Hedge funds and Private Equity - PES

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56 Theory of money: “In modern economies, however, credit, not money is required (and used) for most transactions, and most transactions are simply exchanges of assets, and therefore not directly related to GDP. Moreover, today, most money is interest bearing, with the difference between the interest rate paid, say on a money market account and T bill rates having little to do with monetary policy, and related solely to transactions costs. What is important is the availability of credit (and the terms at which it is available); this in turn is related to the certification of creditworthiness by banks and other institutions. In short, information is at the heart of monetary economics. But banks are like other risk-averse firms: their ability and willingness to bear the risks associated with making loans depends on their net worth. Because of equity rationing, shocks to their net worth cannot be instantaneously undone, and the theory thus explains why such shocks can have large adverse macro-economic consequences. The theory shows how not only traditional monetary instruments (like reserve requirements) but regulatory instruments (like risk adjusted capital adequacy requirements) can be used to affect the supply of credit, interest rates charge, and the bank’s risk portfolio. The analysis also showed how excessive reliance on capital adequacy requirements could be counterproductive.” “We also analysed the importance of credit interlinkages. Many firms receive credit from other firms, at the same time that they provide credit to still others. The dispersed nature of information in the economy provides an explanation of this phenomenon, which has important consequences. As a result of these general interlinkages (in some ways, every bit as important as the commodity interlinkages stressed in standard general equilibrium analysis) a shock to one firm gets transmitted to others, and when there is a large enough shock, there can be a cascade of bankruptcies.” What does all this imply for growth and thereby wealth creation in our societies? What are – then – the implications of imperfections of credit markets arising out of information problems – asymmetric information – on growth? Joseph Stiglitz gives the answer himself: “The importance of capital markets for growth has long been recognised; without capital markets firms have to rely on retained earnings. But how firms raise capital is important for their growth”. As we see it, this is in essence the set of theories showing how fundamental the interplay is between “the real economy” and the financial markets – and how important it is to enhance transparency to limit the negative effects of asymmetric information on the capital markets. This is, as we see it, a fundamental – but not necessarily sufficient – part of a coherent new strategy to ensure the real economy and our European ambition as stated in the European Council, 2000 in Lisbon. It is about more and better jobs, it is about investment in research and development, it is about education and competence, it is about long-term strategies to guarantee the real economy as the precondition for our welfare societies in the age of globalisation.
1.13 Societies’ response – current national regulations In the following tables we try to provide a picture of current regulation of the hedge fund industry prevailing in Europe, focusing on the five largest markets (UK, Germany, France Italy and Spain). We consider separately requirements of financial and fiscal authorities on FOHFs and single strategy products. In the field of FOHFs Europe is taking an increasingly relaxed attitude to the marketability of such products. Only in Italy is there still a limitation to offering FOHFs to the public. In Germany, France and Spain the distribution on the mass market of FOHFs is allowed with almost no restriction. In UK a clear position on this issue has not yet emerged from the SFA, but the public offering of FOHFs wrapped as UK-listed companies is permitted. In any case, in our view the most relevant issue is the fiscal treatment of FOHFs. Local fiscal laws foresee a treatment of hedge funds analogous to that of UCITS investment schemes oriented to preserve the transparency of collective investment vehicles. Then FOHFs are substantially tax-exempt wherever they are based and instead their owners are taxed according to their fiscal status. In this general architecture it has to be signalled that the fiscal treatment of offshore funds, owned by onshore FOHFs, does not foresee any kind of tax discrimination against offshore domiciled funds. Country United Kingdom Germany Manager authorization Not requested FSA authorization to manage or advice a UK-listed company investing in hedge funds BaFin Minimum capital equal to € 730,000 + a % of AUM Product regulation FSA (Listing Authority) There is no specific category of authorized onshore FOHFs, but such product have typically been structured as UK – listed companies BaFin Diversification limits (not more than 20% invested in a single product) Investment manager and custodian bank are required to be located and regulated in Germany Onshore FoHFs Retail distribution The public offer of UKlisted companies is allowed Minimum investment threshold Nil Yes Nil Fiscal treatment of the fund Fiscal treatment of offshore underlying funds Not relevant any comparison with UCITS schemes Equal to UCITS fund, but in Germany both UCITS and Hedge funds to be tax transparent have to meet some transparency requirements Transparency if the FOHFs is transparent according with German tax law Continued on page 58 Part I – Hedge funds and private equity funds – how they work 57
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HEDGE FUNDS AND PRIVATE EQUITY A CR
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FOREWORD Since the 1980s the financ
Page 5: At the same time the PES Group took
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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
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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 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
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Here is a quite well known “flow
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2. Decent work and workers’ parti
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The pension funds of companies bein
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usiness plan for Kion to employee r
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The combination of increased indebt
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The EU has in the past tried to com
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3.1 The attractiveness of public ut
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fulfilment of public service respon
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The importance of Europe’s transi
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4. Employees, pension fund investme
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unit of Tremont Capital Management)
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contractual issues e.g. Lock-in per
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As many jurisdictions require benef
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Expert Group claims - with striking
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The rising number of hedge funds ap
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time peak in 2005.” It is importa
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Box 2: The Amaranth case (2006) In
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gies, size and age. For instance, i
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Box 3: Complex leverage arrangement
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force a hedge fund to default on it
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Private equity - especially in the
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finance infrastructure through long
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154 But if we in Europe - and hopef
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156 2. Market transparency - a comm
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158 Considering the fact that a lar
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160 Furthermore investment banks ar
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162 3.3 Transparency and supervisio
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164 Recently in most European count
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166 The European Commission should
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168 The EC should also create a fra
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170 4. Private Equity Funds - focus
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172 to create incentives for longer
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174 policy are not being met. This
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176 Acquisitions by private equity
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178 5. Our immediate proposals In t
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180 rules on the disclosure of tota
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182 have rules here and we should p
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AA 1. Company description The Autom
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Autoteile Unger 1. Company descript
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Bulgarian Telecommunications Compan
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Deutsche Börse 1. Company descript
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DIS 1. Company description The DIS
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DT-Group 1. Company description DT
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share alternative. At that time the
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Frans Bonhomme 1. Company descripti
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Friedrich Grohe AG 1. Company descr
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their relations with TPG and CSFB a
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Gate Gourmet 1. Company description
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ISS Denmark 1. Company description
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2.2 Debt structure, alteration of c
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References Süddeutsche Zeitung 09.
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2.3 Management policies and shareho
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would have unlocked hidden reserves
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Peguform 1. Company description The
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Picard 1. Company description Picar
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Stork 1. Company description The in
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special members of the board of com
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EUR 5.1 billion private equity fund
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Telecom Italia Group 1. Company des
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2.3 Management policies and shareho
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from the tourism business, which is
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The consequences for jobs in Hambur
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2.4 Corporate governance and econom
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244 Bond A debt investment with whi
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246 Investment vehicle This term is
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248 of a security borrowed by the s
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