The Role of Private Pools of Capital in Corporate Governance: Summary and Main Findings about the Role of Private Equity Firms and "Activist" Hedge Funds

In November 2006, the OECD Steering Group on Corporate Governance initiated a study of the role of privately organised pools of capital (“alternative investment vehicles”) in corporate governance. With a rapid increase in the size of transactions and investments, and partly due to differences in corporate governance frameworks and company structures, there has been a growing public interest in private equity firms and “activist” hedge funds. The Steering Group agreed that the distinct corporate governance aspects that emerge in these discussions required special attention based on the OECD Principles of Corporate Governance (OECD Principles). This Report summarises the main conclusions reached by the Steering Group in April 2007, including the findings of a factual review that were taken into consideration. On the basis of available evidence, the Steering Group concluded that “activist” hedge funds and private equity firms could help strengthen corporate governance practices by increasing the number of investors that have the incentive to make active and informed use of their shareholder rights. It was agreed that, from a corporate governance perspective, there was no need to promote a special set of principles for private equity firms and “activist” hedge funds, but that the opportunities and challenges that follow from their ownership strategies should instead be analysed within the general framework of the OECD Principles, also taking into account existing voluntary standards established and promoted by the industry.