Private Equity v. MPs: insert movie cliche here

Which is not to say the Guardian did, but I couldn’t just steal Graeme Wearden’s “Round Two” (and, as it turned out, I couldn’t think of anything myself. I also slept in, I’m still drinking coffee and I started reading the archives of Joe Loves Crappy Movies. So I’m distracted).

Four bosses of four equity firms: David Blitzer of Blackstone, Peter Taylor of Duke Street Capital, Alchemy’s Jon Moulton and CVC‘s Donald Mackenzie (want to have some fun? Compare the front pages of Alchemy and CVC – the latter isn’t even trying) were up. Some of the preliminaries were interesting:

The committee asks whether the FSA’s job of protecting the UK’s financial markets is made harder by private equity, and its use of debt from around the world.

Mr Sants admits that the disbursement of economic risk makes it very tricky to assess how the financial markets would react to the collapse of a large company.

“We are very clear that it’s very hard to calculate where all the economic risk exists.”

I really would like Graeme Wearden’s job. I mean one like his – I rather like Wearden, and I don’t want to see him lose his job, even for me. I hope somebody at the Guardian reads this and gives me one. I could be your economist Monbiot!

From the beginning discussion surrounds the health of the equity market – has it peaked? John Moulton says some deals are struggling to raise funding – Wesfarmers, the Coles Group and probably most Australians appreciate that struggle, thank you. The AA/Saga merger is predictably discussed (CVC owns some of AA, and the deal itself generates around GBP2bn profit for equity groups and around GBP4.8bn debt for the company created – the select committee is none too pleased with the idea. Nore are the unions, who’ve been placing increasing pressure on the government.

And on the question of taking risks with other people’s money?

Mark Todd, MP for South Derbyshire, asks how much of their own money the employees and partners of these companies invest.

  • Taylor of DSC: We’re currently raising a 1bn euro fund, and the staff are contributing 2.5%.
  • Moulton of Alchemy: Very few firms still put in as little as 1%. Some large funds are as high as 15%, with senior partners reinvesting their earnings
  • Blitzer of Blackstone: Our average is 6%
  • Mackenzie of CVC: Average of 1.5%, but under pressure from industry to raise that.

That’s actually lower than I expected. Quite a bit lower. An average for 1.5% for CVC? Bloody hell. The rest, mind, is probably things like your pension money.

And that was it. For all the expectation (mostly mine) that something more important would come of the issue of carried interest and taxation, almost nothing did. Just the same – one side insisting there was abuse and trying to trap the other, who managed consistently to deny anything untoward or unjust. As with last time, too few pertinent follow-up questions seemed to hold affairs back. Disappointing, but still interesting to see something in the way of detail forming about the groups.

I expect legislation dealing with carried interest (reminder: this is the capital gain of a venture that is giving to the fund manager as earnings for their services – and taxed as capital gains, rather than as earnings. With the sort of money we’re talking, that’s a big difference). Between the departure of Peter Linthwait from the British Venture Capital Association and the glory of John Moulten calling Ronald Cohen the Enemy Within, Sir David Water’s declared intention with this review to force openness upon Private Equity groups and the unions, I think the UK will become unfriendly ground for private equity before too long.


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