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Reforming Private Equity and Hedge Funds: A Path to Responsible Investment

This article explores the urgent need for reform in private equity and hedge fund industries. It emphasizes the importance of transparency, accountability, and long-term financing to foster stability and respect company values. With rising risks in distressed companies and the necessity for effective taxation, the piece advocates for pension funds and trade unions to unite for ethical claims. It outlines propositions for managing conflicts of interest and urges for better practices in capital markets to finance real economic investments, prioritizing social partners and worker rights.

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Reforming Private Equity and Hedge Funds: A Path to Responsible Investment

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  1. PRIVATE EQUITY & HEDGE FUNDS A New Global Strategy - A First Step - By Poul Nyrup Rasmussen Party of European Socialists

  2. We need capital markets to finance our investments Real Economy& Investments Financial MarketsHFs & PEs • Cost effective? • Transparent and accountable • Long-term financing? • Companies better off? • Respecting company values? • Social partners? Not subordinated any longer

  3. The debt and culture of extraction Higher returns % Tax deductions Fewer invest-ments Debt Overburdened credit markets IMF : High risk of distressed companies

  4. ”Financial engineering” Stressed companies (“efficiencies”) Returns Tax evasion Business cycles ”Debt push down” “Recaps”

  5. Better than others ? • Ludovic Phalippou & Maurizio Zollo University of Amsterdam: “Net returns – adjusted for management fees and methodological errors – 3,8% below the stock market”. • The World’s largest pension fund CalPERS: Picking the winners? Since 1990 invested in 257 funds – 107 has given a negative return!

  6. Our own money • For the partners • Fees/ trans.costs • ”Carry” (20%) • Equal share (8%) Capital Commit-ments (40%) 6-8 years • Black Box • Buy-outs • Debt • Asset-stripping For pension funds The rest On top: 2% fees for the partners - each year!

  7. I. What to do? • Transparency and disclosure to ensure financial stability • Setting up limits of leverage to lower the risk of default and not undermine firms • Effective taxation • Managing “Conflict of interest”

  8. II. What to do? • Pension funds unite!Make new ethical claims • Workers rights and info as in other take-overs. Need to be consulted and informed • Respecting collective bargaining, information and consultation • We don’t have to wait for a new world government!

  9. Legislators Labour market Re-balancing PE & HF Industry Pension funds Trade Unions It’s about changing behaviour

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