"The Camel, The Needle, The Rich Man And The Kingdom Of Private Equity"
By Terry Paul“The Labour Party’s deputy leadership election has transformed itself from being an internal, navel-gazing exercise, to casting light on the rather closed world of private equity”
As the light of public scrutiny starts to shine on the world of private equity, I am sure that many of you are watching closely, and wondering what exactly is going on behind the scenes. The pro and cons of the private equity debate itself have been hashed out many times already, but the circumstances in which it is being framed are particularly interesting.
You might not have been aware that in May last year, Gwyn Prosser, the Labour MP for Dover, tabled an Early Day Motion (EDM) condemning on the actions of Permira over its actions towards a major local employer, the AA. But, as you’ve probably guessed, this EDM didn’t set the world alight.
So what turned a rather specialist section of the finance industry into front page news? The GMB trade union launched its campaign against Permira last year outside the Holy Trinity Church in Clapham—Permira managing partner Damon Buffini’s place of worship—with a placard bearing the New Testament quote from Matthew 19:24, “Again I tell you, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.” To emphasise the point, they brought along an actual, live camel (although this backfired when Animal Defenders International criticised the union for "exploiting the poor animal").
The subsequent media campaign has so far culminated in Damon Buffini appearing on the BBC Radio 4 Today programme and the GMB trade union picketing the February private equity conference Super Return 2007 in Frankfurt. But, in the jargon, what was the "tipping point" which transformed the situation?
The Labour Party’s deputy leadership election has transformed itself from being an internal, navel-gazing exercise, to casting light on the rather closed world of private equity. The GMB is asking the candidates to set out their positions in their individual election platforms; quite an interesting situation, since the trade unions are large financial backers of the Labour party. For those of you not immersed in the bureaucracy of Labour party leadership elections, the process is likely to continue well into the summer; therefore, the intense scrutiny on private equity is also likely to remain until then—and possibly beyond, since policy commitments on private equity reform might well be promised by an eventual winner.
It is easy to lambast private equity firms, and there are many people—including MPs—who I suspect were blissfully unaware that private equity even existed. In the recent press, there are consistent daily calls for reform of current financial arrangements and greater transparency. The sector needs to be mindful that a new administration under Brown might be forced by internal Labour Party pressure to consider increased regulation and alteration of the current private equity regime. Indeed, just this week the Treasury Select Committee announced that it intends to undertake new inquiries into private equity funds.
Therefore, the industry must emerge fully from the ‘shadows’ and into the daylight of public scrutiny, parliamentary investigations and so on. A better-informed general public, media, members of parliament and trade unions will make for better, more constructive feedback for the private equity industry.
It is an industry which plays a vital role in the UK economy and greatly contributes to London’s reputation as a global financial services centre; its task now is to ensure that this contribution is recognised.
Terry Paul can be contacted on +44 (0)20 7665 9533 or click here to email.
1 comment:
Hi John
This is a useful contribution.
As you know I think the unions' understanding of private equity, and indeed the financial system as a whole, needs a lot of improvement. But it is slowly evolving. I think unions are starting to get a bit of feel for different types of finance and how they can be addressed. Let's not forget that the union campaign, such as it is, is barely 6 months old. In that time alone some of the thinking has improved.
It's right to challenge simplistic 'private equity is bad' thinking. But we need to be careful to not swing too far in the other direction either. Some of the claims about private equity - both in relation to returns as an asset class, and success in building good businesses - need challenging.
Ironically the slightly 'class war' rhetoric employed by unions so far has got them into the story to such an extent that they are actually (in my opinion) in a strong position to a) demonstrate they can be constructive and b) come out with some properly thought-out critical arguments.
The tub-thumping has got them as far as it will, now they need to get practical.
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