Regulatory pressure exposing cracks in alternative investment solidarity
| Apr 19th, 2009 | Filed under: Hedge Fund Regulation, Today's Post | By: Alpha Male |
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It was over two years ago that policy makers in some countries heaped scorn on the “locusts” behind hostile takeovers. Soon after, in a June 2007 report called “Where the House Always Wins: Private Equity, Hedge Funds and The New Casino Capitalism“, the International Trade Union Congress joined in the melee by launching a blistering attack on private equity funds:
“When companies are taken over by these private funds, they escape stock market regulations, increase dividends to their new owners, and accumulate incredibly high levels of debt. Since the private equity firms aim at making quick returns by reselling their acquisitions within a couple of years, they introduce their portfolio of companies to rapid financial and organisational restructuring.”
In large measure due to this popular backlash against PE funds, the World Economic Forum published a report in January 2008 that attempted to dispel some of the myths surrounding private equity.
“The discussion of many aspects of private equity’s impact on the economy has been characterized by confusion along many dimensions. As the employment study highlights, the evidence supports neither the apocalyptic claims of extensive job destruction nor arguments that private equity funds create huge amounts of domestic employment.”
And so the debate raged on over the social costs of “casino capitalism” fueled by cheap money. Private equity funds became the poster-child for locusts and cockroaches everywhere.
However, as faceless, often nameless players in amorphous global capital machinery, hedge funds largely avoided the crosshairs of regulators back then. Often the word “activist” was added to the term “hedge fund” in order to link them to their private equity cousins. But the regulatory focus of 2007 and the first half of 2008 remained clearly on private equity managers, not hedge fund managers. More…
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