Patrick Jenkins’ revisionist view (“Private equity groups are more than short-termist asset-strippers”, Inside Business, February 6) no doubt triggered a round of high fives within private equity firms. The problem is not what the column says, but where it stops.
Jenkins is correct that much criticism of private equity is ill-informed, and that this form of investment has moved on from the bestselling business book Barbarians at the Gate.
Private equity (meaning buyouts) started out 40 years ago as a brave new way of doing things and still has a useful role to play. Jenkins refers to a software company called Visma, where private equity firm HG Capital seems to have become a permanent investor beside a revolving crew of other funds. This is a good example of the way the gap between private equity and what it was originally designed to replace has been steadily shrinking.
But Jenkins fails to ask the natural follow-on question. The private equity he describes looks ever more like the quoted company model to which private equity has traditionally claimed to be so superior.
Why, then, does private equity still receive such favourable special treatment from policymakers and so little well-informed scrutiny from the media?
Taxation of carried interest is always good for a headline, but other issues matter more. Some basic mandatory public disclosure would be a good start. The disclosure needs to be mandatory in order to mitigate the cherry picking that private equity firms can and do get away with today.
The cost to private equity firms of providing this disclosure would be as negligible as the benefit to other parties would be significant. For example, the right mandatory public disclosure would start to make it easier to see whether the gross gains made in private equity are being split appropriately between a few thousand well-paid financiers and the millions of pension scheme members whose cash they invest.
The private equity sector can only be congratulated on the skill with which it continues to play its PR hand.
Meanwhile, both the media and policymakers need to up their game.
Peter Morris
London N5, UK
