Executive summary - Udo Bullmann

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AcknowledgementsThis report has become a reality thanks to the determination of Poul Nyrup Rasmussen,President of the Party of European Socialists and Ieke van den Burg, MEP, PES coordinatorin ECON. We also thank Pervenche Berès, MEP, Chair of ECON and the MEPs activelyinvolved in the Contact Group created for this project: Harald Ettl, Peter Skinner and others.The support of the PES Group Bureau was also very warmly welcome.Our work has benefited greatly from the input given by the following experts and observers:Michel Aglietta, Paris X university and Scientific advisor to CEPII, France;Christen Amby, Denmark;Pierre Bollon, France;Giovanni Federico di Corato, Member of the Board of FOPEN, Italy;Simon Cox, EFFAT, Brussels;Reiner Hoffmann, ETUI-REHS, Brussels;Sam Ironside, UNI-Europa, Brussels;Jeppe F. Jörgensen, University of Potsdam and Berlin School of Economics, Germany;Lothar Kamp, Hans Böckler Stiftung, Germany;Dr. Norbert Kluge, ETUI-REHS, Germany;Dr. Roland Köstler, Hans Böckler Stiftung , Germany;Mick McAteer, Independent Consumer Advocate , UK;William Melody, Center for ICT, Technical University of Denmark, Denmark;Dr. Norbert Wieczorek, ex-MP, Germany;Andrew Watt, ETUI-REHS, Brussels;Paul Windolf, University Trier, Germany.In addition, we want to add to this list the names of those who have also provided highlyvaluable written input to our draft report, in the way of drafting case studies, providingsources of information and data or making specific research/comments: Stéphane Janin; PeterRossman, IUF, Switzerland; Johannes Heuschmid, legal expert, Berlin; Sebastian Sick ,Alexandra Krieger, Hans Böckler Stiftung, Düsseldorf; Sigurt Vitols, Science Center, Berlin;Dr. Volker Telljohann,Institute for Labour Foundation, Bologna.A special thank to Annabel Garnier, Political advisor, PES Group and Jonas J. Möller,assistant, whose commitment have made this project a reality.This report does not necessarily express the views of the PES, its member parties or itsParliamentary Group.
PART I - The real economy is still thereIf we were living in a perfect world, what we call the “real economy” - that is, not onlybusinesses, resources, and the means of production but also the workforce, knowledge,development and innovation - would function perfectly well, all other elements of oursocieties being committed to its promotion and success. The financial markets and theirvarious actors would, of course, contribute to the achievements of the overall real economy,providing easy access to funding.But this perfection is not a reality since perfection does not exist as such. And the realeconomy as it stands nowadays suffers from more than simply imperfections. We are seeingnew, strong actors on the financial markets dictating more and more of the rules, enforcingtheir time horizons and imposing their behaviours on the real economy. This trend is not onlyworrying as far as the actual functioning of the real economy of Europe is concerned – it riskspreventing us reaching our common European goals for our societies and citizens. In Lisbonin 2000 the European Council defined its objective of making Europe: “The most competitiveand dynamic knowledge-based economy in the world, capable of sustainable economicgrowth, more and better jobs and better social cohesion”.In the preparations for the Spring European Council in 2005, the PES Group presented on1st February its report “A Europe of Excellence - the Lisbon strategy: Getting fromdeclarations to results”. Europe’s choice must be to base its competitive strategy onexcellence, on the high quality of its infrastructure, its public services, its environment, itswelfare systems, its workforce, its labour markets and its companies. Europe has no future intrying to compete as a low-cost producer in a global economy.We must base ourselves on long-term investments to realise these common goals.Therefore, we need long-term financing - that is why the financial markets are so crucial forthe real economy of today. We are still believers in the market but we insist on a “Socialmarket economy”, not on a “market society”. The problem is that the main actors in thealternative investment industry do not see themselves as the “servants” or the instrumentsensuring the smooth functioning of the real economy. On the contrary, they seem to gain allthe advantages of the wealth created by the real economy without contributing either to itsfunctioning or to its future.We are facing a cycle in which the financial markets are not helping the real economy toflourish but increasing their gains to its detriment. There are, of course, exceptions to thistrend, especially when looking at the venture capital industry, but overall developments in thefinancial markets are not promoting the New Social Europe. Very few people live offfinancial markets compared to the real economy. We cannot imagine a fully financedeconomy where financial capital determines the rhythm and returns expected frominvestments versus real capital, and where this investment is subordinated to the demands ofthe global finance markets.
Page 1 and 2: HEDGE FUNDSAND PRIVATE EQUITY -A CR
Page 3 and 4: The need for long-term investmentTh
Page 5 and 6: On the basis of a coherent analysis
Page 7 and 8: The pension fundsWhere does all the
Page 9 and 10: 3. The target company is merged wit
Page 11 and 12: Societies’ response - current nat
Page 13 and 14: In most of the case studies, PE inv
Page 15 and 16: huge tax advantages when the rate o
Page 17 and 18: known to bank supervisors. Those da
Page 19 and 20: provide transparency with respect t
Page 21: The demand for change and better re
Page 24 and 25: industrial policy, focusing on know
Page 28 and 29: The situation we are facing now is
Page 30 and 31: market to promote the knowledge-eco
Page 32 and 33: Our desire to separate the single s
Page 34 and 35: Typically a single strategy HF oper
Page 36 and 37: In most European countries, fund ma
Page 38 and 39: It should also be signalled that:
Page 40 and 41: Institutional investorsCurrent and
Page 42 and 43: leverage in order to benefit from s
Page 44 and 45: 1.6 The costs, the management fees
Page 46 and 47: only remaining way to boost returns
Page 48 and 49: A majority of hedge funds have limi
Page 50 and 51: Our analysis is that these concerns
Page 52 and 53: Average annual returnsTremont HF in
Page 54 and 55: 1.11. Tendency of crowdingDespite t
Page 56 and 57: • Corporate governance:“In the
Page 58 and 59: Onshore FoHFsCountryUnitedKingdomGe
Page 60 and 61: ItalyBank ofItaly•Specializedasse
Page 62 and 63: 1.14 Societies’ response - curren
Page 64 and 65: Investments are often in individual
Page 66 and 67: employed 21 . Leverage effect expla
Page 68 and 69: Investments are sold off to other c
Page 70 and 71: Private Equity: European trends in
Page 72 and 73: time because of the longer holding
Page 74 and 75: Bain CapitalPartners 74.7 9Thomas H
Page 76 and 77:
Sources of new funds raised (2005)C
Page 78 and 79:
The private equity manager virtuall
Page 80 and 81:
The fund structuring arrangements f
Page 82 and 83:
ownership transfers. But buyout cap
Page 84 and 85:
equity value chain. The main areas
Page 86 and 87:
of the table but that less mature c
Page 88 and 89:
UCITS (Undertakings for Collective
Page 90 and 91:
Article 49Within the framework of t
Page 92 and 93:
open and secure retail markets and
Page 94 and 95:
offeree company must give its views
Page 96 and 97:
In its Communication on worker info
Page 98 and 99:
est practices, promoting innovative
Page 100 and 101:
- Work to ensure more consistent an
Page 102 and 103:
destabilising the financial markets
Page 104 and 105:
& LBOs invest. It increases financi
Page 106 and 107:
In particular, incumbent managers o
Page 108 and 109:
long-term competitiveness of the ac
Page 110 and 111:
It also leads to further weakening
Page 112 and 113:
If HFs and LBOs have brought uncert
Page 114 and 115:
the social responsibilities of comp
Page 116 and 117:
areas after recapitalisation 11 . I
Page 118 and 119:
Furthermore, the funds in many case
Page 120 and 121:
privatised with a view to stimulati
Page 122 and 123:
asset stripping, and the offering o
Page 124 and 125:
dividend to Valentia.The second pub
Page 126 and 127:
***The three country case studies o
Page 128 and 129:
eturns well below those achieved by
Page 130 and 131:
investment funds - in the UK alone
Page 132 and 133:
4.2 The issue of pension fundsThe p
Page 134 and 135:
One year earlier the British Financ
Page 136 and 137:
the fund exceeds the highest value
Page 138 and 139:
5.3 Short sellingHistorically, hedg
Page 140 and 141:
global financial markets. In 1998 t
Page 142 and 143:
implications associated with the li
Page 144 and 145:
The classic source of leverage is l
Page 146 and 147:
I talk to have got a prayer in the
Page 148 and 149:
The main reason for the lack of inf
Page 150 and 151:
7. The need for change to ensure a
Page 152 and 153:
clearly destructive must be prevent
Page 154 and 155:
European Union.Part III is going to
Page 156 and 157:
2. Market transparency - a common i
Page 158 and 159:
International Settlements in Switze
Page 160 and 161:
3.2 The main beneficiaries of regul
Page 162 and 163:
within jurisdictions with enhanced
Page 164 and 165:
In our view, if we want to promote
Page 166 and 167:
investors.The EC should set up an i
Page 168 and 169:
Alternative investment fund manager
Page 170 and 171:
widely differing impacts of PE acti
Page 172 and 173:
estrict investment to specific asse
Page 174 and 175:
Clearly the governance authorities
Page 176 and 177:
paid. There is therefore a need for
Page 178 and 179:
5. Our immediate proposalsIn the pa
Page 180 and 181:
isks are honestly and clearly commu
Page 182 and 183:
Corporate governance provisionsLong
Page 184 and 185:
ANNEX 1 - Case studiesANNEX 1 - Cas
Page 186 and 187:
1. Company description ............
Page 188 and 189:
AA1. Company descriptionThe Automob
Page 190 and 191:
Autoteile Unger1. Company descripti
Page 192 and 193:
Bulgarian Telecommunications Compan
Page 194 and 195:
Deutsche Börse1. Company descripti
Page 196 and 197:
DIS1. Company descriptionThe DIS De
Page 198 and 199:
DT-GROUP1. Company descriptionDT Gr
Page 200 and 201:
(2005 €610m) resulting in an EBIT
Page 202 and 203:
FRANS BONHOMME1. Company descriptio
Page 204 and 205:
Friedrich Grohe AG1. Company descri
Page 206 and 207:
3. LBO exit (secondary LBO, IPO, li
Page 208 and 209:
industrial sector level. A compromi
Page 210 and 211:
Linde1. Company descriptionLinde is
Page 212 and 213:
2.5 Protection of minority sharehol
Page 214 and 215:
marketing outside Germany and to bo
Page 216 and 217:
2.3 Effects on job creation, invest
Page 218 and 219:
Peguform1. Company descriptionThe h
Page 220 and 221:
PICARD1. Company descriptionPicard
Page 222 and 223:
STORK1. Company descriptionThe indu
Page 224 and 225:
TDC1. Company descriptionTDC is the
Page 226 and 227:
TELECOM ITALIA GROUP1. Company desc
Page 228 and 229:
2.5 Corporate governance and econom
Page 230 and 231:
same way like some institutional in
Page 232 and 233:
Viterra1. Company descriptionViterr
Page 234 and 235:
Glossary 1Absolute returns: The ret
Page 236 and 237:
Hurdle rate: A rate of return that
Page 238:
Stock option: An individual's right
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