Summary
Our inquiry was undertaken in response to the growing significance of the private equity industry in the UK (8% of the UK workforce is now employed in private equity-owned companies), and, in particular, to the rising number of takeovers of very large companies by private equity firms. We have concentrated on the highly-leveraged management buy-in and buy-out sector. Our report is an interim one.
We examine the respective advantages and disadvantages of private equity and public limited company (PLC) ownership, and conclude that there are benefits and potential problems associated with each, and that different forms of ownership may be appropriate for a company at different times in its history. There remains a debate in the case of some large-scale private equity takeovers about how much of the profit can be attributed to financial engineering compared with value extraction and creation.
Many of our witnesses highlighted the disadvantages of PLC status. We invite major corporate investors to re-examine why their requirements of PLCs and of private equity-owned companies are so different.
We note the need to ensure that company pension fund commitments are securely funded, especially when changes, such as an increase in leverage, are made to a company.
We note that, however extensive the due diligence conducted, higher levels of leverage are likely to create additional risk; that this becomes more significant the more important highly-leveraged firms become in the economy; and that the trend towards greater leverage has occurred during a period of economic growth and stability, which is not guaranteed to continue. We therefore urge the Bank of England to research the potential impact of an economic downturn, both on highly-leveraged firms and on the wider economy. We also recommend that the Financial Services Authority continues to seek assurance that the banking system has the appropriate structures and monitoring in place to handle the risk associated with banks' exposure to leveraged buy-outs.
We welcome Sir David Walker's proposals to increase transparency in the private equity industry, and would like to see more detailed guidance on some aspects of the information to be provided. We also suggest additional independent monitoring of the industry's conformity with the proposed code in order to provide greater assurance of compliance. In addition, we invite Sir David to consider whether more information could be made available on fees in order to make the private equity market more competitive.
Given the conflicting views expressed about whether the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) apply to takeovers, we ask the Government to clarify this.
We recommend that the Treasury and HM Revenue and Customs consider the tax treatment of carried interest as part of their current review of taxation in this area, and we request information about the purpose and current operation of the Memorandum of Understanding.
We recommend that, in addition to reviewing the tax treatment of debt in highly-leveraged management transactions, the Treasury and HM Revenue and Customs examine whether the tax system unduly favours debt as opposed to equity, thereby creating economic distortions. Whilst recognising that the issue is not exclusive to private equity, we also ask the Treasury to inform us of the progress on the 2003 review of the residence and domicile rules as they affect the taxation of individuals, and note that the Treasury and HM Revenue and Customs need to demonstrate a rigorous approach towards claims of non-domicile status.
The central issue remains what impact the current activities of the private equity industry, especially the larger private equity firms, are having on the UK economy as a whole. We will return to the matter in the autumn. It is clear that there are areas of concern which deserve continued attention from policy-makers.
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[此贴子已经被作者于2009-4-23 15:42:17编辑过]
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