To be sure, private equity’s struggle against its many critics was always going to be one of the dominant issue of this gathering. But after the BVCA’s less than emphatic performance in front of the Treasury Select Committee in the House of Commons on Tuesday, and the subsequent resignation of its chief executive two days later, it was inevitable that no other topic could compete.
A siege mentality has spread among industry participants in recent months. Private equity, rightly, sees itself as misunderstood. It has been learning the hard way that it pays to take the discussion to constituents outside the industry, rather than waiting for the discussion to be bought to its door.
Now the debate is over the threshold, the industry is belatedly making efforts to set an agenda. But given that an increased regulation of private equity in some jurisdictions and a heavier tax burden in others seem inevitable, many practitioners are both restive and defensive.
“We have spoken a great deal publicly, we have been enormously active on the political level, and we have contributed to a number of different expert groups,” declared Javier Loizaga, EVCA’s outgoing chairman, as he opened the symposium on Wedesday morning. “We have seen more EVCA members and some LPs speak out. But of course this is never enough – particularly when the industry is so intensely under attack. Many more industry practitioners must be more vocal.”
Or, as Jim O’Neill, chief economist of Goldman Sachs, put it more bluntly in his keynote speech: “It seems to me that you guys need to get out there pretty sharpish.”
This is advice that the large buyout groups especially must take seriously. Their huge public profile is at the heart of private equity’s problems, and the industry associations and lobby groups are right to make the point that without visible engagement from these LBO heavyweights, the battle will be extremely difficult to win.
But once they “get out there”, what should they say? How do you make the case that private equity is a force for good when so many trade union leaders, politicians and journalists are so certain that the opposite is true? What can you talk about that will change people’s perception?
To this, the $1,000,000 question, many delegates and speakers gave the same answer: talk about what you do well. Give people case studies – case studies of portfolio companies that have flourished under private equity ownership. Real life examples of private equity successfully at work can make a difference whereas number swapping is not going to be enough. As one GP ruefully reminded PEO yesterday: “there’s lies, damned lies and then there’s statistics….”
Case studies can pierce the armour of private equity’s foes and can give limited partners the confidence they are currently lacking to speak out in favour of their asset class. Case studies, as industry veteran Carol Kennedy of Pantheon Ventures proclaimed with feeling during a panel debate about LBOs, are quite simply “the way forward”.
But in producing this evidence, the industry must think carefully about the arguments it then builds. As Douglas Lowenstein, Washington-based lobbyist for the Private Equity Council, who had come to Rome as an observer, warned in a comment from the floor: “Don’t oversell. Don’t create expectations that you cannot live up to.” And he followed up with a trenchant example: “So don’t talk about job creation, because there you cannot win: there will always be private equity situations where jobs will be lost.”
In the words of EVCA’s Loizaga: “We shouldn’t talk about employment, we’ve done that for too long. The issue is about improving competitiveness, which Europe is in danger of losing. The question ought not to be how many jobs private equity has created. The question ought to be how many jobs could have been lost, had private equity not invested.”
The challenges facing private equity, notwithstanding its current financial success, remain considerable – not least because many have a political dimension. Things may well get worse before they get better. But at least everyone is clear about this now. As the industry’s communications problems have intensified, so has the resolve of many practitioners to fight back.