As if European private equity professionals didn't have enough on their plates already. The pace in the deal market is relentless. The self-proclaimed crusaders against the industry are legion. And now that UK professionals have come under massive pressure over their tax status, there is no getting away from the fact that they are increasingly at each others' throats as well.
In June, private equity veterans Nicholas Ferguson and Sir Ronald Cohen angered many in the industry by drawing attention to the way carried interest is being taxed in the UK. Ferguson's remark that under current rules, highly paid UK private equity professionals were paying less tax “than a cleaning lady” had all the inflammatory power of a history-changing sound bite. The media had a field day. And the members of the Treasury Select Committee, preparing for their confrontations with private equity professionals in the House of Commons (see p. 34), could hardly believe their luck.
Most of those now suddenly in the frame over their fiscal affairs chose to express their frustrations in private. A few went public. Guy Hands of Terra Firma, in a letter to the Financial Times defending the existing rules on taxing carried interest, made a thinly-veiled attack on “eminent figureheads” who had “benefited from the current tax regime themselves” yet were now advocating changes to the existing arrangements. Hands wrote: “These grandees and private equity's critics might all do well to think through the long-term consequences of any proposals they make, rather than playing to the gallery.”
Jon Moulton of Alchemy chose to write to the Sunday Telegraph. Unlike Hands, Moulton said a higher tax rate on profits on buyouts might indeed be appropriate. But he too fired a broadside against what he labelled the “enemy within”, hitting out against “those who have benefited mightily from the private equity industry criticising its tax position”.
But it hasn't just been the big beasts locking horns. Tell-tale cracks appeared in other places too. Wol Kolade, the incumbent chairman of the British Venture Capital Association, was a member of the BVCA delegation that on June 13 crumbled in front of the Select Committee. Within hours of the ordeal, Kolade publicly questioned BVCA chief executive Peter Linthwaite's suitability for the tasks ahead. Two days later, Linthwaite quit his job (see p. 17). Many in the industry were left thinking that whoever will be leading the communications fight back in the coming months, it probably won't be the BVCA.
Although the size and nature of the personalities involved can perhaps help explain some of the sparks that have been flying, the root cause is a more fundamental one: the lack of solidarity between the megafunds and everyone else in private equity.
Many mid-market professionals believe that whatever its shortcomings, the BVCA would have fared better in recent weeks had the big houses been more supportive. They also believe that private equity's image problems have been created by the mega-funds alone, and therefore any remedy requires greater engagement from them in public affairs. Likewise the venture community, besides quietly damning the perceived hubris of their buyout cousins, consider the current tribulations to have been caused wholly by the leveraged leviathans.
Meanwhile the mega-funds, a few exceptions notwithstanding, continue to keep their heads below the parapet. They also do not appear to regard the industry associations as particularly important allies. A flick through the 650-strong attendee list of EVCA's Annual Symposium held in Rome in June is telling: Apax Partners, Carlyle, CVC, KKR, Permira and TPG sent one delegate each; BC Partners, Blackstone, Charterhouse, Cinven and Warburg Pincus sent none.
As for the London-based giants' take on the BVCA: “You don't support anyone who you think won't win,” declared a partner at a pan-European mega-fund to me recently.
From the evidence so far, it is hard to imagine that the buyout industry is likely to start speaking with one voice any time soon. This is unfortunate, because a unified stance and a common agenda would be assets at this time.
EVCA's recent decision to continue to lobby for all of private equity whilst also doing work through separate platforms dedicated to mega-funds, mid-market private equity and venture is a step in the right direction. Now the mega-funds in particular must throw their weight behind the association's effort – and bury the hatchet with their mid-market buyout and venture colleagues too.
“Look at the scale of the infighting in your industry,” Treasury Select Committee chairman John McFall told Permira's Damon Buffini, Carlyle's Robert Easton, KKR' Dominic Murphy and 3i's Philip Yea at the second committee hearing on 20 June. He isn't the only one who has noticed.