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.
Tuesday, June 26, 2007
Passing through the eye of a needle
Wednesday, June 06, 2007
What the Gord giveth...
...The Gord taketh away. Brown's announced he intends to close the 10% tax loophole for private equity firms.
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.