Charlie McCreevy, the EU commissioner responsible for overseeing European private equity and venture capital, has become the latest figure to tell the industry that it needs to do a better job of selling the many benefits it brings to the companies and countries in which it invests.
This meant spreading the message about the returns the industry can deliver to “present and future pensioners”, and about job creation and innovation. “There is a good story to tell about private equity,” he added. “It needs to be told and re-told.”
In his speech, McCreevy said the current debate had been inevitable. “It is an inescapable fact of political and business life that with success and scale comes profile. And with profile comes scrutiny,” he said. However, he professed to be “perplexed” by some of the recent criticisms of the industry.
Suggestions of excessive use of leverage were misplaced, he said. “We have to assume that both lenders and investors in private equity deals are at least aware that leverage is not a one way bet. We have to assume too that they know how to manage and measure risk.”
Charges of asset-stripping were also unfair, he added. “One investor’s asset sale is another investor’s asset purchase: The potential of the asset doesn’t disappear with its sale.”
He refuted criticisms that bonuses were too high, suggesting that they were merely performance-driven. “Why they should be less acceptable than performance fees paid to professional golfers or transfer fees paid to professional footballers?” It was up to the market to decide whether these bonuses were excessive, he said.
McCreevy also took issue with the idea that private equity firms “strip down companies to their core and contract out the rest.” Rather, he said: “Private equity firms are proactive in destroying inefficiency and waste, in identifying and leveraging upon sources of competitive advantage, in exiting areas where such advantage can no longer be sustained, [and] in ridding companies of vanity assets and vanity management teams.” This led to job creation and sustainable growth, he added.
McCreevy welcomed the working party led by Sir David Walker, and said his own department was working on a possible a pan-European private placement regime, allowing funds to raise money more simply and cheaply by standardising the rules across the region.