Thursday, 17 May 2007

AFL-CIO seeks to block private equity IPO

Now this is proper union activism in the capital markets. The AFL-CIO in the US has written to the SEC (their financial markets regulator) asking them to look into the private equity group Blackstone's plans to list on the US stockmarket.

This is from the AFL-CIO site:

Letter from AFL-CIO Sec.-Treas. Richard Trumka Urges SEC to Action

Washington, May 16 — The AFL-CIO strongly urged the U.S. Securities and Exchange Commission to enforce the law and require The Blackstone Group L.P. to register as an investment company regulated under the Investment Company Act of 1940. The Blackstone Group L.P. public offering is currently being reviewed by the SEC, and has attracted much attention as one of the first major public offerings by a private equity and hedge fund firm.

In a 14-page letter to the SEC dated May 15th from AFL-CIO Secretary-Treasurer Richard Trumka, the AFL-CIO analyzed in detail why it believes that The Blackstone Group deliberately structured its public offering of The Blackstone Group L.P. to hide the fact that The Blackstone Group L.P. is actually an offering of interests in pools of investment securities. Public offerings of interests in pools of investment securities are by definition required to register as investment companies under the Investment Company Act.

“Blackstone wants to book profits on investment assets like an investment company and claim the tax benefits of an investment company, but refuses to comply with the laws governing investment companies. That’s unacceptable and the SEC should step in and enforce the law,” said Richard L. Trumka, Secretary-Treasurer of the AFL-CIO.

The AFL-CIO warned that if The Blackstone Group L.P. can avoid SEC regulation, it is only a matter of time before mutual funds, hedge funds and other investment pools use similar strategies to avoid regulation and disclosure requirements while selling securities to the general public.

The AFL-CIO is the federation of America’s labor unions, representing more than 10 million workers. The labor movement’s interest in The Blackstone Group L.P.’s public offering stems from the fact that union members are also investors. Union members participate in benefit plans with more than $5 trillion in assets. Union-sponsored pension plans hold approximately $400 billion in assets, and union members also participate in the capital markets as individual shareholders. Mutual funds increasingly make up the primary or secondary retirement savings vehicle for millions of working Americans.

Under the law, investment companies such as mutual funds that sell shares to the public are subject to strict regulation through limits on leverage, caps on fees, and corporate governance provisions intended to protect investors. Until it completes this offering, The Blackstone Group is a private investment company. Hedge funds, private equity funds and other private investment companies are not covered by the Investment Company Act.

The AFL-CIO asserts that The Blackstone Group L.P. cannot have it both ways: it cannot sell interests in its investment funds to the public and not comply with the rules protecting the public. The Blackstone Group L.P. also cannot claim favorable tax treatment from the Internal Revenue Service as a passive investor and, at the same time, avoid SEC regulation by claiming that its primary business is actively managing businesses.

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