Guy Hands, the head of Terra Firma, said private equity has a fight on its hands and it needed to explain its case better.
Speaking at a conference in Frankfurt, he said “We’ve won the intellectual argument, but when the mob speaks, emotion wins, not intellect. It’s not a fair attack on private equity, but an emotional one, and we’re just not used to dealing with it.”
Hands supported David Bonderman’s contention that the industry’s record compared favourably with that of large corporates and wealthy individuals, according to a report in Financial News, a UK trade paper.
He said: “Why is private equity being singled out, but Richard Branson or Philip Green, who have made enormous amounts of money for themselves despite the occasional failure, escaped censure, and instead been knighted? It is because the public can understand who these people are.”
Using the example of the buyout of UK utility Thames Water, which Hands failed to win at auction, he questioned whether German utility RWE, the previous owner, had left the business in good health. It was fined by the regulator for failing to invest in the repair and maintenance of pipes in London, and is understood to have sold the business without paying that fine.
“RWE’s development of the business was not a job private equity would have been proud of,” he said.
He said the buyout industry needed to improve its relations with the public because of the growth in its importance.
Hands said: “Ten firms control investments worth $1trillion (€756bn). These firms have moved from being entrepreneurs to scapegoats – the unacceptable face of capitalism.
“The role of private equity is comparable to that of the large conglomerates of the 1980s. So we should expect to face the same level of reporting and public attention they faced. The problem is, this is not what private equity firms signed up to.”
“The problem of being so big is that firms are now affected by economic cycles. It’s hard to justify the fees as an alternatives manager unless you deliver sufficient returns. If firms aren’t careful, they will be replaced by derivatives and the investment banks.”