FIRST ROUND(2)

Nicholas Ferguson, chairman of SVG Capital, may have enjoyed an illustrious career in the upper echelons of the financial services industry, rubbing shoulders with the great and the good of the private equity world. But although he often walks with kings, he hasn't lost the common touch.

“Private equity is like football,” Ferguson declared in a letter to the Financial Times, as he weighed in to defend the buyout industry against recent criticisms.

How so, PEI wondered? Surely he wasn't suggesting that the industry is increasingly the preserve of a bunch of over-paid prima donnas? That its practitioners were more interested in pursuing models in London nightclubs than the pursuit of excellence? Or, as the baseball fanatics in our US office might suggest, that it was more often than not a dull, insipid tactical stalemate?

None of the above, actually. Private equity is like football because “people go for the best”, according to Ferguson. Although there are thousands of football clubs in Britain, most are “not that good”, he opined – which is why the top two divisions attract the vast majority of the money and support in the game.

As lower league fans from Accrington Stanley to Yeovil Town prepared to march on SVG's London office to give voice to their indignation, Ferguson bravely pressed ahead with his analogy. For private equity operates in much the same way, he said – there are lots of buyout groups in Britain too, but the top funds attract a disproportionate amount of investor support. Indeed, the top ten firms control almost half of all the available capital, he said.

Ferguson's main – extremely salient – point was that it was misleading to give as much weight to the average returns of “a two-man local private equity group in Aberdeen” as to the returns of buyout behemoths like Permira and KKR. To make a fair comparison with weighted stock market indices, private equity returns should be weighted too, he said, to reflect the amount of capital under management.

The argument was a compelling one, but it did make us wonder what Aberdeen had done to deserve such disdain. Has SVG, best-known for its massive investments in Permira's buyout funds, perhaps had its fingers burned by a belowpar Scottish boutique?

On the other hand, the Granite City can boast the third best football team in Scotland, at time of writing. So even Ferguson would have to agree that the city has at least one good thing going for it.

In next month's PEI celebrity simile: Forrest Gump, on why private equity is like a box of chocolates.

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