It seems hard to imagine that some of private equity's leading lights could join forces to commit over £5 million to children's charities – and end up being criticised for it. But that's what happened in February following a dinner in London to launch the Private Equity Foundation, a new initiative designed to help private equity professionals co-ordinate their charitable giving.
To some, the Foundation seemed to have got an awful lot right. Over 70 different firms and advisory groups have signed up in support. Its board of trustees includes some of the biggest names in European buyouts, such as The Blackstone Group's David Blitzer and Texas Pacific Group's Stephen Peel. It had already raised £5 million by the time of its official launch, and consulted advisory group New Philanthropy Capital and UK venture philanthropy firm Impetus Trust on how to spend it. As a result, four deserving children's charities have been earmarked for million pound plus donations, including East London children's charity Community Links.
Conceptually, the foundation even plays to the industry's strengths: its stated aim is to apply private equity investment techniques to charitable giving, so the chosen charities will receive operational as well as financial support, and careful monitoring to make sure the donation is adding value.
Still, not everyone was impressed. The GMB, a trade union engaged in a feud with Permira over redundancies at Permira portfolio company the AA, picketed the launch, accusing the participants of hypocrisy. Some commentators suggested the secrecy surrounding the event was symptomatic of a lack of transparency, or worse still, an arrogant refusal to engage with the wider world. Others argued that the Foundation was no more than a cynical PR exercise; that the sum of £5 million was a paltry figure for an industry that raised $400 billion from investors last year.
Privately, those behind the foundation say they were shocked by some of the reaction. But – fortunately for the charities that stand to benefit – it does not seem to have put them off.
Ramez Sousou, managing director of TowerBrook Partners and chairman of the Foundation's board, says: “As an industry we have had great success, and with that comes a responsibility and desire to give back.”
This is by no means a new revelation for the industry. The Impetus Trust, which was founded by ex-ECI head Stephen Dawson, has been employing this kind of venture philanthropy in the UK since 2002. Dawson is also a trustee of the European Venture Philanthropy Association, which has been in operation since 2004 and is backed by the likes of 3i and Barclays Private Equity.
But should the Foundation's initial sum have been higher? Participants are at pains to point out that the Foundation is intended to supplement individual giving, not replace it. Indeed, the likes of Sousou, Guy Hands of Terra Firma and Sir Ronald Cohen of Apax Partners donate large amounts of their time and money to good causes already.
Sousou also stresses that this is just a first step; like any good private equity fund, the Foundation is keen not to overextend itself. “It is easier to raise money and much harder to give it away,” he says. “When we prove the concept we will come back for even more money.”
Despite the negative media coverage, the Foundation is planning another dinner next year, so it can demonstrate to donors how effectively their money is being spent. The idea is to encourage even more giving. The Foundation is already one of the top 30 charitable donors in the UK, but hopes to raise as much as £15 million a year – and that's just the financial support.
This will amount to a substantial contribution, however cynically the intentions of the Private Equity Foundation may be interpreted in some quarters. And if by next year the Foundation can also fall back on two of private equity's favourite and most compelling arguments – a successful investment record and evidence of out-performance – the dissenting voices are likely to be an even smaller minority.
BUFFINI TAKES ARGUMENT TO UNION
Damon Buffini, the managing partner of Permira, has proposed a meeting with Paul Kenny, the general secretary of the GMB trade union. The GMB has waged a personal campaign against Buffini over job cuts at two of Permira's investments and has written to members of the British parliament calling for an end to tax relief on corporate debt. The union believes it gives an unfair advantage to buyout firms. Two candidates for the office of Deputy Prime Minister, Alan Johnson and Jon Cruddas, have both spoken in support of the GMB's position.
In a letter to the union, Buffini wrote: “I understand that some confusion and apprehension exists regarding the way companies such as Permira operate and I am eager to set the record straight.”
The GMB is not limiting its criticism to Permira. It has also tried to co-ordinate a public protest against Tom Hicks, the new owner of Liverpool FC and founding partner of former US buyout firm Hicks Muse Tate & Furst. The union handed out leaflets at a Liverpool football match in Newcastle, claiming that Hicks still owes thousands of pounds in severance pay to workers at Via Systems, a Newcastle-based IT firm previously owned by Hicks Muse.
In his letter, Buffini said he was proud of what Permira had achieved. He said as a result of the investments that it has made, the futures of numerous companies in the UK, and across Europe, had been strengthened. He wrote: “We are committed to having an open and constructive relationship with trade unions; as such I would be keen to hear your views on private equity and on how Permira can continue to play a positive role in securing the futures for businesses and workers in the UK and across Europe.”
At press time, the GMB had not responded to Permira's proposal.
FRONTIERS CAPITAL HIRES FROM BCG
Frontiers Capital, a London-based venture capital firm, has hired Charlie Parker from Boston Consulting Group. Founded in 2001, Frontiers Capital is a spin-out from Carphone Warehouse that merged with London-based technology investor nCoTec Ventures in 2003. It bought the entire portfolio of rival firm Vesta Capital for an undisclosed sum in December 2005.
LINKLATERS REBUILDS PRIVATE EQUITY TEAM
Linklaters, the law firm, is filling the gap left by the departure of two private equity partners by hiring Ian Bagshaw from Clifford Chance. Linklaters lost its global head of private equity Graham White and another partner Raymond McKeeve to US rival Kirkland & Ellis last year. Bagshaw will start at the firm in May.
LLOYDS TSB REPLACES BUYOUT CHAIRMAN
UK bank Lloyds TSB has promoted Truett Tate, group executive director of Lloyds TSB's wholesale and international banking division, to be chairman of its buyout business Lloyds Development Capital. Tate replaces Michael Joseph, and joined the bank in 2003. Founded in 1981, Lloyds Development Capital provided £256 million (€382 million; $500 million) of equity for 18 deals in 2006.
ADVENT INT'L PROMOTES 13
Advent International has made 13 promotions across its European and North American offices, three of which are to partner level. The new partners include Tim Franks, who concentrates on the retail, media and leisure sectors, and Steven Collins, who leads the firm's retail and consumer efforts in the US. The third new partner is Istvan Szoke, who coled Advent's recent deals for Romanian mobile operator Oskar Mobil and fuel card issuer CCS. Advent invested $1.2 billion (€900 million) in 13 companies and made more than 20 exits in 2006.
ALTIUS MAKES US HIRE
Altius Associates, an investment consultant that specialises in private equity investments, is hiring Chason Beggerow to be its fourth US-based partner, one month after hiring Michael Russell as head of Europe. Beggerow previously worked at Tredegar Industries, a US plastic manufacturer, where he was director of business development. Altius hired Michael Russell as partner and head of Europe in December. Founded in 1998, the firm constructs portfolios of private equity funds and has $8.8 billion (€6.7 billion) under management.
EQT PARTNERS BUY BACK SHARES
The Swedish buyout firm has secured majority control of its management company, after buying out more than half the stake previously owned by Investor, the investment vehicle of Swedish industrialists, the Wallenberg family. EQT's partners have paid SEK290 million (€31.2 million) to acquire the 36 percent stake from Investor, the Wallenberg's investment vehicle. EQT now owns 69 percent of the management company. Investor retains the balance.