Hedge funds and Private Equity - PES

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Mortgaging the future to capture gains for personal enrichment in the present is quite an easy
activity. The task for a good manager in a public company is to resist it! Managers have to balance
the interests of today’s shareholders with tomorrow’s shareholders and all other stakeholders
including the employees. As seen in so many of our case studies, the one party unrewarded is the
employees. In many cases they suffer an erosion of job security and a loss of benefits.
2.13 The societies’ response – current national regulation
The legal, tax and operating environment in which a private equity industry may develop is
determined largely at national/local level. Local fiduciary relationships and obligations differ
widely in the various Member States. Most Member States regulate part or all of the private
equity value chain. The main areas of regulation cover
Management of funds
Placement to eligible investors
Tax incentives and restrictions
Funds and product terms and conditions
Those in the industry who have developed specific products for retail consumers comply with a
full range of different regulatory measures enforced by regulators with a strong mandate to
protect retail investors.
As mentioned, the LBO industry would like to see less regulation and restrictions. In the EVCA
report 30 , one can see a list of criteria assessing the “friendliness” of the national environment for
funds, managers, and investors. Among those criteria, the following are to be noted as they
represent at the same time the points where possible regulatory changes would take place:
no additional quantitative restrictions for pension funds to invest in private equity or venture
capital on top of IORP directive 2003/41/EC requirements
no geographical conditions for pension funds to invest outside EU countries
no additional quantitative restrictions for insurance companies to invest in private equity or
venture capital on top of Insurance Directive 2002/12/EC requirements
no geographical conditions for insurance companies to invest outside EU countries
existence of appropriate fund structure or investment vehicle to be used to invest in private
equity and venture capital
tax transparency31 for domestic and non-domestic investors
non-domestic investors are exempted from having a permanent establishment in the country
when investing
exemption of VAT on management fees32 exemption of VAT on the carried interest33 no investment restrictions
tax incentives to encourage investment in private equity and venture capital
the nominal company tax rate is below the EU average (26.23% including any local and
municipal taxes and/or other charges on income)
there is a special tax rate for SMEs
30 European Private Equity and Venture Capital association and KPMG: “Benchmarking Tax and legal environments”, Dec 2006.
31 See Glossary
32 Idem
33 Idem