EU Parliament Leader Calls for Global Regulation of Private Equity and Hedge Funds

Heather Slavkin, a senior legal and policy adviser for the AFL-CIO Office of Investment, describes the growing international awareness of the need for global regulation of private equity and hedge funds.

Poul Nyrup Rasmussen, a member of the European Parliament and president of the Party of European Socialists, is calling for global regulation of private equity and hedge funds to protect the economy and safeguard the interests of workers, pension funds and other interested parties.

The AFL-CIO long has favored greater investor protections and regulatory oversight of private equity, also called leverage buy-out funds, and hedge funds. We have been working closely with global unions to encourage governments to provide more effective regulation and require the funds to provide more transparency.

Rasmussen says leveraged buy-out funds are a threat to workers and healthy companies. According to an article published in The Guardian:

Typically, they take over companies with borrowed money—often more than 80 percent of the price. These “leveraged buy-outs” leave the company saddled with debt and interest payments, its workers are laid off, and its assets are sold. A once profitable and healthy company is milked for short-term profits, benefiting neither workers nor the real economy.

The danger is not limited to the companies that are targeted by leveraged buy-outs funds and their employees:

Indeed, these private funds account for about two-thirds of all new debt. So, if there is a debt problem, as in the U.S. mortgage crisis, one must also look at private funds’ role in creating it. They are, in short, a major challenge to financial stability, and, unless regulated, they are likely to contribute to future crises.

In the United States and Europe, leveraged buy-outs and hedge funds are not subject to meaningful regulation and are not required to disclose important information about their risky investments. Managers at leveraged buy-out firms and hedge funds also benefit from tax loopholes and use offshore tax shelters that effectively allow for a massive redistribution of  the tax burden onto the shoulders of working people.

There is growing support in the United States, Europe and now in Japan for proposals to regulate leveraged buy-outs and hedge funds and end unfair tax subsidies for their managers. As Rasmussen stated:

The White House’s current occupant is a more formidable obstacle to reform, but change is coming.

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