Walker code up and running, pension fund restrictions and European banking rules

Walker code launched

Sir David Walker’s code of conduct for the UK private equity industry was launched in November. While most large private equity firms say they endorse the new code, its launch took place against a backdrop of criticism, mostly that the voluntary guidelines do not go far enough.

Among its many recommendations, the code requires that private equity firms, which have been criticised in the past for being almost completely opaque, issue a twice-yearly report on the companies they own, holding them to the same standards on this issue as public companies.

But activists and trade unionists are concerned that the code contains hardly any disclosure requirements relating to private equity firms themselves. They are unhappy, for example, that a requirement in the consultation document that firms publish an annual report has been watered down into a requirement to keep websites up-to-date on their activities.

Responding to what activists see as too many concessions to the private equity industry, Brendan Barber, general secretary of the UK’s Trades Union Congress, warned: “There is a danger that Walker’s voluntary recommendations will prove toothless. The government must make it clear to the private equity industry that if this voluntary code fails to bite, then statutory regulation will follow promptly.”

There is also growing pressure to have all private-equity-like companies, such as state funds, and privately owned companies such as Richard Branson’s Virgin Group, brought under the code’s umbrella. Sir David has asked the British Private Equity and Venture Capital Association, the trade body whose responsibility it is to oversee the implementation of the guidelines, to look into widening the net.

Private equity faces more scrutiny

The International Organisation of Securities Commissions, a group made up of market watchdogs from more than 100 countries, published a report in November on the risks that private equity poses to financial markets. The group will now investigate the often complicated, highly leveraged capital structures used in buyouts. Another project will analyse the conflicts of interest that can arise in the course of private equity transactions and what controls are in place to protect investors from them.

CPP warns on anti-SWF legislation

With the US and Germany among countries mulling plans to put limits on inward investment by sovereign wealth funds, Gail Cook-Bennett, chair of the Canada Pension Plan Investment Board, warned in December that pension schemes could find themselves hindered by future legislation designed to shut out Middle Eastern, Russian and Asian sovereign investment.

Under the broadest definition of sovereign wealth funds, CPP is generally considered to count among them. Despite this, Cook-Bennett said: “We are clearly an organisation that does not deal with government revenues at all; our assets are built up from the contributions of employers and employees and we do not get any tax revenue top-ups at all.” She said the CPP had none of the characteristics that law-makers find so threatening in the likes of the Abu Dhabi Investment Authority, Russia’s Stabilisation Fund and the recently launched China Investment Corporation.

EU states tinker with bank rules

The European Union in December rejected an Italian proposal to establish common standards for supervising banks across the 27-nation bloc, opting for a slower approach on financial market oversight.

Citing turmoil in financial markets, Italy, with the backing of France and the Netherlands, had proposed that financial institutions should conform to new, pan-EU supervisory standards.

But member states voted down the proposal after the UK and Germany, the two EU member states with the largest financial sectors, argued for building on the supervisory systems already in place.

Within the EU, banks are currently overseen by individual national bodies. Member states currently co-operate within the Lamfalussy process, the approach under which EU financial service industry regulations have since 2001 been developed.

To slow home foreclosures, the US government is offering a five-year mortgage rate freeze for sub-prime borrowers.

Former media mogul Conrad Black faces six and a half years in a US jail for defrauding Hollinger International shareholders of millions of dollars.

Swiss financier UBS is recovering from a $10 billion sub-prime write-down with a cash injection from Singapore sovereign wealth fund Temasek.

Citigroup and Deutsche Bank admitted selling complex structured debt products to investors who did not fully understand them before the credit crunch. The UK Treasury select committee continues investigating events that led to the crunch and Northern Rock’s downfall.

Chief executive pay for US homebuilders averaged $14.2 million in 2006, compared with $8.6 million at similarly sized firms in other sectors.

US stock market Nasdaq opened an office in Beijing to help tempt Chinese firms to list on the exchange.

Forty per cent of Australian mid-sized firms fail to meet best practice corporate governance standards, according to accountants BDO Kendalls.

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