European hedge funds and private equity investors came under fresh attack yesterday, when the Socialist group in the European parliament called for tighter regulation of the booming sectors.

In a report presented in Brussels, leading members of the second-largest bloc in parliament urged investors “to behave responsibly and focus not just on what may give them the highest bonus and lowest tax”. They advocated that hedge funds and private equity groups should be forced to provide greater transparency and called for tougher disclosure requirements.

But the group’s report also urged changes to corporate governance and to taxation rules to rein in the controversial investor groups. “There should be various protection rules to prevent the crass over-exploitation of tax-saving rules,” it noted. The report also called for the introduction of “fiscal discrimination . . . against off-shore projects”, one of a series of measures designed to limit the sector’s influence on what its authors describe as the “real economy”.

The report comes amid growing concern among European politicians about the impact of hedge funds on financial stability and private equity’s growing clout. Private equity managers, in particular, have been attacked for pursuing short-term investment goals.

Hedge funds and private equity groups should pay attention not just to shareholders but also to “employees, contractors, consumers and their direct and indirect environment”, said Poul Nyrup Rasmussen, president of the party of European Socialists, and Ieke van den Burg, monetary affairs spokeswoman of the Socialist group in the Parliament.

Ms van den Burg pointed out that there were widespread concerns about the impact of hedge funds and private equity groups, but warned that leaving the sector to regulate itself would not be sufficient: “I don’t believe that the market will solve it and I don’t want to wait for a major crisis.”

The parliament itself can do relatively little to introduce new pan-European legislation – especially since it is far from clear that other groups in the chamber share the Socialists’ concerns. However, the report may increase the pressure on Charlie McCreevy, the European Union internal market commissioner who is in charge of proposing EU financial legislation, to abandon his generally supportive stance towards hedge funds and private equity.