We feel that you have addressed the main areas for consideration and in general would support the steps you are considering to ensure identification of the relevant risks and their effective and proportionate regulation.
The seven primary risk areas identified (Paragraph 1.14 & Chapter 4) reflect an accurate view of the activities of private equity although these risks also arise in other sectors of the financial markets.
It is worth noting for example that other professional commentators – such as Standard and Poor’s - have recently expressed their concerns on likely rising levels of corporate debt default albeit that the current level of corporate default is at historic lows. We particularly share your concerns however regarding market transparency.
Our concern with amending the current regime would be that the relationship between risk and mitigation in the private equity sector is either viewed differently to other financial markets and /or the style and direction of regulation creates any suggestion of an alternative approach by the UK authorities. By the same token however, increasing oversight and understanding of, for example, the credit markets may well have positive regulatory benefits away from private equity.
We believe it is important that any developments in regulatory oversight of these activities falls as near as possible to existing FSA practice in regulating financial markets irrespective of their particular nature. Thus there is no need for a separate private equity regulatory regime. That said the informal dialogue with private equity firms and market participants, the targeted fact finding, periodic reviews and other means of keeping an eye of the market would seem to be a prudent and proportionate reaction to market worries over the perceived influence of private equity.
The dynamic nature of both the UK economy and its financial markets owes much to the existing regime and we would hope its extension into private equity would be equally well regarded and observed.
