Fighting for independence

Will an industry code will slake the political thirst for pan-European regulation?

The Brussels Task Force, comprising 10 representatives from European private equity, has countered calls for cross-border private equity regulation by proposing a code of “unified professional standards and an effective enforcement regime” for private equity firms in Europe.

The proposal, part of a 300-page submission to the European Parliament, suggests a principles-based regulatory framework to be created and put in place within a timeframe of 12 months. Suggestions for how compliance with the code would be policed were not included.

This was the latest development in a process that will culminate in the European Commission deciding how legislation will be pursued for private equity and other alternative asset classes across the region.

The submission was met with scepticism from employee unions. “With regulation, let alone self-regulation, seen to fail in the global financial system, the private equity industry remains stuck in the groove of outmoded light-touch regulation and inadequate concepts of transparency,” said Jack Dromey, deputy general of UK's largest worker's union Unite, in a statement.

“The private equity sector's bid for self-regulation is astonishing,” he added.

Even some private equity professionals feel that the stance implied by the submission, i.e., distinguishing between private equity and hedge funds and concluding that private equity poses no systemic risk, has been overtaken by events.

“Politicians don't hear ‘hedge’ or ‘private equity’, they just hear ‘fund’,” says Adam Levin, a partner at law firm Dechert. “It's the leveraged deals that private equity has done which are now part of the massive bank bailouts by taxpayers in Europe and the US, for which the politicians are looking for everyone involved to take a share of the blame.”

The suggested guidelines comprise: a code of conduct, corporate governance guidelines for portfolio company management, investor reporting, valuation guidelines, transparency and disclosure guidelines, and governing principles for the establishment and management of private equity funds.

Elizabeth Ward of law firm Link-laters was part of the Brussels Task Force working group that produced the submission. She says many of the proposed principles are already covered by country-specific rules, and that this would be taken into account.

“It was clear that the concerns of the European Parliament are dealt with effectively in the UK already. We have the Financial Services Authority [which regulates private equity firms], the Companies Act [covering corporate governance] and the Walker Guidelines,” she says.

Candover, the 29-year-old buyout firm, has written down the value of its portfolio by 50 percent and will temporarily cease investing from its 2008 vehicle as it discusses with its limited partners how to take the fund forward. Candover Investments, the London-listed vehicle which owns Candover and makes investments in its funds, is “not currently in a position to make any further commitment” to Candover 2008, the group revealed in its annual results. In February the listed entity warned shareholders that its €1 billion commitment to the fund, which had by then attracted €3 billion in commitments, would have to be reduced “significantly”, prompting a revision of the fund's investment strategy.

Permira managing partner Damon Buffini is reportedly to step down from his position on the board of SVG Capital, signalling a material change in the relationship between the listed fund manager and the private equity giant. Late last year, Permira allowed its LPs, including SVG, to reduce their commitments to the latest Permira fund. The move was widely seen as being in response to SVG's liquidity issues. Permira owns a roughly 4 percent stake in SVG Capital.

European venture capital firm Index Ventures has closed Index Ventures V on target at €350 million, with most of the commitments coming from the firm's existing limited partner base. Fundraising took just three months and the firm did not use placement agents, Bernard Dallé, an Index partner said in an interview. He credited the firm's fundraising success to its operational efficiency and LP relationships. This is the fifth early-stage vehicle that Index has raised in the past 10 years.

London-listed 3i Group has had its credit rating cut from A- to BBB+, despite recent moves to reduce its debt and increase liquidity. Credit ratings agency Standard and Poor's, which made the downgrade, assessed 3i's outlook as “negative” due to a sharp increase in its debt levels in the past 12 months combined with reduced asset liquidity in the tough market.

UK pension funds increased their private equity allocations by 40 percent in 2008 compared to 2007, according to research by investment consultancy Watson Wyatt. The 40 percent increase in private equity allocation was due to larger funds implementing their diversification strategies directly rather than via funds of funds, the research found. As a result of this there were more direct allocations to private equity funds than funds of funds allocations in 2008.

European buyout firm CVC Capital Partners has hired Julian Horn-Smith as a senior advisor for its telecoms, media and technology (TMT) team. Horn-Smith is a telecommunications veteran, having helped to found UK mobile phone giant Vodafone in 1984. He has held a variety of roles at the firm, including chief operating officer. He was most recently deputy chief executive officer and a board member before his retirement in 2006.

London-based buyout firm Charterhouse Capital Partners has cut its €6 billion fundraising target for its ninth fund to €4 billion, according to sources. Charterhouse Capital Partners IX held a first close on €3.6 billion around October 2008, according to media reports. The fund's investors include the San Francisco Employees Retirement System, which committed €25 million, and the Washington State Investment Board, which committed $300 million.

LBO France is poised to raise France's first credit-focused private equity fund, having already hired a dedicated trio of executives to launch the investment strategy. LBO France will begin marketing its credit fund in May, according to sources familiar with its plans.

UK buyout house Terra Firma has written off half its €2.6 billion equity stake in music group EMI, reflecting its view that equity invested in some deals done at the peak of the credit bubble – the EMI deal was inked in the summer of 2007 – looks unlikely to be fully recovered. The firm has taken a provision for an impairment of around €1.3 billion on the EMI investment. By doing this, rather than simply writing down the value of the investment, Terra Firma is sending a clear message to the market that the fund may not recover the money. Separately, Hands has relinquished his role as chief executive of Terra Firma while retaining the role of chairman and also becoming chief investment officer. Tim Pryce, a founding member of Terra Firma who previously worked with Hands at Nomura, becomes chief executive.