Charlie McCreevy, the EU internal market commissioner, has dismissed recent attacks on private equity firms and hedge funds, insisting there was no reason to tighten the rules governing their activities.
In an interview with the FT he said “They are good for the market. They have given greater liquidity, have added shareholder value and have helped the rationalisation and innovation of companies.”
He did add that the sector is woeful at PR and only gets bad press, in part because of the massive fortunes reportedly made by a select few.
Politicians in France and Germany have been particular vocal in their attacks, but even Labour MPs in the UK who are jostling for position in the Deputy PM contest have attacked them in an attempt to play to their trade union constituencies.
Private Equity firms are especially targeted for being the bogey men at present, given that their involvement often involves restructuring firms and shedding unprofitable components that can’t be turned around; or more commonly as a consequence of envy in simply appearing to get massive windfalls from holding investment for a short period, which implies that the seller was somehow defrauded, despite them being a willing seller.
The GMB union this week even went so far as to suggest taxing profits after interest has been deducted gives private equity firms an unfair advantage. Duh? This tax break is available to everybody, and the only unfairness is that it discriminates between debt and equity (dividends not being tax deductable).
Interesting then that US academics have identified that when hedge funds agitate for change, it is usually beneficial for investors – company managers obviously get a rougher time. And who are these horrid investors? Why, they are the pension funds of millions of employees (and union members) who presently face massively underfunded pensions and could do with something to generate investment performance to make up the gap!