Sunday, 27 January 2008

Private equity not good for jobs says WEF

The World Economic Forum has just published a paper about the global impact of private equity. You can get hold of the exec summary if you scroll down to the bottom of the press release. I'll just pull out the section on employment from the summary. It clearly does not back up the claims frequently made by the industry that it has a better job creation record than businesses not owned by PE.

• Employment grows more slowly at target establishments than at the control group in the year of the private equity transaction and in the two preceding years. The average cumulative employment difference in the two years before the transaction is about 4% in favour of controls.

Employment declines more rapidly in target establishments than in control establishments in the wake of private equity transactions. The average cumulative two-year employment difference is 7% in favour of controls. Just as was the case before the private equity transaction, growth at controls is higher in the three years after the private equity transaction. In the fourth and fifth years after the transaction, employment at private equitybacked firms mirrors that of the control group.

Post-transaction, buyout establishments seem to create roughly as many jobs as peer group establishments. Gross job creation (i.e. new employment positions) in the wake of private equity transactions is similar in target establishments and controls. The difference in net employment is attributable to higher gross job destruction rates in targets.

• Firms backed by private equity have 6% more greenfield job creation than the peer group. Greenfield job creation in the first two years post-transaction is 15% of employment for target firms and 9% for control firms. It appears that the job losses at target establishments in the wake of private equity transactions are partly offset by substantially larger job gains in the form of greenfield job creation by target firms.

Separately there is a broadly positive message from the WEF about sovereign wealth funds. These are big state-run investment funds that are becoming increasingly important shareholders in some markets. I won't repeat the sont of the WEF press release, save to say that there is an argument that SWFs are actually moe long-term investors than other market participants. In addition they certainly need to be more transparent.

No comments: