PE Firms Could Face “Asset Stripping” Restrictions; EU To Hold More Talks On AIFM Directive

(Reuters) – Private equity groups face curbs on asset stripping as part of efforts to end a logjam over new European Union rules to regulate alternative funds, EU president Belgium said on Thursday.

The alternative investment fund managers directive (AIFM) has been bogged down for months as EU governments and the European Parliament fail to agree on a common text.

Didier Reynders, finance minister for EU presidency Belgium, said there will more talks later this month in a bid to reach a deal before parliament votes in early October. The EU is already trailing the United States in implementing global pledges to crack down on hedge funds.

There was a need to find a “proportionate” way to require private equity groups to inform markets about their broad strategie, Reynders told reporters on the sidelines of a Financial Services Authority conference.

“I am sure, I am confident of reaching an agreement on that,” he said.

“The second (issue) for private equity is to see how it’s possible to have some anti-stripping rules because we have seen so many institutions in differnt countries with social consequences of some stripping of companies,” Reynders said.

Private equity groups have been accused of acquiring companies and then stripping out and selling profitable assets at the expense of jobs.

The industry has said that it helps return ailing firms to sustainable profits and preserve employment.

ON MUTATION WATCH

Reynders said the third key issue was whether non-EU hedge funds should have a “passport” to operate across the 27-country area. Britain is home to most EU hedge funds and is against limiting the ability of investors to put money in non-EU funds.

“We have put on the table a possible passport with some other rules around that,” Reynders said., declining to elaborate.

Dan Waters, an FSA director, said Britain was “very concerned” about the rules for non-EU funds and that disclosure rules for private equity strategies should be proportionate.

The European Parliament wants the AIFM to regulate pay in the sector, which was not in the original draft.

FSA Chairman Adair Turner said the AIFM should focus on giving regulators powers to gather information and intervene if anything systemically risky is uncovered, Turner said.

Turner said bonuses should be linked to performance covering the investment period but the FSA would “rely heavily on proportionality”.

The AIFM should recognise the global nature of the hedge fund industry and allows European professional investors to access funds outside Europe, Turner added. Hedge funds were not responsible for the crisis but there was a need to guard against them “mutating” into firms that pose wider systemic risks, he said.

“We need to make sure that mutation does not occur without us watching… The crucial area therefore is not so much the remuneration codes as the data gathering,” Turner said.

By Huw Jones