Buyout execs escape committee’s ire(2)

After last week’s mauling, the private equity industry gave a solid account of itself at the latest evidence session of the UK Parliament’s investigation, welcoming the Treasury’s review of the tax regime, but warning of consequences if the UK became less competitive.

The four buyout chiefs giving evidence to the UK Parliament’s investigation into private equity held firm under questioning that had caused the BVCA, the UK’s industry association, to wilt and jettison its chief executive last week.

Paparazzi queue for a glimpse of buyout ’kings’

Philip Yea, 3i’s chief executive, Damon Buffini, Permira’s managing partner, Dominic Murphy, a  partner at KKR, and Robert Easton, a partner at The Carlyle Group, swamped the committee with a welter of evidence, declaring the industry a “force for good” that delivered “world class returns” to millions of pensioners in the UK and abroad.

Where the BVCA had struggled to defend the industry in the abstract, the quartet of buyout chiefs – David Blitzer of The Blackstone Group had withdrawn at the eleventh hour because of his firm’s impending IPO – gave concrete examples of jobs created, revenue growth and superior returns to justify their superior remuneration.

Their performance before the Committee belied the accusation by John McFall, committee chairman and Labour Member of Parliament for West Dunbartonshire, that the industry was “in a state of chaos, fighting like a ferrets in a sack.”

The four witnesses, however, provided a united front that at times surprised the Committee. McFall said he was amazed when three of the four confessed to not knowing how much their firms paid in capital gains tax to the UK Treasury. “You’re masters of the universe and you don’t know?” he said.

All four welcomed the Treasury review of the tax regime, announced simultaneously in the House of Commons by Tony Blair. Although Yea warned that change to the UK’s tax regime could result in his company investing more money overseas. 

Murphy said it would be a waste of government resources if the memorandum of understanding between the Inland Revenue and private equity firms was abandoned. He said forcing firms to make a case on each investment as to what could be treated as a capital gain and what should be income would be needlessly time-consuming. He said it was debatable whether it would increase the treasury’s take.

Buffini too dismissed the furore of taper relief on capital gains tax, sparked by his firm’s largest investor SVG Capital headed by Nick Ferguson, saying: “The industry has benefitted from taper relief, so has the UK. It is used as intended.”

He said the committee was in danger of making tax legislation “on the hoof”. 

Murphy added he saw nothing in the existing legislation that precluded private equity’s use of the relief. He said: “To be fair it is a level playing field. There are no tax loop holes.”

When challenged whether they paid less tax than a cleaner, the benchmark from Ferguson’s now notorious interview, Easton said: “I don’t pay less. I pay 41% on my income and a relevant capital gains tax.”

Yea, Easton and Buffini contradicted the wide-spread impression that buyout executives are all tax exiles. They all admitted to being resident and domiciled in the UK for tax purposes.

Buffini conceded the industry needed to do a better job of explaining itself: “We have 30 million pensioners in our funds, millions in the UK and they don’t know they are beneficiaries.”

To watch the session click here.