To be sure, the threat of bad weather coming in from Europe's political capital is not new. For two years now, a group of EU parliamentarians led by former Danish Prime Minister Poul Nyrup Rasmussen has been pushing for a clampdown on the industry. With an agenda that is expressly anti-private equity, the group wants to constrain the industry with risk capital provisions, transparency codes, caps on the use of leverage, even limits on executive pay.
Rasmussen's ideas have won significant support among members of the European Parliament, which from a private equity point of view is obviously dangerous. But thanks to the pro-private equity stance of EU Markets Commissioner Charlie McCreevy, and thanks also to successful lobbying work by the industry associations, the implementation of a
But that was then. Now an even greater threat is coming before the industry – that of it being hit
To say that the extraordinary $2.5 trillion global bail-out of the banking system in early October has boosted the political will to take regulatory action against the financial services industry is an understatement. Politicians in Brussels, and in other capitals across Europe too, are out in force looking for those responsible for the disaster. It's the banks – and to an extent the hedge funds – they're after, not private equity. But once governments open fire on these new targets (and it seems a certainty that they will), private equity will find it difficult to escape their broadsides.
GPs are aware of the danger, and they're taking it seriously. At a
Again, the industry's main problem is no longer the prospect of hostile measures aimed directly at it. The main problem is the groundswell of negativity towards finance in general, and taxpayers' arguably legitimate desire to see tighter regulation of the sector. It's possible (though perhaps not likely) that enlightened legislators will come up with new rules on risk capital provisions and executive remuneration that do exactly what's needed for the banks. But the same rules applied to private equity could be stifling, and to expect lawmakers to be able, let alone willing, to exempt private equity in some way would be rashly optimistic.
Despite this, or rather because of it, industry lobbyists must try everything in their power to persuade lawmakers that private equity's ability to strengthen companies is a force that should be harnessed. They have a good story to tell, and now is the time to tell it. Merely hoping that this storm will blow over is not an option.