World Economic Forum To Study LBO Business

Taking a break from studying the issues of poverty, peace and disease, The World Economic Forum has now decided to tackle a new global phenomenon: private equity. The results of its work could potentially help blunt criticism that the industry has endured, particularly in Europe.

The organization has launched its “Globalization of Alternative Investments” program, which will study venture capital, growth capital, leveraged buyouts, hedge funds and other alternative investments. The new program has a number of mandates, including talking about alternative investments with world policy makers; studying the impact of private equity on employment and revenues; and promoting awareness of its impact (positive or negative) on the global economy.

The Geneva, Switz.-based nonprofit, nonpartisan group, which is supervised by the Swiss government, brings together at its meetings some of the world’s most influential policymakers and business people. Among its past achievements is the formation of the Arab Business Council, established to guide economic policy in Iraq after the U.S.-led invasion. Its annual meeting is a regular haunt for Bill Gates, Tony Blair, Bono and Bill Clinton.

The organization’s 21-member Investors Industry Governors Group approved the alternative investments program in January. Notable American members of that group are the buyout firms Clayton Dubilier & Rice, The Blackstone Group, Texas Pacific Group, The Carlyle Group and GS Capital Partners. European members include Apax Partners Worldwide LLP and Permira. The program’s advisory board includes Michael Klein, co-president of corporate and investment banking at Citigroup, and Joseph Rice, a co-founder of Clayton, Dubilier & Rice.

The study has been divided into three phases. For 2007, the Industry Governors Group has commissioned research of the alternative investments market to be led by Josh Lerner, a professor of investment banking at Harvard Business School. Lerner’s research team includes Roger Leeds, a professor of international finance at Johns Hopkins University School of Advanced International Studies in Washington, D.C.

In 2008, the second phase, the World Economic Forum plans to hold a series of roundtable discussions in the United States, Europe, and Asia, between buyout pros, policymakers and economic experts. Topics are likely to include how buyout firms structure their deals and manage their portfolio companies; how the industry is regulated; and how geopolitical risk impacts alternative investment managers. In January 2009 the World Economic Forum staff plans to publish a final report laying out findings of the research and highlighting the roundtable discussions.

It’s not clear whether the group has a public relations agenda. But Europe continues to be a trouble zone for LBO firms. Buyout shops are “casino capitalists enjoying huge personal windfalls from deals at the same time as they gamble with other people’s futures,” Brendan Barber, the head of the U.K.’s biggest trade organization, was recently reported as saying. In the spring of 2005, current German Vice Chancellor Franz Muentefering infamously branded PE groups as “locusts” descending on European companies.

Stateside, buyout pros are taking the matter of their public image into their own hands. On Feb. 22, the Private Equity Council, a Washington D.C.-based trade group founded by some of the industry’s largest players, opened its doors. Its purpose is to provide research and education about LBOs to policymakers and potentially to lobby for LBO firms.

“Nowadays you can’t watch CNBC without hearing the word ‘private equity,’ whereas it wasn’t part of the dialogue 5 or 10 years ago in the popular press,” said Jim Rutherford, a managing director at Veronis Suhler Stevenson in New York. Rutherford believes the mainstream media’s negative view of the LBO industry is unjustified. He said, “The reality is that private equity firms are making portfolio companies more profitable and helping modernize their management structures.”—E.B.