Cracks appear as BVCA comes under fire

As the BVCA comes in for sustained criticism for its handling of yesterday’s Treasury Select Committee hearing, many in the industry – including its own chairman – are suggesting that it cannot continue in its current form.

The future of the BVCA was under a cloud today, as the recriminations from yesterday’s UK Treasury Select Committee hearing continued to reverberate around the private equity industry.

The trade body’s own chairman questioned whether it was fit for purpose, while industry insiders queued up to criticise its handling of yesterday’s hearing, and the recent political storm surrounding the industry. Many now believe that the large buyout firms should split off from the BVCA and form their own trade body.

Wol Kolade

Wol Kolade, chairman of the BVCA, told PEO today: “The BVCA cannot continue in its current form.  We need to look at where we are going and anticipate the challenges ahead. We need to be better equipped. We have been used as a shield. The issues are of our members’ making. We should be doing more – but I have not seen a single member stand up for themselves.”

Some industry observers sympathised with the BVCA, suggesting that the bigger firms could have done more to help. Permira, Kohlberg Kravis Roberts, 3i, Carlyle Group, and Blackstone are all due to give evidence next week and are meeting today to prepare strategy without the BVCA.

Kolade said: “We were the hors d’oeuvre. Next week is the main course. The difficulty was we had to talk on behalf of the whole industry without risking casting any members adrift.” 

Kolade, deputy chairman Jeremy Hand of Lyceum Capital, and chief executive Peter Linthwaite were questioned aggressively by MPs about tax breaks, designed to encourage entrepreneurs, which the industry uses to reduce its tax liability on carried interest. MPs and UK unions have been vociferous in their criticism of this practice which appears to exempt the buyout firms, in particular the large firms, from the UK’s progressive tax regime.

In the evidence session yesterday, many industry executives felt that the BVCA had come across as unprepared. “It appeared as if it didn’t expect a question on something that had been raised in the national press by a senior figure in the industry,” said one observer.

Some suggested that Kolade and Hand had been let down by the BVCA’s executive team ahead of their ordeal yesterday.  They had also not been able to make advance submissions to the panel or prepare case studies that would help their arguments, a source said.

Another source close to the BVCA said it had been surprised by the level of animosity from a group of senior and knowledgeable parliamentarians.

Kolade’s recently-announced strategic review of the BVCA, which will report in September, confirms his concerns about the effectiveness of the association’s executive.

In an interview with PEO today, Kolade said Linthwaite may not be the right man for the job: “We need to set the agenda, not react to it and build something interesting to deliver it. Maybe with a different chief executive, because the association is heading into different waters than when Peter joined. We cannot be precious. And we cannot afford to lose the battle in the UK, because of the precedent that will set for Europe.”

The row is likely to increase calls for a separate trade body for large buyout firms, as with the Private Equity Council in the US. One industry source said the BVCA’s history as a representative of the smaller venture capital firms made it unsuitable for the task at hand.

Another said the BVCA was the least of the industry’s concerns at the moment: “How the industry organises itself is irrelevant. Next week we have to try and get some cogent information out into the public realm. Ask an MP today what he thinks about PE and he’ll say we are asset strippers, paying ten percent tax on investments we hold for two years. It’s absurd.”

To listen to yesterday’s hearing, click here.

Additional reporting by Nicholas Lockley and Toby Lewis