Investment fund managers defend private equity against criticism

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Private equity fund managers have spoken out in defense of the industry against recent criticism that the sale of London-listed companies to buyout groups was hurting critical UK companies.

Morrisons became the latest company to agree to be taken over by a private equity consortium last week in a deal that drew criticism from MPs.

So far this year there has been unprecedented trading activity in the UK, with buyout groups targeting the country’s undervalued stock market for opportunities to deploy their record amount of dry powder, as companies in the private markets achieve high valuations.

“In general, the reality of private equity investing is far removed from the image that is sometimes conveyed in the media,” said Helen Steers, partner at Pantheon, who manages Pantheon International.

“The private equity managers we support take a hands-on, long-term approach with the companies they invest in, working with the companies’ management teams to grow their businesses and providing them with key operational and strategic expertise. “

UDG Healthcare, pharmaceutical group Vectura and infrastructure firm John Laing are just a few of the names that have agreed to private equity takeovers in the past six months. It sparked a wave of criticism from politicians and commentators, including the opposition Labor Party, who called on the government to speak out against the leverage and asset stripping model of private equity.

But responding to the Association of Investment Companies, managers of several investment funds highlighted the growing importance of environmental, social and governance considerations within the industry and the benefits of private ownership.

“Some media have focused primarily on the negative stories of private equity, without balancing them with more positive case studies,” said Richard Hickman, director of investments and operations for HarbourVest Global Private Equity.

“As a fund of funds investing in HarbourVest Partners funds, we rely on HarbourVest to select private equity managers who they believe can harness the full potential of companies.

“An essential component of the asset class is striving to drive real operational improvements in the issuing companies in order to create value; experts in private equity firms often complement their own efforts with the advice of industry specialists who complement this process. At the end of the day, no one has an interest in a business going bankrupt.

The image problem of private equity

Hickman added that private equity still has an image problem, resulting from the global financial crisis when some listed companies had balance sheet problems. However, he said balance sheets are stronger today and investment firms are exploiting “some of the most exciting investment opportunities available.”

Despite this, the stock prices of the trusts continue to lag and they benefit from persistent discounts, which Steers considers unwarranted.

Managers also stressed the importance of ESG and how they only work with general partners who take it into account.

Oliver Gardey, head of private equity fund investments at ICG, which runs the ICG Enterprise Trust, for example, said the group only partners with executives who share the group’s desire to invest. in profitable, cash-generating businesses with a solid track record of revenue growth. , this leads to job creation.

“This is corroborated by recent data: a recent Invest Europe survey suggests that European private equity firms have created jobs five times faster than the European average,” he added.

“Companies also benefit from the experience and operational resources of our managers – a key part of creating value is to improve businesses by investing in manufacturing infrastructure, digitization and technology, and by investing more in the people. “

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