Friday Letter: Not our job

Jeremy Coller, founder of secondaries behemoth Coller Capital, and Javier Loizaga, EVCA chairman and executive partner of Spanish firm Mercapital, joined forces this week to urge investors to face the industry’s critics in the increasingly fierce debate about the asset class.  

Both men spoke at EVCA’s annual Investors’ Forum in Geneva.

Coller said a new financial paradigm was emerging and private equity was at the forefront. Globalisation and more flexible corporate ownership were the best hope of spreading wealth beyond the small privileged elite and into the hands of many, through ownership by pension funds.

He said: “Private equity firms are the frontline troops of globalisation and are ranged against protectionist critics”.

Coller encouraged his audience, a mixture of investors and private equity managers, to “listen, learn and respond to the debate, but never to let our antagonists appear to take the moral high ground.”

It was important to win the debate because, Coller said, “those that rewrite the business model to allow companies to move between private and public ownership will be the most dynamic companies in the economy.”

Loizaga’s demands were cast in less dramatic terms.

He said EVCA had been working on disclosure guidelines since September. He said the European association supported the BVCA’s working party on disclosure, but it was also pressing ahead with its own European review, because of the issue’s complexity. He asked for investors to contribute their views.

However, both Coller’s and Loizaga’s calls to a degree fell on deaf ears. Some investors in the room felt that it was not down to them to fight the industry’s corner. Investors are not the ones in the spotlight, they said. Their activities are not under scrutiny.

As far as pension managers are concerned, they pay buyout managers healthy sums of money to do the deals and to deal with the difficulties that may arise from their activities. If they cannot stand the heat, they should get out of the kitchen.

Also as one buyout partner observed, constitutionally pension fund investors tend not to be the types to stick their necks out. That is perhaps why they prefer to back the frontline troops of globalisation, rather than taking a place in the trenches themselves.

However, there is a group of investors that we believe may usefully get involved in the debate. Fund of fund managers can lay claim to sitting in both camps as general partners who invest. True, they are not disinterested beneficiaries of private equity’s returns, but as investors they can at least make the case in full possession of the facts of the managers’ investment thesis and subsequent investment performance.

The early signs are encouraging. This week Standard Life, Hermes, 3i, SVG Capital and The Wellcome Trust said they are meeting on an ad hoc basis to “promote the benefits of putting money into the alternative asset class”.

Welcome to the frontline of the debate.