The Treasury Select Committee has announced it is to start an inquiry into private equity funds, which will cover the regulatory and economic environment, and the current taxation regime.
It says the inquiry will form part of its work on the theme of ‘Transparency in Financial Markets and the Structure of UK Plc’, and is inviting written evidence on the private equity issue to be submitted by 5pm on 9 May.
As part of the inquiry into private equity funds, the Committee intends to look at three key areas:
- the regulatory environment;
- the current taxation regime, and
- the economic context.
In particular, it is questioning:
whether the current regulatory regime is suitable, including whether there is “sufficient transparency” on the activities, objectives and structure of these funds;
if there is evidence of excessive leverage in recent transactions and what risks arise from this, and
what the effects of the current corporate status of these funds, including both their domicile and ownership structure are.
The Committee also wants to discover if the current taxation regime for private equity funds and investee firms is appropriate, and questions whether developments in the environment and structure of private equity funds is affecting investments in the long-term.
On an economic level, the Committee is looking for evidence on what factors are responsible for the current rise in private equity business - including the current macroeconomic context and position in the economic cycle – and it is also looking at the economic advantages and disadvantages of a firm being owned by private equity funds instead of being publicly listed.
The decision to investigate private equity follows concerns raised by Parliament over the sector, particularly the issues of risk and tax relief, while the Financial Services Authority (FSA) issued a consultation paper: 'Private equity: a discussion of risk and regulatory engagement' in November, which closed earlier this month.
In addition, the British Venture Capitalist Association (BVCA) yesterday announced the terms of reference for its working group, led by Sir David Walker, which aims to “establish a review of transparency and disclosure in the industry with a view to forming a voluntary code or set of guidelines on a ‘comply or explain' basis”.
Walker says: "The first part of our work will be to establish a foundation of principles for appropriate enhancement of disclosures on which I plan to issue a preliminary document for consultation with all interested stakeholders."
"As the second stage, we will draw on the results of this open consultative process in framing additional specific transparency and reporting guidelines for adoption by the private equity industry."
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
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