AFL-CIO: Investors Need Safeguards in Private Equity Firms

by Vineeta Anand, Aug 21, 2007

The AFL-CIO has stepped up its efforts to ensure the U.S. Securities and Exchange Commission (SEC) enforces the law regarding private equity firms and hedge funds filing initial public offerings (IPOs), that is, going public.

In an Aug. 2 letter, AFL-CIO Secretary-Treasurer Richard Trumka asked the SEC to require Kohlberg Kravis Roberts & Co. (KKR), the big private equity firm, and hedge fund Och-Ziff Capital Management Group, to register as mutual funds or investment companies. As investment companies, KKR and Och-Ziff would be subject to limits on debt, fees and a raft of corporate governance provisions they can otherwise avoid.

Trumka said the IPOs raise red flags because KKR’s portfolio companies hold nearly $12 billion in mortgage-backed securities, even as the market for mortgage-backed securities has virtually collapsed. Also, Och-Ziff’s offering would permit unregulated hedge funds to sell to the public.

As Trumka wrote to the SEC:

The growing trend of private-equity and hedge fund managers to go public is a big concern for working Americans.

Further, he added, the offerings deprive investors of safeguards they are entitled to under the law.

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