Private equity’s advisory community is starting to rally round the under-fire industry, as it begins to respond to recent criticism.
John Cole, a partner in Ernst & Young’s transaction advisory team, is the latest to speak out in defence of the industry, following similar comments from Fred Goodwin of Royal Bank of Scotland.
Cole told PEO: “Private equity may not be the solution to all known corporate woes, but it’s an important part of a strongly functioning market economy.”
He dismissed accusations that the industry is guilty of asset-stripping. “Private equity makes money from selling businesses, not buying them. So it is a misunderstanding to say it is guilty of asset-stripping – that wouldn’t be a sustainable model. It takes a business that people don’t think is worth anything, allows it to flourish for a period of time, and then sells it on to someone with a different interest.”
Cole is not surprised by recent developments. “The criticism has been inevitable to some extent, because of the increasing scale of the industry – because it’s buying larger and larger businesses, it’s attracting more and more attention. But it seems to have forgotten that there’s a difference between things that are in the public interest, and things that interest the public.”
But he believes that it is important to retain a sense of perspective. “Private equity is still a relatively small part of the global asset management class. In the great scheme of things, it’s a relatively small amount of investment.”
Cole’s comments come after Fred Goodwin of RBS also spoke out in defence of private equity. Many leading industry figures used this week’s Super Return conference in Frankfurt to make a case for the industry, including The Carlyle Group’s David Rubenstein, Terra Firma’s Guy Hands and Alchemy’s Jon Moulton.
It has also been attracting some high-level political support in the UK. In recent days, Prime Minister Tony Blair, Chancellor Gordon Brown and City Minister Ed Balls have all stressed the positive impact of private equity on the country’s economy.