Reject EU rules on private equity firms, CBI urges

Business leaders will today launch an 11th-hour bid to scupper parts of the controversial EU Alternative Investment Fund Managers Directive.

The Confederation of British Industry (CBI) is urging MEPs to vote down several provisions within the directive, which is aimed at private equity firms and hedge fund managers, warning that they could "harm companies that are already struggling with the economic downturn and harm employee relations".

The directive in its current form would force private equity-owned companies to disclose a swathe of what the CBI says is "commercially sensitive information" by mandating that private equity funds publish information about issues such as research and development (R&D) programmes, remuneration policies and other sensitive data on companies they own.

The business group is also concerned that plans to increase disclosure requirements on private equity-owned companies themselves are unclear and could result in widespread confusion.

The CBI further argues that the disclosure demands would "increase costs and bureaucracy, and prevent a level playing field because other privately owned companies would not be affected". It argues that they would have the effect of "stifling business innovation".

The CBI has also sounded the alarm about the directive's attempts to force improvements in private equity firms' dialogue with employees of the companies they own. It argues that private equity funds are no different to shareholders in quoted companies and that dialogue should remain between workers and management.

"Treating employees differently depending on the ownership of a company would set a dangerous precedent," the CBI is warning.

It will also raise particular concern about the impacts of proposed rules on small and medium-sized companies. Under the terms of the draft legislation, these could affect companies with as few as 50 staff, many of which rely on the private equity industry for funding at a time when bank financing has all but dried up.

The CBI said it welcomed a letter to MEPs signed by nearly 700 companies across Europe warning of the dangers of the AIFM legislation, and calling for all companies to be treated fairly. BusinesseEurope has expressed similar concerns.

John Cridland, the CBI's deputy director-general, said: "The proposed legislation would damage companies owned by private equity firms, and discourage investment. We are particularly concerned about the impact it would have on small and medium-sized companies.

"The additional bureaucracy and forced disclosure of commercially sensitive information would be a real problem, and impede companies that should be encouraged in order to foster economic recovery."

The CBI has long argued that private equity offers companies an important source of capital, which it said had become vital now that bank lending is constrained.

However, private equity firms have found themselves increasingly under fire in recent years amid sharp criticism of debt-financed buyouts of household name companies and the effect they have on employees.