In recent weeks, private equity has come under increasing fire from trade unions and politicians. In the UK, the GMB trade union has taken buyout firms to task over job cuts, and even staged a protest at the launch of a charitable foundation backed by a number of industry luminaries.
Defenders of the industry are beginning to emerge – Blackstone's Stephen Schwarzman and Permira's Damon Buffini are both set to meet with union representatives – while support has also come from the Wellcome Trust, the UK's biggest charity, and European Union internal trade commissioner Charlie McCreevy.
But could fund of funds managers be the industry's secret weapon?
Last month, we argued that FoFs should be playing a more active role in the debate, since they are better placed than most to make the case for private equity. Key to this is the huge amount of performance data that the leading groups have accumulated over the years – in some case, more than 20 years' worth of information. They also do not have the same constraints as other participants: GPs may be saddled with accusations of self-interest, while big state pension funds may find it politically difficult to support general partners against trade unions, and cannot easily become embroiled in the debate given the limits to their manpower. FoFs have more freedom – and resource – to speak their minds.
We do not think that the defence of the industry is best served by individual investors posturing in the mainstream press
However, most fund of funds managers seem unwilling to set themselves up as champions of the industry. Most suggest that this kind of lobbying work is better left to industry-wide trade associations like EVCA, in Europe, and the NVCA in the US.
Helen Steers at Pantheon speaks for many: “We believe that all professional investors, not just funds of funds, should take a strong interest in how the private equity industry is perceived – and how it presents itself. However, we do not think that the defence of the industry is best served by individual investors posturing in the mainstream press. There are experienced industry bodies such as EVCA and BVCA who act as highly effective voices for the industry and Pantheon is a strong supporter of these organisations.”
“These are exactly the kind the arguments that trade bodies are there to make,” says another manager. “And I think they are doing a good job of trying to highlight the benefits of private equity.”
This is not to say that FoFs – typically amongst the most mediafriendly groups in the industry – have no role to play, of course. Stefan Bannwort, Adveq's head of communications, says: “Political lobbying is really a role for industry associations. But as a company we are pursuing an open communications policy towards the media on general developments, trends and issues in the private equity industry,” he says.
Others go further, suggesting that trade bodies should not be expected to bear the full burden of responsibility. “The industry as a whole has never tried too hard to justify its existence in the mainstream media, but we've reached a point where that can't go on,” says a European manager. “The trade bodies should lead this effort, but everyone in the industry should be playing a part. We can't just defer the responsibility to someone else.”
Kevin Delbridge, a managing director with HarbourVest Partners in Boston, also believes the whole industry has a role to play. “It's right that FoFs should participate – there's a subset that do have a tremendous amount of knowledge, and they can certainly play a role in helping organisations like the NVCA put their message across. But the same is also true of the consultants who tell investors in which fund-of-funds to put their money, as well as the buyout and venture managers, and even the entrepreneurs involved – since they are also ones who live in the industry every day. It should be a collaborative effort.”