Private equity needs to do a better job of explaining the good of the industry by being more open and transparent, according to EQT’s managing partner Thomas von Koch.
Von Koch was speaking at the European Private Equity and Venture Capital Association (EVCA) conference in Vienna on Friday.
“Frankly, we should all reflect on why the industry has such a bad reputation,” he said. “In this connected world, there’s nowhere to hide. Private equity wants to provide good returns to investors, but that’s not enough. The way we create returns is equally important.”
“In order to keep our license to operate, we need to move from being pure investors to being company owners [that contribute to] society as a whole. We need to further align our interest with our stakeholders. That will create sustainable superior [companies] and create trust,” he said, adding that firms that do not acknowledge their responsibility in society and the importance of doing good, will disappear over time, he argued, because it’s “not sustainable”.
Diversity and especially gender equality are similar issues catching up to private equity, he said. “Diverse boards and management teams make good business, but let’s be very honest; private equity really lags here. We came out of the financial industry and we really have a long way to go.” However it is not just the GPs that need to lead the way; “we all have the responsibility to make this happen,” he said.
His words were echoed by Brendan Barber, a former trade union leader and chair of the advisory stakeholder advisory council member at EVCA. “It has not been that many years ago when the sector came under intense scrutiny. The accusations were that this was a model that is about short term, it was alleged it was engaged in asset stripping. There’s perhaps a sense that that period of scrutiny has passed and that the sector came through a storm,” he said.
“Certainly the industry has worked very much harder to engage and to try to explain its work and focus in much more active ways to wider stakeholders communities. But I would urge there should be no complacency,” he said. “I would urge the sector to continue to think actively about how it thinks and addresses some of these challenges as transparency and employment standards.”
The problem is that if one small private equity firm makes a mistake, it can affect the whole industry, according to Hanns Ostmeier, executive chairman at Halder Beteiligungsberatung. It’s therefore important for firms to stick to their knitting, he argued. “I would be very reluctant to run an investment in France, because [I don’t understand that market]. [Investing in markets that you don’t understand well] can lead to misperceptions. And this is something that not many of our fellow [professionals] have understood,” he said.
To tackle these issues, GPs need to explain how they create value. We need to explain how the companies we own are doing after five years, Von Koch added. “Has it grown? Because that justifies our reasons to exist.”