Europe’s class war takes to the streets

Keynote speaker and Texas Pacific Group, founding partner, David Bonderman, saw placards disparaging his company’s treatment of Gate Gourmet employees. The event was given major media attention as it was the second major protest against the private equity industry in as many months. Bonderman responded in his speech by saying: “We are at an inflection point for the industry and must figure out how to respond to the onslaught. We are on the front pages of the newspapers all day, every day.” Obviously Bonderman realizes that something must be done to holdback the tide of public opinion, but what exactly? In the news analysis Private equity is public business; we look at who the major opinion formers in our industry are and what more they can do to improve our image.

Rob Selkirk, the Chairman of the BVCA, perhaps the most important opinion former in the UK, used his dinner at Claridges as the place to introduce his mantra. “Jobs up. Sales up. Exports up. Investment up. These are the facts. So much for asset-stripping! So much for casino capitalism!” As I sat in one of London’s most elegant venues and drank Chateau Claymore, St. Emilion 2002 beside Lord Oakeshott (call me ‘Matthew’) of Seagrove Bay, the shadow chancellor of the exchequer in the house of Lords, I began to wonder, despite Selkirk’s compelling logic, if these protesters have a point. I posted these doubts in my blog at www.PEHub.com and received some vitriolic comment from US-based readers. My favorite was: “Europe is full of fat companies in need of restructuring, some of which will require job cuts to reduce costs and generate returns. That’s capitalism, however distasteful to European unions.” This guy could be the poster child of “couldn’t care less” capitalism but he isn’t a lone voice in our industry.

George Osborne, MP and shadow chancellor of the exchequer, in a well rehearsed speech following Selkirk’s told the members of the private equity community that he loved them and would fight for them but they had a to address a few issues.

#1: Invest more into venture capital

European VC seems to be doing well at the moment. General partner at Skype-investor Index Ventures, Bernard Dallé, says that venture doesn’t seem underfunded and if there is any funding gap it is in the very early stage and seed sectors. Two new funds have been launched this month to specifically target this funding gap. The National Endowment for Science and Technology has launched a £50m fund and the South East England Development Agency has launched a new fund for companies seeking investment of less than £3m.

#2: Behave environmentally and socially responsibly

One important aspect of social responsibility is paying tax in the correct amount. In the UK, private equity firms pay tax of 10% versus the 40% paid by other companies. They are given these tax breaks because they are supposed to be investing in venture and funding new businesses. Are PE managers receiving unfair tax advantages? We explored this issue in Balls juggling public opinion and Treasury minister Ed Balls addresses our industry’s critics.

#3: Increase transparency

If household name companies such as Sainsbury’s and Boots are going to be taken private, consumers and investors demand transparent reporting similar to that which would be provided by a public company. In the analysis called Traces of transparency, EVCJ reviews the guidelines being formed by a heavy-hitting working group on a “comply or explain” basis. And the industry’s major players don’t hesitate to make their views known.

Why are trade unions upset when they too invest in private equity? They should be pleased that the industry is doing well. Shouldn’t they? In the article European PE raises €90bn in 2006, Thomson Financial data from EVCJ’s parent company shows that there has been a shift in where the money invested into private equity is coming from. Money from corporate investors has shrunk to 2% – the lowest proportion in two years while pension funds have increased their allocation by over €5bn. So if pensions are now investing more in private equity and PE managers are making money the trade unionists should be pleased that the value of their pensions will increase. However, their response is that it is difficult to get too excited about pensions when jobs are being cut.