PES

First round (2007-2008): Bringing the issue on the political scene

In 2007, Poul Nyrup Rasmussen (President of the Party of European socialists) and Ieke van den Burgh (Dutch Socialist Member of the European parliament) launched a report: Hedge Funds and Private Equity - a critical analysis . 

At its Council in Sofia in November 2007, the PES adopted a resolution on financial markets giving a clear mandate to further political action.

For a summary on hedge and private equity funds, consult our leaflet , December 2007.

In spring 2008, Poul Nyrup Rasmussen launched his legislative report on hedge and private equity funds, calling for the Commission to legislate quickly this unregulated segment of the financial markets. Conservatives and Liberals first tried to delete the whole report but by the end of the summer, the financial crisis had reached Europe and in September, the report was adopted by the European Parliament with a large majority. Over the next few months, French President Sarkozy, during the French Presidency of the European Union, and José Manuel Barroso, President of the European Commission (in charge of proposing legislation at EU level), agreed on the principle of regulating all markets and all financial players. In December, a first letter was sent by Pervenche Berès (President of the European Parliament committee on economic and monetary affairs), Martin Schulz (President of the Socialist Group in the Parliament) and Poul Nyrup Rasmussen (President of the Party of European Socialists) to Barroso.

Second round (January-May 2009): Influencing the European commission

At the end of December 2008, the European Commission finally launched a consultation on hedge funds. The deadline was tight: January 31 2009. Poul Nyrup Rasmussen immediately organised a working group to respond to this consultation. There was a wide response from the progressive family. The PES submitted a contribution, as did the PES Group in the parliament (which brings together all the labour, social democratic and socialist members of the European Parliament), the FEPS (Foundation for European Progressive Studies), some member parties of the Party of European Socialists and international trade unions. In two separate letters to President Barroso, Schulz, Berès and Rasmussen reminded him of his promises and that he had to follow up on private equity regulation.

In April 2009, the first draft of the European Commission proposal on alternative investment funds was leaked by the Commission. We immediately prepared a technical critical analysis of the draft, which proved to be full of loopholes and we called on Barroso to request a review of the paper. Although the adoption of the proposal by the college of commissioners was delayed, no major improvement was brought to the paper. Obviously, the neo liberal Commissioner responsible, Charlie McCreevy preferred to listen to industry responses to the consultation, rather than to the demands from the (democratically elected) European Parliament.

The piece of legislation was introduced together with a proposal to amend the 2004 Recommendation on remuneration of directors and a communication on retail investment products. In a press conference organized by FEPS, we explained we had identified 10 big loopholes in the final proposal released on 29 April by the Commission:

• The proposal covers only EU-based fund managers (the funds themselves are not regulated, and as long as the managers are registered abroad, that is in off shore centres, they do not need to comply with the legislation, at least for the 3 first years of the implementation of the directive).

• The registration proposed is a formality with no real requirements

• It sets a threshold of €100 million for hedge and €500 million for private equity funds, which will herald a golden age for fund managers and “consultants” to collude in circumventing the threshold

• The capital requirements are miniscule (calculated as 0.02%)

• Transparency is inadequate in terms of information to be provided and frequency of reporting

• There is no real disclosure of portfolio companies

• Nothing on market disruption by non-EU funds / No regulation of naked short-selling

• No specific protection of institutional investors / Nothing on tax evasion

Third round: the inter institutional decision making process

Now that the European Commission has introduced this legislative proposal, there will be co-decision process between the European Parliament and the European Council. It is crucial for us now to have a new majority in the Parliament, and a new College of Commissioners, to give a New Direction for Europe, and a new direction for financial markets.