Myners defends criticisms of private equity

Paul Myners, one of the most respected names in the City of London, has defended his criticisms of private equity to PEO, after he had previously highlighted the risks to pension funds.

Paul Myners, the City grandee who has previously encouraged investment in private equity, has become the latest high-profile figure to publicly criticise the industry.

Paul Myners

In conversation with PrivateEquityOnline, Myners defended his criticisms of the industry, made in an interview with the Financial Times this morning.

In the FT interview, Myners said the industry was set up to reward its “principal participants”, while workers in private equity-backed companies suffered “an erosion of job security and a loss of benefits”.

Myners also joined Labour Party politicians and trade union leaders in urging the government to re-examine the tax treatment of private equity, and also in calling for a greater level of transparency. “We are seeing companies go private and they are taken from being transparent and accountable into a dark box,” he said.
The comments had seemed at odds with his support for Englefield Capital, a UK mid-market firm where Myners sits on the advisory board. However, Myners told PEO: “I was talking about mega-funds – the kind that could contemplate a bid for Sainsbury’s. These are a phenomenon that’s entirely new – it’s completely uncharted territory,” he said. Most of the data supporting the buyout model was from much smaller fund and deal sizes, he pointed out. “Englefield is completely different.”

Myners said the comments did not contradict the report he wrote for the UK government in 2001 on institutional investment, in which he encouraged pension funds to increase their allocation to alternative assets, including private equity. “It remains an attractive asset class, but it needs to be approached with care. Returns are sometimes not much better than the public markets; dispersion is very high, so manager selection is very important; and fees are significant,” he said.

“Public company directors when approached by private equity should ask themselves: what can private equity see that our current shareholders cannot; what will private equity do that we cannot do for ourselves? The answers should be quite informing,” he added.

Myners’ background is mostly in the public markets: he came to prominence by building up Gartmore, a traditional fund manager, and later fended off a quasi-buyout from retail entrepreneur Philip Green while chairman of Marks and Spencer. Indeed, Myners cited Marks and Spencer today as “a classic case where it was not necessary to go private to fix the company.”

Myners’ comments come as another leading trade union figure has joined in the attack on private equity. Brendan Barber, general secretary of the Trade Union Congress, said in a speech at City University in London that private equity firms were “little more than amoral asset-strippers after a quick buck; casino capitalists enjoying huge personal windfalls… as they gamble with other people’s futures.”