Friday Letter Sharpen Up

Once again: private equity firms must do more to defend themselves against the charge of asset-stripping.  

Nicola Horlick, one of the UK’s most famous quoted equity managers, yesterday used her platform at a packed PEI Media conference in London to warn the private equity industry to promote itself better or miss an opportunity for growth.

Horlick, chief executive of UK fund manager Bramdean Asset Management, gave the key note speech at the “Private Equity COOs & CFOs Forum” and true to form she spoke a lot of sense.

As an investor in the asset class through her recently launched £131 million (€194 million; $264 million) listed fund of funds product, which backs private equity and hedge funds, she could speak with authority. There was nothing terribly ground-breaking in what she said, but she delivered her points with acumen.

Kohlberg Kravis Roberts’ fund flotation on Euronext, whose valuation subsequently dived, had been disastrous, she said. More importantly still, the industry had not done enough to explain itself, and even though it had not deserved the vitriolic press it received during the summer, its defence had not been sufficiently robust.

She told the audience: “Private equity is not doing enough to court or educate UK pension funds. It has had a low profile. And it was outrageous this summer how much animus against private equity came out in negative articles, because the industry isn’t well organised.”

She acknowledged private equity was trying to raise its game. “It is important to stress private equity is doing everyone a favour, if businesses [after a buyout] are better managed. It needs to get away from [its reputation for] asset stripping,” she said.

What was interesting was Horlick’s perspective. She is a supporter of the industry, indeed has a vested interest in its success with her own alternative assets activities.

At the same time, however, as a manager of long-only equity portfolios, she could be forgiven for having an axe to grind about the industry’s tendency to do rather well out of public-to-private transactions at the expense of her public equity peers.

But she doesn’t. Instead Horlick highlighted a moment earlier in her career, when quoted equity managers, herself included, had made a lot of money spotting companies whose  net asset value exceeded their share price. You bought the company; you broke it up. It was just what smart money managers did.

But Horlick also said making money in this way is now much harder because companies are more efficient in the management of their assets – the point being that “asset-stripping” is not what results-driven private equity firms can rely on nowadays. There is more to private equity, in other words – but the industry needs to work harder to make people recognise it.

As both an investor in the asset class and a beneficiary, Horlick is a good advocate for the industry. She is passionate about the potential for growth, or democratisation as she calls it, as more pension funds, high net worth individuals and mass affluents look for access to private equity performance.

But more than anything, else Horlick is an almost peerless champion of publicity. She is that rare breed: an investor in private equity with a positive public image that the mainstream media cannot ignore. “Superwoman” as she is known in the UK tabloids could work wonders once again.

PS: As some of you will have discovered, the new PEO – like all IT projects it seems – proved capable of behaving in some surprising ways when actually put to work. We hope that these small bugs have not spoilt your use of the site and you can be assured that they have all been dealt with as swiftly as possible. Thank you for your patience – and thank you all too for the many favourable comments we have received. The site is going to develop further over the coming months so please do stay with us as PEO expands further.