this is the most popular (and populist) measure that can be taken. But it’s far from adequate if governments are serious about reigning in the buyout funds. The main problem of leveraged buyouts by private equity funds is just that... leverage.

Continue reading "Taxes are only half the story, the other is DEBT: Proposals to tax private equity firms are just the beginning, not the end of the debate" »

Private equity firms lobby against new US tax proposals

“Earlier this month, as the Blackstone offering was being prepared, Senate Finance Committee Chairman Max Baucus, D-Mont., and Charles Grassley, R-Iowa, introduced legislation that would require publicly traded partnerships to be treated as corporations for federal tax purposes. Under current law, income distributions from publicly traded partnerships are taxed at the capital-gains rate of 15% -- below the top corporate tax rate of 35%. On Friday, Rep. Sander Levin, D-Mich., introduced a bill in the House that would jack up taxes paid by managers on carried interest to as much as 35% from only 15% now. Carried interest is a portion of the profits from an investment that's paid to the manager. In the private-equity business, it's often used to compensate managers for investing alongside their clients in a buyout. “Private Equity Ends Week On Top In Battle With Congress”, Dow Jones, 22 June 2007.

Continue reading "Private equity firms lobby against new US tax proposals" »

Private equity firms "paying less tax than a cleaning lady or other low-paid workers": private equity tax loopholes in the spotlight

Finally it seems that action will be taken to close tax loopholes that have allowed private equity firms and their billionaire bosses to get away with paying so little tax. As the debate heats up the comments of Nick Ferguson, creator of the business that became Permira and the chairman of SVG capital, the leading subscriber to Permira’s funds, have hit a nerve: “Any common sense person would say that a highly-paid private equity executive paying less tax than a cleaning lady or other low-paid workers... can’t be right.”
Quoted in Robert Peston, “Private grief”, BBC News - Peston’s Picks, 4 June 2007.

Continue reading "Private equity firms "paying less tax than a cleaning lady or other low-paid workers": private equity tax loopholes in the spotlight" »

June 15, 2007

UK Financial Services Authority alarmed by leverage in buyouts - The Independent (UK)

“The City watchdog yesterday voiced fresh concern about potential market abuse by private equity firms and the "excessive level" of borrowing they use to buy out public companies. In a report released just a day before the Treasury Select Committee begins an inquiry into the increasingly controversial industry, the Financial Services Authority said it believed its statutory objectives were at risk from both.... But it stopped short of imposing new rules, preferring instead to increase the supervision of private equity companies and the banks that lend to them.”

Continue reading: James Moore, “FSA alarmed by leverage in buyouts”, The Independent, 12 June 2007.

Click here to download the FSA's feedback statement on the discussion paper "Private equity: a discussion of risk and regulatory engagement" (11 June 2007)

May 11, 2007

Unions Call for OECD Action on Private Equity

Union leaders from OECD countries and innernational trade union organizations will call on governments to reinforce international rules and domestic policies to manage the social and environmental cost of globalisation at consultations between the TUAC and OECD Ministers on the evening of 14 May. In a statement issued ahead of the Annual OECD Ministerial (15-16 May), the unions call on OECD Governments to rebalance growth, to invest in social protection and education, and to strengthen rules on international trade, investment and capital flows.

The statement also calls for a coordinated series of OECD regulatory measures in response to the destructive impact of private equity and hedge funds,

April 30, 2007

'Companies Act Change May Hamper Brait's Bid' - Business Day

Business Day (Johannesburg) NEWS April 24, 2007

By Nicola Mawson Johannesburg

AN AMENDMENT to the Companies Act would make it more difficult for private equity corporations to buy out firms with a slim majority, market commentators have said.

While the new legislation has yet to come into effect, it would require a three-quarter majority to sell more than half a company's assets.

With Brait Private Equity's R14,2bn bid for Africa's largest food retailer, Shoprite, still hanging in the balance, this deal could be the first high-profile takeover to be tested under the new law.

Continue reading "'Companies Act Change May Hamper Brait's Bid' - Business Day" »

April 25, 2007

IUF at the European Parliament: Private Equity's Impact on the European Food Sector

On April 19 at the European Parliament in Brussels, the IUF presented evidence on the destructive impact of private equity buyouts on the European food sector, highlighting the buyouts' destructive impact on employment, the environment and employment conditions generally. The seminar was organized by the IUF together with the Party of European Socialists, the structure grouping Europe's labour and social-democratic parties.

Click here to read the IUF presentation.

March 23, 2007

'McCreevy slammed on private equity defence' - unison.ie

"EU COMMISSIONER Charlie McCreevy - already under fire for taking time out in Cheltenhamn race week - yesterday took on Europe's socialist group by defending private equity and the huge fees paid to its promoters."

Continue reading "'McCreevy slammed on private equity defence' - unison.ie" »

March 19, 2007

ITUC supports calls for new transparency and tax rules for private equity

The ITUC fully support the decision taken by Unions from 15 countries and a dozen global organisations which met at the OECD in Paris and issued a strong call for the activities of companies to be oriented toward long term sustainable investment strategies that create wealth for all, and good employment opportunities for workers. (ITUC 19 March 2007)

'Dutch MPs summon hedge funds’ - The Financial Times

"All parties involved in the escalating controversy over shareholder activism in the Netherlands are to be summoned to address an influential Dutch parliamentary committee in a further indication of rising concerns about the activities of hedge funds and private equity. The move comes as European trade unions pledge action against private equity. It follows recent comments by Nout Wellink, president of the Dutch central bank, who criticised hedge fund demands for the break-up of ABN Amro, the largest Dutch bank."

Continue reading: ‘Dutch MPs summon hedge funds’, The Financial Times, 18 March 2007. (Alternate link).

March 17, 2007

'Unions call for G8 action on private equity' - The Financial Times (UK)

"A demand for a co-ordinated G8 response to the “threat” posed by private equity and hedge funds will be made on Friday by trade union leaders from the world’s leading industrial nations. This will be the latest development in the growing political pressure being brought to bear particularly on private equity."

Continue reading: Andrew Taylor, 'Unions call for G8 action on private equity', The Financial Times, March 15 2007 22:27.

March 16, 2007

Unions call on G8 Leaders to work on new transparency and tax rules for private equity - TUAC News

Unions from 15 countries and a dozen global organisations meeting at the OECD in Paris issued a strong call for the activities of companies to be oriented toward long term sustainable investment strategies that create wealth for all, and good employment opportunities for workers. TUAC News 16 March 2007

Continue reading "Unions call on G8 Leaders to work on new transparency and tax rules for private equity - TUAC News" »

March 13, 2007

German tax reforms threaten private equity returns

Private equity groups in Germany could face lower returns on their investments following proposed tax reforms. The country's finance minister has stated that if the result trims the buyout funds' returns, "Then so be it. That's the point."

Read the whole Financial Times article by clicking here.

March 11, 2007

"Unions round the world unite against private equity threat", The Independent (UK)

"Union leaders from the world's biggest economic powers will meet in Paris this week to take on what they view as the growing threat to their members from private equity. The meeting, set for Friday, was called in the light of intensifying tensions between unions and the private equity industry, particularly in the UK."

Continue reading: Danny Fortson, 'Unions round the world unite against private equity threat', THE INDEPENDENT, 11 March 2007.

March 09, 2007

'They are a risk to the economy as a whole' - The UK is waking up to the power of private equity. But the IUF has long warned of the dangers.

Click here to read the full article in THE OBSERVER

Continue reading "'They are a risk to the economy as a whole' - The UK is waking up to the power of private equity. But the IUF has long warned of the dangers. " »

March 06, 2007

'Canadian Union Leader Opposes Private-Equity Deal for Chrysler' - The Washington Post

"The leader of the Canadian Auto Workers warned against private-equity control of Chrysler, calling it the "worst-case scenario" for the automaker and a prelude to plant closures and worker layoffs.

"Our fear is private equity," Buzz Hargrove, president of the CAW, said in an interview yesterday. "They are not out to build cars. It could mean throwing a lot of people out of work and then reselling" the company."

Continue reading "'Canadian Union Leader Opposes Private-Equity Deal for Chrysler' - The Washington Post" »

March 05, 2007

UK Financial Regulators Under New Pressure to Broaden Sources of Funding for LBOs

Britain's Financial Services Authority is coming under increased pressure to allow offshore investors - mainly private equity and hedge funds - access to publicly listed sources of funding. Buyout funds in the US have difficulty accessing funds through public stock exchanges, prompting them to seek abroad for new sources of cash to feed their unlimited appetites. Publicly traded private equity funds already control an estimated USD 80 billion, but are seeking yet more through expanding in loosely regulated financial markets as 2007 is tagged as the year of the 50 billion dollar deal.

Click here to read the latest.

March 04, 2007

UK Union debate on tax regimes panics private-equity funds

Union calls for regulation of buyout funds voiced on February 27 had a big impact in the UK, panicking private-equity funds into mobilizing their lobbyists and their political supporters to defend themselves against regulation. Over the past week, a series of editorials, commentaries, interviews and letters in the UK financial press have attempted to defend the funds, with the strongest reaction focused on to union calls to rectify loopholes in the tax regime that favour private-equity's debt-driven buyouts. Private-equity's extreme sensitivity to proposals to close gaps and fix inequalities in the tax regime - an issue also raised by the IUF in its calls for re-regulation - clearly demonstrates that such re-regulation can and will have a significant impact on the leveraged buyouts that are ripping through the manufacturing and services industries, undercutting employment security, undermining union bargaining power and destroying jobs.

Continue reading "UK Union debate on tax regimes panics private-equity funds" »

March 01, 2007

UK Unions Intensify Call for Political Action to Curb Buyout Funds

Speaking with the IUF to a group of trade union sponsored Labour Party MPs at the UK House of Commons on February 27, TGWU Deputy General Secretary Jack Dromey called for a Select Committee investigation into the workings of the leveraged buyout business and action to curb its destructive impact.

Click here to read the IUF presentation.

February 27, 2007

Article in The Independent (UK) on Union Criticism of Private-Equity Buyouts

Private equity chiefs to face fresh protests
Independent, UK - Feb 25, 2007

"The leading figures of the global private equity world gathering for an industry conference in Germany today will be met with angry protests over job cuts ...."

The link to the full article is here: http://news.google.com/news/url?sa=t&ct=us/0-0&fp=45e3699c3b4eb724&ei=JK_jRaXFOMvwHJDToXw&url=http%3A//news.independent.co.uk/business/news/article2305599.ece&cid=1113725027

February 26, 2007

Fishupdate.com: Birds Eye protest moves to Germany

"THE continuing union protest over the closure of the Birds Eye fish factory in Hull has moved onto the international stage this week.

The GMB Union has flown protestors from the plant and other threatened industries to Germany to demonstrate outside the Super Return Conference in Frankfurt, the private equity industry's annual flagship event."

Read more:
http://www.fishupdate.com/news/fullstory.php/aid/6772/Birds_Eye_protest_moves_to_Germany.html

February 25, 2007

Article in The Observer (UK) Cites IUF Call for Labour Party Action on Leveraged Buyouts

"MPs will this week be urged to launch a wide-ranging inquiry into the 'epidemic of leveraged buyouts and the damage they cause to companies and the economy'. The call comes from the IUF, an international union representing workers in the food, agricultural, hotel, restaurant, catering and tobacco industries. The IUF's Peter Rossman, one of the most respected critics of the sector, will meet with the trade union group of Labour MPs on Tuesday."

Click here to read the article in THE OBSERVER: "Permira criticises pay 'voyeurism'", Sunday February 25, 2007

February 21, 2007

The buyout of Tokyu Tourist Corporation & its impact on unions

Click here to watch the video interview on IUF Asia-Pacific's Asian Food Worker with Vice President Kunio Akiyama , who outlines the situation and describes the union's initial response (Japanese language, English subtitles, Windows Media Format, 8.1MB).

The following is an excerpt from the interview with Brother Tatsuya Matsumoto, Tokyu Tourist Trade Union, a member union of the IUF-affiliated Service Tourism Rengo, in the article of Hiroba Union 2006 January issue.

Continue reading "The buyout of Tokyu Tourist Corporation & its impact on unions " »

February 06, 2007

'Barbarians or benefactors? The rise and rise of private equity' - The Guardian (UK)

"The Transport & General Workers' Union warned yesterday about the potential Sainsbury's bid. Brian Revell, T&G national organiser for food and agriculture, said: 'Such a takeover would be based on borrowed money followed by extracting as much wealth as possible from the company ... Private equity does not create wealth; they extract it for their shareholders.'"

Continue reading: Jill Treanor and Terry Macalister, ‘Barbarians or benefactors? The rise and rise of private equity’, The Guardian (UK), February 6, 2007.