Executive summary - Udo Bullmann

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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 conditionsThose in the industry who have developed specific products for retail consumers complywith a full range of different regulatory measures enforced by regulators with a strongmandate to protect retail investors.As mentioned, the LBO industry would like to see less regulation and restrictions. In theEVCA report 30 , one can see a list of criteria assessing the “friendliness” of the nationalenvironment for funds, managers, and investors. Among those criteria, the following are to benoted as they represent at the same time the points where possible regulatory changes wouldtake place:• no additional quantitative restrictions for pension funds to invest in private equity orventure 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 privateequity 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 inprivate equity and venture capital• tax transparency 31 for domestic and non-domestic investors• non-domestic investors are exempted from having a permanent establishment in thecountry when investing• exemption of VAT on management fees 32• exemption of VAT on the carried interest 33• 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 localand municipal taxes and/or other charges on income)• there is a special tax rate for SMEs• there are specific fiscal scheme for supporting the creation and growth of young andinnovative companies• there are fiscal incentives on R&D• the income tax for private individuals is below the EU average ( 43.03%)• the taxation of stock options is made “upon sale” and not when they are granted,vested or exercised.The country where all these conditions are met gets the best evaluation (1) and the worstget (3).The table below gives an overview of the ranking of European countries according to the30 European Private Equity and Venture Capital association and KPMG: "Benchmarking Tax and legalenvironments", Dec 2006.31 See Glossary32 idem33 idem58
EVCA findings for 2006, in comparison with previous years.Table 1: Overview ofresults■ Results tor 2006' Results for 2004 (2) Results for 2003(9)Country Total Country Total Score Country Total ScoreIreland 1.27 United 1,25 United 1.20France 1.36 Luxembourg 1,49 Ireland 1.58United 1,4S Ireland 1,53 Luxembourg 1.67Belgium 1.51 Greece 1.75 Netherlands 1.79Spain 1.52 Netherlands 1.75 Italy 1,96Greece 1.55 Portugal 1.81 Greece 1,96Netherlands 1.60 Belgium 1.82 Total 2,03Luxembourg 1.62 Hungary 1.88 Belgium 2,0SPortugal 1.71 Italy 1.86 France 2.09Italy 1.72 France 1.89 Sweden 2,09Austria 1.74 Switzerland 1.95 Spain 2.17Denmark 1.75 Spain 1.96 Finland 2.25Hungary 1,83 Total Average 1.97 Portugal 2.32Switzerland 1.83 Norway 2.04 Denmark 2.S6Total 1.84 Sweden 2.05 Germany 2.41Finland 1.91 Czech 2,12 Austria 2,53Estonia 2.08 Poland 2.13Norway 2.08 Finland 2.30Sweden 2.12 Germany 2.37Latvia 2,12 Austria 2,42Germany 2.15 Denmark 2.46Poland 2.1 6 Slovak 2.49Slovak 2.17Czech 2,21Slovenia 2.26Romania 2,35SourceEVCAMain conclusions:• The total European average, at 1.84, indicates that the tax and legal environmentcreate more and more incentives for private equity and venture capital in Europe.• The gap between the best country average at 1.27 and the European average at 1.84 issmaller than the 2004 gap (1.26/1.97), However, the composite score of the lowest country inranking (2.35) is not closer to the European average (1 .84) than the measured gap in 2004(2.49/1.97). This means that, overall, a certain convergence is taking place in the upper part59
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HEDGE FUNDSAND PRIVATE EQUITY -A CR
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The need for long-term investmentTh
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On the basis of a coherent analysis
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The pension fundsWhere does all the
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3. The target company is merged wit
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Societies’ response - current nat
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In most of the case studies, PE inv
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huge tax advantages when the rate o
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known to bank supervisors. Those da
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provide transparency with respect t
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The demand for change and better re
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industrial policy, focusing on know
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AcknowledgementsThis report has bec
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The situation we are facing now is
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market to promote the knowledge-eco
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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
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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
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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
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One year earlier the British Financ
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the fund exceeds the highest value
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5.3 Short sellingHistorically, hedg
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global financial markets. In 1998 t
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implications associated with the li
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The classic source of leverage is l
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I talk to have got a prayer in the
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The main reason for the lack of inf
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7. The need for change to ensure a
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clearly destructive must be prevent
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European Union.Part III is going to
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2. Market transparency - a common i
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International Settlements in Switze
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3.2 The main beneficiaries of regul
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within jurisdictions with enhanced
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In our view, if we want to promote
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investors.The EC should set up an i
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Alternative investment fund manager
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widely differing impacts of PE acti
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estrict investment to specific asse
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Clearly the governance authorities
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paid. There is therefore a need for
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5. Our immediate proposalsIn the pa
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isks are honestly and clearly commu
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Corporate governance provisionsLong
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ANNEX 1 - Case studiesANNEX 1 - Cas
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1. Company description ............
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AA1. Company descriptionThe Automob
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Autoteile Unger1. Company descripti
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Bulgarian Telecommunications Compan
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Deutsche Börse1. Company descripti
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DIS1. Company descriptionThe DIS De
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DT-GROUP1. Company descriptionDT Gr
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(2005 €610m) resulting in an EBIT
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FRANS BONHOMME1. Company descriptio
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Friedrich Grohe AG1. Company descri
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3. LBO exit (secondary LBO, IPO, li
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industrial sector level. A compromi
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Linde1. Company descriptionLinde is
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2.5 Protection of minority sharehol
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marketing outside Germany and to bo
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2.3 Effects on job creation, invest
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Peguform1. Company descriptionThe h
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PICARD1. Company descriptionPicard
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STORK1. Company descriptionThe indu
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TDC1. Company descriptionTDC is the
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TELECOM ITALIA GROUP1. Company desc
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2.5 Corporate governance and econom
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same way like some institutional in
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Viterra1. Company descriptionViterr
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Glossary 1Absolute returns: The ret
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Hurdle rate: A rate of return that
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Stock option: An individual's right
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