Executive summary - Udo Bullmann

But in 70% of cases, offshore, due to a wish to minimise tax and place itself in a deregulatedenvironment. The offshore funds are usually structured as corporations.The HF and PE industry is the fastest growing major actor on the financial markets, notonly in Europe but across the world:• It is estimated that hedge funds in 2007 manage some 1.7 trillion USD. There arearound 6,900 single hedge funds worldwide.• The US is still the dominant centre for hedge funds and PE operations, counting formore than 68% of the total capital under management. But their activities in Europe arerapidly expanding now making up more than 25% of the global hedge fund industry.• Looking at private equity funds the expansion is dramatic, too: European leveragebuy-outs in 2006 amounted to 160 bn Euros, an increase of 42% on 2005. With the usualleverage ratio of 3/4, this corresponds to a buy-out capacity of 640 bn Euros in 2006.In Europe, buy-out investments account for more than 70% of the total undermanagement. By contrast, venture capital investments only represent 5%. This is veryworrying bearing in mind our need for long-term investment to realise the Lisbon goals.• To take an overview of the total amount of capital allocated for leverage buy-outs, itis certainly necessary to include the US-based funds. Despite the enormous growth inleveraged buy-outs of European companies, it is still striking to see the dominance of theUS funds. They are simply the most powerful funds in the world. US funds like TexasPacific Group, Blackstone and KKR, together have a capacity equalling more than 30% ofworldwide equity.***Hedge funds, PEs and the banks, including investment banks, enjoy ever closercooperation and interdependence. HFs are very important partners for prime brokers andinvestment banks providing revenues and services. This increasing interplay andinterdependence also increases systemic risks and there seems to be an extra argument forclaims of disclosure, transparency and regulations such as already exist for commercialbanks and investment banks. This argument is underlined by the high complexities in assetevaluation of derivatives, managed by the hedge funds. When HFs compete in deliveringhigh returns, there is the possibility of careless evaluations and even miscalculation.***6