Hedge funds and Private Equity - PES

1. The market cannot do it alone
In the introduction to this report, we have defined the future long-term investment ambitions for
the European Union and its member states in the next decade:
The New Social Europe and connected, smart, green growth strategies
The need for long-term financing through efficient, low-cost, optimally functioning finance markets
is obvious. We have in the report analysed the latest development of the financial market – especially
the hedge funds (HF) and one part of the private equity (PE) industry, Leverage Buy Outs
(LBO).
In part I we gave a comprehensive and thorough description of HF and PE-industries in Europe,
based on the available facts and our case studies. It is a fast growing and increasingly dominant
industry in the financial markets. While one can argue for some positive effect on the market and
public companies, the activities of HF and – especially LBOs – do have substantial negative
implications for financial risks, the leverage of public companies, the need for long-term financing
of real investment, R&D and jobs, the protection of investors etc. All in all, there seem to be
contradictions and negative implications for the real economy in a number of cases – especially
in the light of the agreed Lisbon goals and the PES group vision for a New Social Europe.
In part two, we had a close look at the consequences of HFs and PEFs’ (LBOs) have for some
central issues in our real economies – and thereby for our Social Europe as a whole. It was
shown that the financial markets do not automatically respond in a subordinate and optimal way
to the financial needs of long-term investments. Our case studies confirm the risks and negative
impacts on:
The economic viability of our private companies in Europe. Limitations on investment capability,
employment, education and qualifications – innovation and global competitiveness.
The working conditions and participation of employees in the target company.
The public sector, utilities
The pension funds of employees and the long-term real value of their investments
The stability of financial markets
These contradictions, negative implications and obstacles in progressing towards a New Social
Europe will not automatically disappear. The problems will not be solved by natural changes on
the financial markets. Unless the societies and the EU intervene, these market imperfections will
stay and probably grow.
Part III – Lessons to be drawn for future regulation
153