Passing through the eye of a needle

Private equity firms have been squirming in the limelight. Paying less tax than your cleaning lady when you take home millions was never a strategy for scoring opprobrium from the great unwashed. Bad press was ever a problem.

Private equiteers indeed need better PR. But they have had a few trumps to play. For a start, there's a decent case to be made for the economic gains private equity firms make: they are drivers of corporate efficiency. They often invest for the long term. And rarely, are they the asset-stripping vultures Britain's union leaders would have them to be.

But hedge funds...

According to an article in the Guardian, Hedge funds deserve far more scorn than private equiteers. The top 25 hedge fund managers, as Alpha magazine points out, took home an average of $570 million dollars last year. Ergo, implies Julia Finch, they are the real bad guys.

Stopping short of a Marxian critique of capitalism itself, I'm pretty sure the Guardian are wrong on this one. Hedgies may well earn the real mega bucks, but the reason why private equity chiefs are deserving of more scorn (if any) is the fact that private equity has a far more direct impact upon employment and the welfare of a great many workers (one in five in the UK).

Private equity firms have (admittedly rarely) destroyed pension funds and aggressively cut jobs - and for those reasons they bare scrutiny. But the only identifiable crime of the hedge fund manager seems to be that they earn lots. Finch makes no effort to deploy a more sophisticated argument -- as she may well have done -- about the threat unregulated and maverick fund managers play to financial stability. Instead it just boils down to bashing the rich.

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Infamy, infamy, they've all got it in for me!

Blair knew he was going to get an earful from the commentariat when he gave his speech on the modern British media today.

"I've made this speech after much hesitation. I know it will be rubbished in certain quarters," he told the crowd.

And so it has been. Quite why Blair chose to target the Indy, why he singled out the lobby press and why he lambasted an "impact agenda" is beyond me. Firstly, there are surely more deserving targets. He gives merely a nod to his own administration's impact on political reporting. The courting of the Murdoch press recieves no attention, nor his fawning over the tabloids in the early years of power. The handling of the David Kelly affair and the shameful bullying of the BBC is likewise, a galling elision.

Secondly, has not is always been so? "News is rarely news unless it generates heat as much as or more than light" is no more true of the media in Blair's Britain than it has been of Fleet street for the past century. And this year alone what of the light shed by the Sunday Times and cash for honours? Or the Guardian and BAE bribary? Light and heat go hand in hard, Mr. Blair, and you should certainly be feeling hot under the collar.

"Right sermon, wrong preacher," editorialized the Guardian. They're right. A lot of what Blair said bares careful scrutiny.

"A problem is 'a crisis'. A setback is a policy 'in tatters'. A criticism, 'a savage attack'," said Blair. Today, read about the UN's damning verdict, or bonds soaring and plunging or MP's scorching private equiteers.

Sometimes the words are proportionate, other times not. Political journalism suffers for its art in this respect. It's tricky to convey the impact of what's being said, off the record, on the QT and very hush-hush when you've got a ten minute slot to fill. Nick Robinson's news on the BBC is ten minutes of his well-informed opinion; not ten minutes of hard news. Of course, Nick Robinson often hits the mark, but Blair does nonetheless have a point in identifying a shift in political coverage. What Nick Robinsons says is the news. The medium has become the message.

It's a shame that the media's reaction to Blair's comments hasnt been as carefully couched as his speech was.

"This speech is not a complaint. It is an argument," said Blair.

Simon Kellner hasnt been so prudent. Instead, he has used the front page of the Independent to respond to Blair's remarks. Kellner seems completely oblivious to the fact that his actions are the clearest valedation yet that the Independent is "avowedly a viewspaper." His broadside is territorial, narrow and hot-blooded. "we feel our readers today want more: a diverse range of commentary, colourful debate, provocative front pages and, yes, the views behind the news." Well quelle horreur, Mr. Kellner, that's exactly what Mr. Blair said.

This blog is, of course, just as guilty of being a part of the creeping commentariat. But it is worrying that a national newspaper should feel that it knows what opinion's it's readers "want to hear" - even more so for the eponymous Independent.

Blair, for all his mendacity, got one thing right. "The way that people get their news may be changing; but the thirst for the news being real news is not."

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What the Gord giveth...

...The Gord taketh away. Brown's announced he intends to close the 10% tax loophole for private equity firms.

Again, though, I think the media's coveraged is disproportionate. The "crackdown" the Guardian tells us about is hardly a revelation - coming as it does days after the industry's own pointed out the untenability of their position.

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We've got the brains, we've got the brawn

"Good reporters," once said Lord Beaverbrook, "can make the announcement 'Lord Jones is dead' and make it interesting to people who never knew Lord Jones was alive."

The same it seems, is true of private equity funds, which have sprung into the public imagination as the very model of all that is wrong with the money-grabbing, credit-toting, bonus-bagging financial world. We're living in unusual times, and there's indeed a whiff of that heady recklessness that characterised the loadsa dosh generation of the 80s. With brains, brawn and money, private equity pulls no punches.

You might guess that politicians --tout le monde -- are edging closer to heavier regulation. Heiligendamm has private equiteers and hedge funds on the agenda, Merkel and Sarkozy have both called for regulation through the EU, and even Ben Bernanke is "concerned". But actually, I think most of the fears over private equity - and most of the hype - is not being driven by uneducated and inexperienced politicians.

Most candidates for the Labour party's deputy leadership had pretty nuanced views on the subject in yesterday's Evening Standard. All made it plain the industry was a leading light in the UK financial community, and was an invaluable part of the economy. Jon Cruddas - vilified by some as a radical left winger - made his support for the industry known. None of the politicians wanted to scare Privateers away. What they wanted was a more equitable tax system that reflected economic reality. Most of the City is with them on this. Even private equiteers themselves know it. The Wall Street Journal too.

In fact, it was only professional patsy and ueber Blairite Hazel Blears, who thought the current tax regime was fair for Private Equity firms.

If politicians arent guilty of imbalance, the media almost certainly has been. Alluding to the dotcom bubble and the 1980's makes good copy. It plays on a whole host of perceptions about billionaire bankers with ridiculous bonuses. The predatory private equity firm -- secretive, mysterious, capable of taking over anyone it sets its sights upon -- is a pacy hook not lost on editors.

The debate needs to be more balanced. Private equity firms do need to be looked at again by lawmakers. Tax loopholes should be closed. And it is indeed obscene that the doyens of private equity pay less tax than their cleaning ladys. However, private equity firms also do a lot of good for the economy. They are a sign of an efficient and mature market. They are not merely the 'predators' the press paints them out to be.

It's poor journalism for the media to jump on the bandwagon and beat their drum as loud as they can.

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The biggest funds? Banks.

I've only just had a chance to have a read through Friday's Economist. Buttonwood reckons investors in private equity firms and hedgefunds are being strung along. Point in case: pension funds, who on the one hand are suffering in aggressive private equity buyouts and on the other, are paying high premiums to invest in the very private equity industry which so damages them.

Pension funds are suffering. Though not, I suspect, as much as others may do in the future. The real patsies in this game of liar's poker, are going to be the banks. At the moment banks are sitting comfortably - even though they have lost out in the primary loan market, the fees which come from dealing with hedge funds are very lucrative.

But banks are losing touch...

The division between banks and hedge funds is becoming artificial. Look at Alpha magazine's list of the top six funds. As the NYT Dealbook points out, the biggest are banks. Traditionally, of course, it's the hedge funds that provide so much liquidity in the market. They're risk takers: creative, flexible and willing to swallow the market's more toxic products to spin a quick buck. Should banks be doing the same?

For are start, the banks are not as good at it as the funds are.

But more worrying still, the banks are the ones loosening covenants and introducing more risk into the market, convincing themselves that they wont be holding any of it anyway. And yet their involvement in secondary markets is huge, try as they do to ape the funds. Imitation may well be the sincerest form of flattery, but the banks seem blind to what they're exposing themselves to. That, or they just don't care.

Banks have survived financial crises in the past for one good reason: their market positions were small enough to be quickly liquidated when trouble hit one of the big funds. They could get out, while the funds were trapped by their own huge bets. That obviously wouldnt be the case anymore...

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Hilary's dilemma

Below, an extract from the opening paras of a leading story on GuardianUnlimited, by David Hencke - Westminster correspondent.

"...Hilary Benn, the international development secretary, promised to scrap trade union red tape through new laws. She also promised a regular dialogue to replace the current one-off Warwick agreement on change..."

A subbing error? Not good for Hilary or the Grauniad to think Benn's a gurlie. I wonder how often this happens to Mr. Benn?

Actually, I just wanted an excuse to post this picture...

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Resilient fragility

Alexandre Lamfalussy's keynote speech to the ICMA conference ("Resilience or fragility") raised a few eyebrows today - Banks, said Lamfalussy, were "succumbing to the temptation of herd behaviour."

We've had warnings from people like Anthony Bolton and Warren Buffett, but for Lamfalussy to speak out perhaps throws things into starker light, not least when it comes a few days after Ben Bernanke's warning to US hedge funds.

"You can be sure that this golden era, will come to an end," Lamfalussy told the conference. He accused banks of being "irresponsible" and walking blind into an "opaque, uncharted and dangerous market." While risk may have been spread around, markets have become increasingly correlated, he said. And the risk of a systemic crisis had not changed. Lamfalussy is, I think right.

What's happened is that the threshold for individual crises to significantly affect the market has been raised. Credit derivatives have enabled risk to be more broadly spread, and thus made markets more resilient. But should a crisis big enough come along, then the markets will be affected in a way far worse than ever before. Such crisis always come along, says Lamfalussy - but we still think we can predict them. Bernanke voiced a similar concern when he warned of hedge funds behaving just like LTCM did.

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