Wednesday, 2 May 2007

A view from the industry

I'm always wary of getting drawn into a conspiratorial or cartoonish view of how the financial system operates. It's very easy to ascribe simplistic, and malevolent, motives to people/groups in the system if you don't take the trouble to listen to what they actually give as their own reasons for doing what they do. All of which is a long-winded way of repeating my argument that the labour movement needs to teach itself more about how things really operate.

With this in mind, I've taken to keeping an eye on what people from within the private equity industry are saying. I'll make two recommendations here. First is a book called Private Equity As An Asset Class by Guy Fraser-Sampson. This is really useful as it is a (largely) politically unopinionated walk-through of PE, and how investing in it works. There are a few digs at "left-wing politicians" but also quite a few at dodgy characters within the industry.

Second is the Going Private blog. This is quite a professionally done blog, and nicely written. It's also not going to provide lefties with much they agree with, but it's definitely worth a read. It's notable, for instance, that there's frequent reference to the quarterly earnings pressure that public companies are under.

Having said that, she's just done a hatchet job on the recent SEIU report. I don't mind that in itself, but the conclusion is a bit childish, more "bad language":

Don't worry though. The SEIU has some guidelines that will solve all of our economic problems.

The SEIU Principles for The Private Equity Buyout Industry:

The buyout industry should play by the same set of rules as everyone else.

Workers should have a voice in the deals and benefit from their outcome.

Community stakeholders should have a voice in the deals and benefit from their outcome.


Sounds kind of like Venezuela.

12 comments:

Equity Private said...

For a proponent of the left you sure do have your "sexist pig" tendencies. I'm a "she" not a "he."

-ep

Tom P said...

Apologies - I'll amend the post accordingly.

I had a feeling you might turn up. I like your blog, even though I suspect we won't be agreeing on much!

Equity Private said...

Why in the world would I want to agree with you?

Tom P said...

I was just trying to be polite.

Strange question tho. To me it's not (or shouldn't be) about 'wanting' to agree, you either do or you don't. If your attitude is "this is someone from the labout movement, therefore I don't want to agree with them" then I suspect this is not the beginning of a beautiful friendship.

X

TP

John Gray said...

to think, we are paying her wages!Don't worry Tom - come the revolution (thingy)...

Tom P said...

and I was trying to be nice too.

First against the wall when Ed Balls reveals the recommendations of his 'Bolivarian' review of the tax treatment of shareholder debt in leveraged deals...

Equity Private said...

Actually, my point was, what point is there in discussion if we already agree on everything?

I suppose it is a nice double entendre, however, to see my comment as a stab at leftist views when it comes to capital markets. Certainly, that's not out of the universe of positions I might take.

I'm sure you didn't really mean to cite Ed Balls, given his contradictory and hopelessly confused position(s) on alternative investments. On the one hand he is trying to save fund managers money via clearing efficiencies in his report to the City High-Level Group (restore former glory to UK capital markets, yes?) but then he is caught in the political suction of any number of bogponds on the issue of private equity taxation and the treatment of debt in acquisitions.

Not surprising that, caught unprepared and before the real heat of public opinion on private equity was turned up, he ruled out any change in private equity tax treatment (and that of the debt in question) in front of the House of Commons, no less, less than a month ago.

It would be comic if the review reversed that now (leaving aside for a moment the absurdity of his commenting on the subject with the still report pending).

Fine with me if they decide to pull the fire out of the only engine of substance driving liquidity in Europe right now.

I'd be happy to move back to the United States when capital flees London. Be interesting to see how that works for Britain and Labour when unemployment spikes.

But then, that's when Labour actually shines, isn't it?

Also, "you" are not paying my wages. Our limited partners are. Few of them are from the UK. You, in fact, are enjoying the fruits of my consumption in London on someone else's dime. Dimes that wouldn't be in London but for the presence of our firm here. Mess with the incentive for firms like mine to do business in London and you can kiss that influx goodbye. That's tough when the pound is so strong. No one else is contributing to your balance of trade because it's too bloody expensive to shop in London.

But, I understand that it is easier and more crowd pleasing to grandstand against the "rich" and "stick it to the man," via putative taxation regimes leveled at productive business.

Just be careful what you wish for. You might find you liked having alternative investment vehicles in London.

Tom P said...

OK then, if we're going to play nicely....

Just to kick off, my comment about Ed Balls was a weak attempt at a joke on your comparison of the SEIU & what is going on in Venezuela. The SEIU are actually pretty moderate politically, they even fund some Republicans. And Ed Balls is hardly Chavez, unless you are a loony rightie.

A few responses - I think your take on what Ed Balls is up to is wide of the mark. The debate within Labour and the unions in the UK has been brewing for quite a while, certainly these issues were on the radar well before the recent Balls announcement, but the Labour leadership is pretty friendly to your industry.

It would not be a complete surprise if it emerged, for example, that the government had encouraged the BVCA to carry out its current transparency initiative. You get the impression that the Labour leadership believes that most of the union criticisms of PE are ill-founded, and should be challenged. And to be honest I have some sympathy with that view.

Labour clearly sees the financial services industry as key to the economy, as unbalanced as that might make us. As such I really don't expect much action from Balls.

John's point was that we pay your wages in the sense that is the pension funds of which we are members are the ones that are ploughing money into private equity. John is involved with the Local Government Pension Scheme which, across all its sections, probably has a few billion in PE. Maybe not that much, but it's certainly like to increase. And ultimately that's our money.

I'd be interested to hear roughly how much money you think comes from UK pension funds, as the BVCA's stats suggest it's not a great deal.

Finally I think the 'like it or lump it' attitude displayed by some people in PE is exactly the sort of thing that the Government is trying to get the industry to stop projecting. It actually makes it a lot easier for those people who really do have it in for you to mobilise public opinion.

As is probably fairly obvious, I'm not inherently anti-PE. I just think people in the unions & the Labour Party need to understand what they are getting into and what implications maybe be further down the line.

Equity Private said...

"John's point was that we pay your wages in the sense that is the pension funds of which we are members are the ones that are ploughing money into private equity. John is involved with the Local Government Pension Scheme which, across all its sections, probably has a few billion in PE. Maybe not that much, but it's certainly like to increase. And ultimately that's our money."

We, like many (even most) private equity funds, don't take pension money. There any any number of reasons for us but in our case it was the extra expense of filings mandated by any number of jurisdictions when pension money is accepted. Pensions managed to lock themselves out of a lot of good funds by pushing that law through. So no, again, you don't pay my salary. Don't let facts stop you from making your point though.

"my comment about Ed Balls was a weak attempt at a joke on your comparison of the SEIU & what is going on in Venezuela."

I think you already summed up about all there is to say on this point then.

"As is probably fairly obvious, I'm not inherently anti-PE. I just think people in the unions & the Labour Party need to understand what they are getting into and what implications maybe be further down the line."

Ah, yes. Of course. How silly of me. You just want to monitor the situation and protect "all stakeholders."

Tom P said...

Hello you!

Dunno why but I was expecting a slightly better quality of comeback from you. Hey ho.


"Don't let facts stop you from making your point though."

Kitty has claws! My point was that pension funds invest in private equity, and that pension funds are our savings. The facts back me up on this point. I was looking at the BVCA’s annual stats just the other day and they show pretty clearly that a serious chunk of the money in the industry does now come from pension funds, mainly US ones. That might not be the case at your firm but it is a trend in the industry as a whole.


"I think you already summed up about all there is to say on this point then."

I’m big enough to admit it was a crap joke, it’s not hard. Are you big enough to admit your SEIU/Venezuela comparison was a little over the top?


“Ah, yes. Of course. How silly of me. You just want to monitor the situation and protect "all stakeholders."”

Not only that, but I believe that through the power of my blog I can bring the private equity industry TO ITS KNEES!

Again I’m slightly surprised at you. What’s with the chippiness here? There are other ‘stakeholders’ involved in what you do than investors and management, whether you like it or not. And it’s only natural that as your industry becomes a more important factor in the economy people who represent those other interests are going to take an interest in what you do. What’s the problem?

John Gray said...

I’m just glad to hear that she does not have anything to do with Pension money. So apparently (thankfully) we do not pay her wages. I wonder though if her pirate capital directors get any investments from other Brit collective investments?

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