Hands: LPs aren’t paying for social work

Bettering businesses is the means by which the asset class performs societal good, the Terra Firma co-founder told prospective private equity professionals. He also advised them not to become a GP if they hope to make a ‘quick buck’ in today’s market.

Terra Firma founder Guy Hands on Friday encouraged a group of MBA students not to begin private equity careers for financial reward, nor for philanthropic reasons.

“Don’t do it for the money. The quick-buck times have gone,” Hands said at a ‘state of the industry’ keynote luncheon address. “Only go into it if you love business and want to change business models. Only go into it for the long-term.”

I don't think our LPs pay us to do social work.

Guy Hands

Speaking in Philadelphia at the annual private equity conference held by The University of Pennsylvania’s Wharton School, Hands ticked off grim statistics about the current global economy and said recessions are inevitable in the UK and US. He told students it was an excellent time to begin a career in the asset class despite such market downturns, which he noted will force a returned focus to operational change instead of financial engineering.

“You want to start in a ‘bad’ market,” he said, explaining that it will affect one’s way of thinking throughout their career.

Fielding a question from a Wharton student interested in a career that also benefits the greater good of society, Hands said he feels strongly that charity work should remain separate from private equity.

“Philanthropy is something you do on your own time,” he said. “I don’t think our LPs pay us to do social work.”

But he said he believed private equity was itself a force for good. “I think making businesses work better makes people’s lives better,” Hands said.

To the next wave of prospective general partners he offered this final bit of advice: “Focus on the job; enjoy the job and focus on how to make a difference in business. Don’t focus on the paycheck.”

Hands’ firm is currently employing such a strategy, evidenced by its overhaul of UK record label EMI. Last week, Terra Firma visibly began its turnaround strategy for the company, announcing job cuts of between 1500 to 2000 positions and a £200 million ($392.6 million; €263.4 million) a year cost reduction drive. During his speech, Hands told students his firm was committed to improving EMI’s operations.

“We’ve also staked our carry from both the last fund and the current one on this deal,” he added. “Hundreds of millions of dollars are riding on it.”