In fact, of course, this debate has been going on for decades: it is at the heart of the way that governments tax and regulate asset managers, investors and companies (public and private), which is sophisticated and well thought through. That is not to say that the debate is not an ongoing one – things do change, and regulations must adapt with them. But there is no need to go back to square one: the debate should be informed by what has gone before.
So, for example, it is worth remembering that the general public – retail investors – cannot generally get direct access to most (limited life) private equity funds. They are illiquid investments and are deemed unsuitable for them by regulators. Those funds that the public can buy directly (usually liquid funds, listed on a stock market) are obliged to disclose very full information about their performance and returns to the public. Those that the public can't invest in don't have to. That seems logical.
But many people do, of course, have indirect exposure to the sector – through their pension funds, for example. Pension fund beneficiaries cannot make asset allocation decisions, though; they have to entrust that to (carefully regulated) pension fund trustees and professional asset managers. Those people get about as much information about private equity funds as it is possible to get.
Then there is the question of the private equity fund managers themselves. Are they a risk to the wider economy; to the stability of the financial system; to the integrity of the market? The UK's regulator, and the European Commission, both analysed those questions in some considerable detail recently, and in thoughtful reports both said that – on the whole – private equity is already properly regulated, and plays an important and positive role in the financial system and the wider economy. The bill of health was not completely clean, and there are some areas of focus for the regulator, but the need for greater regulation was considered very carefully and objectively – and rejected.
Next, and a big issue for wider stakeholders, is the regulation of large (and, indeed, middle market) private companies themselves. These are very important sources of employment and economic activity, and – not surprisingly – they are carefully regulated. But, in general, the rules governing quoted and unquoted companies are not different as regards the interests of wider stakeholders. Companies are subject to strict rules that seek to protect employees, creditors and others, and private equity backed companies are – in that respect – in basically the same position as their quoted counterparts.
What is more, the regulation of companies has just undergone a complete overhaul in the UK, following a public consultation and debate that took nearly ten years. Regulation of all companies was considered very carefully, in the context of their role in a modern economy, and new rules were written. We should build on that, not ignore it.
Finally, there is tax. Interest on loans has always been recognised as a tax deductible cost to a business by most modern tax systems, and restricting it would have very adverse consequences for many businesses that want to expand and develop, and could hit productivity and employment in the economy. And the recently announced review of the tax rules on shareholder loans will no doubt be informed by the 2005 review of those rules, which basically made it impossible to get a tax deduction for debt that does not pass an arm's length test.
The debate about transparency is important, but to be productive it needs to be specific and properly reasoned. Only then can an informed assessment be made about whether and which changes would be in the best interests of the European economy, and its many stakeholders.