Thursday, 21 June 2007

Select committee round 2 - no-score draw?

Reading the reports of yesterday's second round of select committee evidence from the private equity industry, I get the impression that the heads of the big buyout firms did an OK job of defending themselves. They certainly didn't suffer the same kind of implosion as the BVCA vanguard did last week. The coverage in today's FT is worth a read, also this bit in the Telegraph about the Treasury's own evidence to the committee. I think the report is overblown, but it's interesting to see that HMT might think there's a problem with incentives that misalign the interests of general partners (the buyout mob) and limited partners (the pension funds and others committing capital).

As an aside, I see that FT reports that Sion "idiot" Simon yet again decided to direct his fire at the unions, accusing them of indulging in "class politics". Its true that there has been some knockabout campaigning from the unions, but let's be honest, if that hadn't happened we probably wouldn't be having the policy debate about private equity at all. Perhaps he should make another "hilarious" spoof video to get his message across. Or at least get his hair cut.

Finally, there's an interesting slip at the end of the Telegraph's comment piece today.

If the price to pay for a dynamic wealth and job-creating economy is a handful of clever people enjoying the riches of Croesus, on balance it's one worth paying.

People often use the phrase "the riches of Croesus" to describe the super-wealthy, but the story on which the phrase is based has a rather different ending. Croesus ending up losing his kingdom, and was nearly executed. He was only saved because, as he was about to be burnt alive, he basically acknowledged the fickleness of good fortune and wealth (I'm simplifying a bit here!). The story has been used as a warning against hubris, and assuming your good fortune will last. Here's the Wiki version.

(I should point at this stage that I only know this because the story is recounted - as a warning against assuming wealthy people know what they are doing - in the rather excellent book Fooled By Randomness that I'm currently reading.)

Actually, thinking about it, maybe the Telegraph description is more apt than I realised.


Citizen Andreas said...

No score draw was definitely the impression I got from what I've read so far. The private equity boys were able to rebut a large number of the accusations leveled at them. The only real chink in their armour seemed to come when they were asked about how much capital gains tax their companies paid.

It would seem better to take private equity buyouts on a case by case basis rather than lumping them all together.

Tom P said...

Yep I think that's right. The unions' tub-thumping approach has got them a long way - much further than I expected. But yesterday's session shows the need to deepen the debate.

If the unions continue to talk in generalities they will lose the argument to PE professionals who can, quite reasonably, point to examples of positive turnarounds.

Also it looks like the PE industry will give ground on the tax issue as a tactical move. Is a tax tweak all the unions really want to achieve?

Tom P said...

PS. interesting blog! I'm undecided about ID cards, but I get pissed off by some of the bogus arguments put up bt opponents (especially Lib Dems)

Citizen Andreas said...

I haven't blogged anything in ages on the subject, I've just found myself short of time.

Allow me to return the compliment though, I wondered in theough B4L a few days ago and I'm really impressed with your approach on the subject.

I'm not entirely sure what the unions are trying to achieve, I would guess a realistic aim would be greater transparency and some kind of accountability.

Tom P said...

Thanks. Would be nice to se a few more Labour and TU bloggers take up these issues.

This stuff has been brewing in the TUs for a while. The US unions have been on top of it for a few years, SEIU in particular. IG Metall in Germany is also more advanced in its approach than its opponents suggest.

I'm not sure the British TUs know exactly what they what, but a commitment to transparency and playing fair is respect of existing bargaining arrangements would be obvious starters. I also think the TUs need to train up their members who are trustees as they are being encouraged to put money into PE. Those trustees could use their client leverage to make the PE funds be a bit more responsible.