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In defence of private equity

Date: Monday, June 15, 2009
Author: Guardian.co.uk

I was pleased to read of Sweden's willingness to back our government in resisting proposed EU regulations which would have a highly damaging effect on the portfolio companies that private equity institutions own, and hence on their employees (Financial, 12 June). In fact in Sweden many unions regard private equity companies as more reliable employers than public companies.

But it was depressing to see Lord Oakshott, the Lib Dem Treasury spokesman, assert: "The debt-laden private equity and hedge fund model bears a heavy share of responsibility for Britain and Europe's economic problems." This is mistaken for three reasons.

First, it implies that hedge funds (short-term investment by both the backers of funds and the managers of funds) and private equity (long-term investment in each case) are basically the same. Second, it is nonsense to imply that the whole of the private equity industry was ever dependent on large levels of leverage. The bulk of private equity in Britain involves modestly sized private equity houses running modestly sized companies in often unfashionable sectors and improving their financial health.

Finally, there is no evidence that portfolio companies backed by private equity are suffering more profoundly in this recession, and there are examples where private equity has rescued companies which would otherwise have ceased trading (Crown Paints, Whittards of Chelsea, Denby Pottery etc). I am relieved that the British, Swedish and other European governments do not believe that an economic recovery would be fostered by crass regulation of private equity.
Simon Havers
British Private Equity and Venture Capital Association