Friday Letter Shine a light

It is a measure of the evolution of investor relations and the central position it now occupies in many firms that debate among delegates to our 2007 European Investor Relations Forum this week ranged from high concept to gritty detail.  

If IR professionals are occasionally snared in quotidian concerns such as whether to serve champagne at the annual general meeting or not, then they are also charged with the loftier duty of upholding their firms, and by extension, the industry’s good name.

This used to be a simple exercise of keeping a few investors happy with regular updates on fund performance and a fat cheque now and again.

Not any more. And even if the recent storm surrounding private equity has calmed, the landscape is irrevocably changed.

The new outlook provided a backdrop to discussions at the forum. George Anson, HarbourVest’s managing director in Europe, warned against complacency in the face of heightened interest in the asset class from regulators, legislators and unions.

As one of the world’s largest investors in private equity he told managers to “stand up and be counted” or risk constraint.

Anson said the debate with the unions in the UK and the US was triggered in part by excessive displays of wealth causing them to flex their muscles on behalf of their workers. (Although he was thinking of some of the more high-profile birthday parties, the decision whether to serve champagne at an AGM has probably never been more freighted with significance.)

He urged the industry to be more mindful of the impact its decisions will have in the broader community, and the political capital it will lose if it ignores this constituency.

Why then have investors not helped more to make the case for the asset class? They have as much at stake if buyouts lose legitimacy.

The truth is that few investors are well known enough for any mainstream media to care what they think. As chief investment officer of the Wellcome Trust, a UK medical charity, Danny Truell managed to capture headlines with a defence of private equity investment. But it is the exception and most investors are resigned to invisibility in front of mainstream media.

No matter how loud they shout or how interesting their comment, journalists will always turn to Blackstone for the story.

There is a partial solution. It is what brand builders would call a halo effect – from the light that falls around the subject.

Permira negotiated the right during its most recent fundraising to name all the investors in the fund. How better to illustrate the good private equity can do than to illuminate the beneficiaries of an investment’s return.

If private equity appears a shadowy world to outside observers, it is partly because the source of the capital is uncertain, non-specific. Returns are often depicted as flowing back to the new billionaires club, rather than to pensioners around the globe.

If the GPs are to do most of the work of explaining their activity, then it is perhaps time to put their backers in the spotlight on a deal by deal basis, particularly where they may be co-investors.

Stand up, be counted and bring a torch.