Tuesday, June 12, 2007
The U.K. Financial Services Authority today published feedback to its discussion paper on private equity (download the feedback here, and the discussion paper here). In the feedback, the FSA stated that it will continue to focus on what it perceives to be the "significant risks" of private equity market abuse (insider trading) and conflicts of interest. In order to strengthen its oversight of the market, the FSA also announced increased data collection requirements. This will encompass:
- Conducting a bi-annual survey on banks' exposures to leveraged buyouts; and
- Enhancing regulatory reporting requirements for private equity firms to incorporate information on committed capital in addition to the existing requirement to report drawn down capital.
These initiatives appear to be moderate and prudent ones designed to ensure that creditors do not over-commit capital to private equity fostering a collapse similar to the one which occurred at the end of the 1980s.
Also yesterday, Treasury Assistant Secretary for Financial Markets, Anthony W. Ryan, made yet another speech warning of the systematic risks posed by hedge funds. To illustrate the problems of fat tails and outlier risk he cites the paper Thomas J. Miceli, Minimum Quality Standards in Baseball and the Paradoxical Disappearance of the .400 Hitter, Economics Working Papers, University of Connecticut (May 2005). Ryan cites the paper gor statistical information, but otherwise it is a solid paper about the problems of minimum quality standards in markets with imperfect information. Enjoy.