Rasmussen: Auf dem Weg zur Regulierung von Hedgefonds

Durch die Unterstützung strengerer Regelungen für Hedgefonds und Private Equity am 10. September 2008, hat der Wirtschaftsausschuss des Europäischen Parlaments möglicherweise das Ende einer Ära für den Finanzsektor eingeläutet. Poul Nyrup Rasmussen, der Vorsitzende der Sozialdemokratischen Partei Europas (SPE) erklärt EURACTIV, warum erglaubt, dass der Verlauf der Ereignisse eine neue Wendung genommen hat. 

Poul Nyrup Rasmussen ist ein dänischer Europaabgeordneter und Vorsitzender der Sozialdemokratischen Partei Europas (SPE). Von 1993 bis 2001 war er Ministerpräsident Dänemarks.

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Representatives of the financial industry said they welcomed your report adopted recently in the Parliament’s Economic and Monetary Committee calling for more regulation of hedge funds and private equity. Was that a surprise to you?

If the industry is happy with mandatory capital requirements that they did not have before, that’s fine with me – that’s a new recognition from their side. If they are happy with stronger transparency and disclosure on their investment strategies, on their remuneration policies and systems as well as their bonuses and stock options, that’s fine with me because they have not been doing that before.

If they are happy with the right of employees to be consulted and informed before a private equity takes over and buys a company, that’s fine with me, they have been against it up until now. 

It is fine if the industry is constructive but let me remind you that until this moment, they have been against any regulation. Their response has been to draw up voluntary codes of conduct. So it is good if people in the London City recognise that we need regulation covering all financial actors including private equity and hedge funds.

In the United States, when banks were forced to disclose their investment strategies, it appeared that those who benefited the most from the data were their competitors, not investors. So is there a risk that industry will be affected by new disclosure rules?

This is a classic argument. The essence of fair and strong competition is that all actors have as much information about the other as possible. Joseph Stiglitz, the Nobel Prize winner, has developed a theory about asymmetric information between market actors. This is the biggest problem in modern financial markets because the more uneven the distribution of information is, the higher the costs, inefficiencies and lack of competitiveness on the market.

So I would like to turn the argument around: when people in the finance industry say disclosing information about investment strategies is too costly or that competitors could benefit from this information, I say this is because they make too much gain on an inefficient market. And we as politicians, we are supporting the efficiency of the market and that must be based on as much transparency as possible. Because transparency and symmetry of information are the keywords to ensure better competition, lower costs and avoiding market abuse. 

What are the useful functions fulfilled by private equity and hedge funds in your view, if any?

In any business, you have good guys and bad guys, that’s why you have regulation. The good guys won’t have any problems with regulation, but the bad guys will. 

I know of course that some hedge funds contribute to efficiency in the market and contribute also to the allocation of credit facilities and to make a better correspondence between exchange rates on the one hand and the competitive strength of the real economy on the other hand. 

But I also know hedge funds that create trouble, for example by being very active on the sub-prime market, or by speculating against the Deutsche Börse. And I know some private equity firms being very aggressive against private firms like telecoms. And you could mention examples in the food industry and the building and construction industry too. 

My point is that we know we need better regulation to isolate the bad guys and this is what we are doing. So for me, as a politician, it is just as natural to regulate hedge funds or private equity as it is natural to regulate how labour markets are functioning. It is about optimising and adjusting the rules and this is what we are doing here.

Are you satisfied with the Committee’s vote on your report?

I want to say quite frankly that this is a compromise. In the end we got through about 55% -65% of what we proposed originally. It’s not that bad, it’s politics, you get what you can get…

And surely, for the European Social Democrats, the challenge is here to stay. This report, even if implemented 100% would not guarantee that we could avoid any future financial crisis, of course. But it is a first step and also the first time that we have a broad majority in Parliament confirming the fundamental principles which were agreed to. These were: 1) “principle-based regulation is an appropriate approach to regulating financial markets as it is better able to keep up with market developments”; and 2) “Capital requirements should be mandatory for all financial institutions and reflect risk from the type of business, exposures and risk control. Longer liquidity horizons should also be considered.”

In other words, this applies to the hedge fund and private equity. So the point is that we’re moving to a better phase now. It is not optimal, it won’t solve everything but it is the first real step. The door is open and even McCreevy cannot close it.

What do you expect now from the Commission?

I expect a full response which is serious, responsible and covers all the aspects covered in our report. This is an obligation for the Commission. They have done that in all earlier cases, so there is a legal precedent here. So I simply expect (and I guess my colleagues in the EPP-ED and other political groups expect the same) that Commissioner McCreevy will respond to this on all the points in a constructive way so we can see that there is some respect for the European Parliament.

There are a lot of references to credit rating agencies in your report and in other EU legislation. Are they really to blame for the sub-prime crisis?

You know, we have only three credit rating agencies today on this planet – Moody’s, Fitch and Standard & Poors – covering more than 90% of all credit rating agency activities. This is simply not true competition; we have an increasing risk of conflict of interest here. We need stronger competition, we need a kind of permanent overview of what they are doing and we need to have someone capable of interfering and say „this is unacceptable; this does not correspond to the real world“.

Do you think McCreevy will indeed move?

This is a wake up call for McCreevy in the sense that, for too long, he has only asked industry insiders for advice on what to do and never asked others. That is why we are saying now: “this is a balanced report which is based on a compromise between the socialist group, the centre-right and the liberals and you have to take it seriously. You have to make regulatory proposals. We know you don’t like it but you have to do it”’.

To prevent future financial crises, some are proposing to request central banks to prevent future bubbles by including this mission in their official statutes. Do you agree with this proposal? 

What’s essential with such a mission is to make it realistic. If central banks are to be given this responsibility – and I believe it belongs to the set of solutions we need – we should then ensure that central bankers receive the minimum of information they need. And that it should also be mandatory. 

What we saw during this financial crisis was that the Level 3 committees [in the Lamfalussy process] and other institutional frames we have are currently not functioning. What we saw was that central banks were keeping information to themselves and there was a very low exchange of information – information which is sufficiently sharp, sufficiently quick and sufficiently relevant. 

So I say this is a good idea but let’s make it happen. And you can only ensure that it happens by putting it in a mandatory frame, otherwise it will not function. We have seen during this financial crisis that the exchange of rapid, quick and relevant information by the central banks did not function. And we also need to integrate the European Central Bank as an important player in the process. Maybe we could imagine a system where the ECB is receiving a „copy“ of the exchange of information. So it is not just enough to ask them to exchange more information, it should be mandatory.

Another one is the level playing field on the market and the rules of the game. I don’t believe that we can avoid future financial bubbles without changing the behaviour of the major players on the financial market. This means all the players need to behave in a more responsible way: the brokers in the investment banks, the securitisation process, credit rating agencies, hedge funds and private equity. 

We simply cannot keep on having to deal with the same dilemma: each time you have historically low interest rates and favourable credit and liquidity conditions, there are prospects for solid growth. But at the same time, you pave the way for a new financial bubble.

It all started with the Internet bubble in 2001. If you look at the development of credit derivatives since 2002, you see an explosion which corresponded last year to around 8 or 9 times the world’s GDP. So when you are in a downturn like now, you must use this period to make better regulation, to encourage better behaviour in the future. 

What about the UK, which is a major player on financial markets and usually a supporter of free-market policies? Will the EU push for more regulation further distance them from the continent which is seen as more prone to regulation?

Honestly, I think that change is underway there also. I have said quite often during this debate that this is not about making difficulties for the City of London. We don’t want to undermine the City, we want a better functioning City. So in the end, it is the City’s long term interest to have better behaviour from all the actors, not only the good guys, but also the others. And it is in the interest of the City to do all we can to avoid financial bubbles of the kind that we’re having right now. 

Who has been hit the hardest in Europe? – The UK economy and then the Spanish economy, due to the financing rules of the housing market. So, my point is that we have a common experience here which gives us the same answers whether you are in France or the UK, namely that we need better regulation. I am sure that with better regulation, the City of London will stay a major player. 

Better or more regulation?

Not that much more necessarily. For the private equity and hedge funds, it would be more regulation of course because they didn’t have really anything.