Hedge funds and Private Equity - PES

More documents

Recommendations

Info

130 4.2 The issue of pension funds The privatisation of pension systems in many countries, ‘legitimised’ by increasing demographic pressures on public systems, means that workers are increasingly being called upon to save for their retirement through various forms of pre-funded schemes governed by private pension funds. In some countries these pension funds are major players on the capital markets. In the US, the UK and Canada, pension funds hold on average 20% of the stock market capitalisation. Privatisation reforms have often been accompanied by de-regulation of pension funds’ investment policies to diversify – and hence mitigate – their market risks. Once bounded by strict quantitative restrictions (for example a 20% limit to investment in equity), in most jurisdictions pension funds are now free to determine the composition of their portfolio by asset classes as long as they respect value-based “prudent person” standards. In the face of demographic pressures also squeezing such funds, rates of return on ‘safe’ investments, such as government bonds, that are very low and, in some cases, the severe losses that were incurred in the 2001 downturn, pension funds are increasingly looking to gain higher rates of return and to seek out ‘alpha returns’ in particular. Investment returns can be disaggregated into two parts: returns that are generated by generic market movements, known as beta, and residual returns that are attributed to the specific investment added-value, known as alpha. With lower market ‘beta’ returns, investors need to extract more ‘alpha’ to meet their funding targets, and for pension funds to match their liabilities. Alpha investment strategies are short horizon strategies using various tactical asset allocation techniques (such as delta-tilt, cross-market & overlay, flexible absolute returns, low liquidity & equity-tilt, long-only & long/short hedge funds, etc.) As a result of the de-regulation of their investment policy and the search for ‘alpha’ returns, pension funds are diverting part of their assets away from traditional bonds and equity investments into new ‘alternative’, alpha-oriented investment vehicles such as hedge and private equity funds (including funds of funds). This raises two main issues: Pension funds aim to generate a long-term flow of income from their accumulated capital in order to meet their commitments – pay out pensions – also over the longer term. This suggests that investment in short-term and highly risky forms of investment should, at most, be a marginal activity for such funds, a little speculative froth on the top of a large cup of sustaining liquid. As shown elsewhere in this report, however, there are systemic pressures on fund managers pushing them to ‘go with the flow’ (herding) and not to let their returns fall significantly below the current best performers in the industry. Yet if these ‘best performers’ are merely so in the short term because of a favourable run of speculative successes, there will be a general pressure to take on higher risk. Moreover as pension fund money flows into alternative investments, which are by definition niche markets, it is increasingly unlikely that, as a whole, they will continue to be able to extract ‘alpha’ returns over and above the normal market rates of return. A second concern is that of a division between the interests of retired (or elderly) workers whose pension funds are pushed to adopt alpha risk strategies, including investment in hedge funds and private equity and younger employed workers who are facing cuts in pay and conditions (threatening their own ability to save for their retirement) as a result of the self-same activity (such as the negative effects of leveraged buy-outs on wages, employment and working conditions). Such tensions are likely to exacerbate the already serious problem of achieving inter-generational equity in designing and reforming public pension systems.
As many jurisdictions require beneficiary representation on the governing body of pension funds – a representation that almost systematically falls on the shoulders of trade unions – the role of the labour movement in contributing to the needed regulatory responses is indispensable. Part III sets out a series of proposals for regulating the alternative investment funds market to deal with these risks and detriments in a proportionate manner. Part II – Six concerns about our European social market economy 131
Page 1 and 2:
HEDGE FUNDS AND PRIVATE EQUITY A CR
Page 3 and 4:
FOREWORD Since the 1980s the financ
Page 5:
At the same time the PES Group took
Page 9:
84.57 7 447.586 4789.4785 55 7845 4
Page 12 and 13:
12 The need for long-term investmen
Page 14 and 15:
14 1. Hedge funds and private equit
Page 16 and 17:
16 In a very low interest-rate land
Page 18 and 19:
18 The ECB has highlighted this cro
Page 20 and 21:
20 in the sustainable development o
Page 22 and 23:
22 Coherence, co-responsibility and
Page 24 and 25:
24 Transparency in practise Some ar
Page 26 and 27:
26 Ensuring more and better jobs An
Page 29:
84.57 7 447.586 4789.4785 55 7845 4
Page 32 and 33:
32 The first era of capitalism took
Page 34 and 35:
34 1. Hedge funds In the following
Page 36 and 37:
36 Hedge funds have a structure sim
Page 38 and 39:
38 Hedge funds have flourished in a
Page 40 and 41:
40 The European hedge fund industry
Page 42 and 43:
42 Institutional investors Current
Page 44 and 45:
44 - Funds of hedge funds (FOHFs) i
Page 46 and 47:
46 If we assume US mutual fund indu
Page 48 and 49:
48 the hedge funds themselves would
Page 50 and 51:
50 management fees? It is a fact th
Page 52 and 53:
52 These data notwithstanding, seve
Page 54 and 55:
54 1.11. Tendency of crowding Despi
Page 56 and 57:
56 Theory of money: “In modern ec
Page 58 and 59:
58 Country France Italy Spain Subje
Page 60 and 61:
60 Considering single strategy prod
Page 62 and 63:
62 2. Private Equity Funds Private
Page 64 and 65:
64 Buy-outs are typically majority
Page 66 and 67:
66 2.3 The legal frame The investme
Page 68 and 69:
68 What could you do with 72 billio
Page 70 and 71:
70 And it highlights the comparativ
Page 72 and 73:
72 The figures provide a substantia
Page 74 and 75:
74 2.8 When targeting a company Whe
Page 76 and 77:
76 Domicile of the fund The choice
Page 78 and 79:
78 Specific economic function of Ve
Page 80 and 81: 80 Mortgaging the future to capture
Page 82 and 83: 82 Main conclusions: The total Euro
Page 84 and 85: 84 3. The European response - curre
Page 86 and 87: 86 Article 49 Within the framework
Page 88 and 89: 88 The purpose of this Directive is
Page 90 and 91: 90 As far as the hedge fund and Pri
Page 92 and 93: 92 The following are regarded as se
Page 94 and 95: 94 3. A Member State may entrust ma
Page 96 and 97: 96 Article 93 The Council shall, ac
Page 98 and 99: 98 Primarily, however, society must
Page 101 and 102: Social Europe versus capital market
Page 103 and 104: 1. Economic viability of private co
Page 105 and 106: as a rule without any influence fro
Page 107 and 108: Here is a quite well known “flow
Page 109 and 110: 2. Decent work and workers’ parti
Page 111 and 112: The pension funds of companies bein
Page 113 and 114: usiness plan for Kion to employee r
Page 115 and 116: The combination of increased indebt
Page 117 and 118: The EU has in the past tried to com
Page 119 and 120: 3.1 The attractiveness of public ut
Page 121 and 122: fulfilment of public service respon
Page 123 and 124: The importance of Europe’s transi
Page 125 and 126: 4. Employees, pension fund investme
Page 127 and 128: unit of Tremont Capital Management)
Page 129: contractual issues e.g. Lock-in per
Page 133 and 134: Expert Group claims - with striking
Page 135 and 136: The rising number of hedge funds ap
Page 137 and 138: time peak in 2005.” It is importa
Page 139 and 140: Box 2: The Amaranth case (2006) In
Page 141 and 142: gies, size and age. For instance, i
Page 143 and 144: Box 3: Complex leverage arrangement
Page 145 and 146: force a hedge fund to default on it
Page 147 and 148: Private equity - especially in the
Page 149 and 150: finance infrastructure through long
Page 151: 84.57 7 447.586 4789.4785 55 7845 4
Page 154 and 155: 154 But if we in Europe - and hopef
Page 156 and 157: 156 2. Market transparency - a comm
Page 158 and 159: 158 Considering the fact that a lar
Page 160 and 161: 160 Furthermore investment banks ar
Page 162 and 163: 162 3.3 Transparency and supervisio
Page 164 and 165: 164 Recently in most European count
Page 166 and 167: 166 The European Commission should
Page 168 and 169: 168 The EC should also create a fra
Page 170 and 171: 170 4. Private Equity Funds - focus
Page 172 and 173: 172 to create incentives for longer
Page 174 and 175: 174 policy are not being met. This
Page 176 and 177: 176 Acquisitions by private equity
Page 178 and 179: 178 5. Our immediate proposals In t
Page 180 and 181:
180 rules on the disclosure of tota
Page 182 and 183:
182 have rules here and we should p
Page 185:
84.57 7 447.586 4789.4785 55 7845 4
Page 189 and 190:
AA 1. Company description The Autom
Page 191 and 192:
Autoteile Unger 1. Company descript
Page 193 and 194:
Bulgarian Telecommunications Compan
Page 195 and 196:
Deutsche Börse 1. Company descript
Page 197 and 198:
DIS 1. Company description The DIS
Page 199 and 200:
DT-Group 1. Company description DT
Page 201 and 202:
share alternative. At that time the
Page 203 and 204:
Frans Bonhomme 1. Company descripti
Page 205 and 206:
Friedrich Grohe AG 1. Company descr
Page 207 and 208:
their relations with TPG and CSFB a
Page 209 and 210:
Gate Gourmet 1. Company description
Page 211 and 212:
ISS Denmark 1. Company description
Page 213 and 214:
2.2 Debt structure, alteration of c
Page 215 and 216:
References Süddeutsche Zeitung 09.
Page 217 and 218:
2.3 Management policies and shareho
Page 219 and 220:
would have unlocked hidden reserves
Page 221 and 222:
Peguform 1. Company description The
Page 223 and 224:
Picard 1. Company description Picar
Page 225 and 226:
Stork 1. Company description The in
Page 227 and 228:
special members of the board of com
Page 229 and 230:
EUR 5.1 billion private equity fund
Page 231 and 232:
Telecom Italia Group 1. Company des
Page 233 and 234:
2.3 Management policies and shareho
Page 235 and 236:
from the tourism business, which is
Page 237 and 238:
The consequences for jobs in Hambur
Page 239 and 240:
2.4 Corporate governance and econom
Page 241:
84.57 7 447.586 4789.4785 55 7845 4
Page 244 and 245:
244 Bond A debt investment with whi
Page 246 and 247:
246 Investment vehicle This term is
Page 248:
248 of a security borrowed by the s
show all

Hedge funds and Private Equity - PES

Create successful ePaper yourself

Delete template?

Save as template?