FSA to wrap up private equity probe by end-Q2

By Siobhan Kennedy

LONDON (Reuters) - The UK's financial regulator hopes to wrap up a new inquiry into the private equity industry by around the end of the second quarter, one of its senior officials said on Tuesday.

Tom Huertas, director of the wholesale firms division and banking sector leader, said The Financial Services Authority inquiry, which began last month, was an attempt to better understand the inner workings of the industry.

"This work is to gain a greater understanding of the operations of private equity and the impact that private equity has on the capital markets," Huertas said at the Reuters Hedge Funds and Private Equity Summit in London.

"If you look at the total amount of funds raised in connection with private equity funds, it is comparable to that raised on the public markets," Huertas said.

His comments come as concerns grow among private equity firms and hedge funds that they will face tighter regulation than the light touch they have traditionally enjoyed.

In Europe, private equity firms are already regulated, but in the United States the firms are yet to hit the regulator's radar.

In its Financial Risk Outlook 2006, the FSA noted that "substantial amounts of capital" had flowed into the private equity industry, with investment activity up 52 percent from 2003 to 2004. And that figure is set to grow further in the 2005/2006 financial year, it said.

Private equity firms buy companies using mostly debt, restructure them and either sell them on for a profit, or float them, typically three to five years later.  Continued...