Hedge funds and Private Equity - PES

1. Economic viability of private companies
Private companies in Europe are faced by a huge competitive challenge from the global
economy. To ensure Europe will be “the most competitive and dynamic knowledge-based
economy in the world, capable of sustainable economic growth with more and better jobs and
greater social coherence” – we must enhance our private companies and ensure great investment
to promote innovation, technological renewables, permanent education and improved
qualification of workforces in our social Europe.
Therefore, the interplay between our ambitions for social Europe, our firms and the financial
markets are of fundamental importance.
1.1 Corporate governance
Concerns have been raised about the impact of hedge funds and LBOs on the governance of
companies and the lack of transparency in their operations.
In the case study of Deustche Börse it is described how hedge funds managed to fire the
CEO, Werner Seifert, as he wanted the company to move into another direction than the
hedge funds.
In the case study of Stork it is described how the hedge funds have bought up a large amount
of shares without disclosing this ownership to the public. The procedure used is under investigation.
As we have seen in Part I, the strategy of LBOs to take total corporate control after acquisitions
creates a risk of deterioration in corporate governance. Funds tend to try to keep the conditions
and form of their investments as opaque as possible with the justification that investors in such
funds are professionals who are able to obtain the necessary information any time they want.
The activities of such funds, however, are a matter of concern not only for the investors themselves
but for the market and society as a whole since these activities can have wide-ranging
effects. The approach to risk of investors and management alike, conditioned by the shareholder
value approach, is further exacerbated by LBOs. As a result, management is increasingly
frequently operating in grey areas. Regulatory measures are therefore also necessary in the interests
of corporate governance and the stakeholders involved.
However, there is more to corporate governance, or good business management, than merely
looking after shareholders’ interests. It is a stakeholder-based approach and therefore widens
the scope of a company. It cannot be evaluated purely in terms of performance or financial
management, but must include the care of a company’s human resources, employee participation
and the pursuit of environmental and social goals.
The experience of our case studies and numerous reports shows that LBOs are not motivated
to take sufficient account of such interests. LBOs’ regular, brief interventions in management
strategy and daily decision-making often do more harm than good in the quest for sustainable
corporate development.
Part II – Six concerns about our European social market economy
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