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Corporate governance of private equity firms and hedge funds


Date: Wednesday, June 6, 2007
Author: James Langton, Investment Executive

Corporate governance of private equity firms and hedge funds are best addressed within current framework, OECD says Corporate governance of private equity firms and hedge funds are best addressed within current framework, OECD says

Separate set of guidelines not needed

The Organization for Economic Co-operation and Deveopment has concluded that it doesn’t need a separate set of governance guidelines to accommodate the growing role of hedge funds and private equity firms.

The decision comes following a new OECD report, which finds that “activist” hedge funds and private equity firms can play a positive role in corporate governance of publicly held companies. “They often act as informed owners and take a more active role in monitoring the performance of companies and their management than other institutional investors,” it notes.

As a result, OECD countries have agreed that the corporate governance practices of private equity firms and hedge funds are best addressed within the framework of the existing OECD Principles of Corporate Governance. They rejected the idea of a separate OECD code at a recent meeting of corporate governance experts and policy makers.

The OECD says it believes it is essential to take into account existing voluntary codes and industry guidelines when addressing issues that have attracted public concern, such as conflicts of interest, the efficiency of the market for takeovers, transparency around major shareholdings and the robustness of voting systems.

“A close dialogue with the hedge fund and private equity industry on corporate governance is essential,” says Marcello Bianchi who chairs the OECD Steering Group on Corporate Governance responsible for these issues. “We will therefore compare all the voluntary standards that are already out there and look for ways to develop a dialogue with representatives from the industry about key corporate governance issues.”

A summary of the Steering Group’s discussion and the main findings of the report was released today, and a full version of the report will be issued in late June.