Wednesday, 25 April 2007

SEIU warning over private equity

The US union the SEIU has published a report on private equity. They have also set up this website. As a bit of background the SEIU has probably the biggest capital stewardship programmes of any union anywhere, and they have some people focused solely on privare equity. If only we in the UK had that kind of resource!

Here's the Guardian's take on it:

Private equity firms are reshaping the American economy to the detriment of workers and local communities, one of the largest trade unions in the US said today after publising a report into the industry's growing influence.

The almost 2 million-strong Service Employees International Union said the booming private equity buyout industry had turned back the clock on community involvement and workers rights. In a dossier documenting deals in the US over recent years, the union highlighted buyout deals that it argued left companies "hollowed out" or even bankrupt. Others saw gains that were paid exclusively to the new private equity owners.

Claims that the industry created jobs and boosted the economy were unfounded, said the union, pointing out that there was little quantitative research in the US to support the idea. It said the only detailed study was carried out in the UK and while it showed that buyouts inceased the number of jobs in 60% of cases after six years, almost all workers suffered cuts in pay.

Deals could work in the interests of all parties, the report said, pointing to one example of a buyout where workers were consulted and included in profit sharing. However, this example had rarely been repeated, the union said.

Private equity groups have come under increasing scrutiny by politicians, trade unions and investor groups foillowing a series of high profile deals. Groups backed by so callled "mega" buyout funds have attempted to buy some of Britain's biggest companies. While plans to takeover retailer J Sainsbury were jettisoned earlier this month, several other companies have been taken over, including car breakdown firm the AA, ice cream maker Walls and Boots Alliance.

The industry raised more than $500bn (£250m) last year to invest in buyout funds and commentators expect that figure to be exceeded this year. Pension funds and university endowment funds are some of the chief investors in buyout funds, which promise annual returns of between 20% and 30%.

The SEIU has 1.8 million mainly blue collar members in the healthcare and public service sectors. It said: "The private equity industry, armed with more than half a trillion dollars of capital, is today engineering financial deals that together are larger than the annual budgets of most of the world's countries.

"The financial juggernaut is generating hefty returns to its investors, extraordinary riches for its executives, and newly relevant questions about the impact of its business practices on American workers, businesses, communities and the nation."

1 comment:

Anonymous said...

The Los Angeles investment criteria can be just as good as 'asset-stripping' and disastrous feck-ups as private equity, so should we stop pension funds investing in public companies too? We need to focus on separating the bad from the ok.