As the new chairman of the European Private Equity and Venture Capital Association (EVCA) at a time of extraordinary regulatory challenges, Apax Partners' Richard Wilson may have to get used to mornings like this. “I have a meeting coming up where we'll be spending a fair amount of time talking about the remuneration issue, which came completely out of left field. There was just no expectation of it at all. The draft was drawn up in April and then, in November, remuneration pops its head up.” Throughout what may come across to the reader as an exasperated outburst, Wilson is in fact smiling. The impression created is that he never imagined his new role would be straightforward – and that it's best to retain one's humour in the face of adversity.
The “remuneration issue” to which Wilson refers is a recently submitted proposal by Sweden, the current holder of the European Union's presidency, that the already-controversial EC Directive on Alternative Investment Fund Managers should include an amendment that would closely mimic new rules on bankers' pay designed to curb the so-called “bonus culture” held by many to have played a key role in the financial crisis.
The Swedish move was surprising for two reasons. Firstly, the country was expected to provide a “safe pair of hands” in overseeing amendments to the Directive, which was perceived to be discriminatory to private equity and hedge funds when a draft version was submitted in April 2009. Sweden has one of Europe's most mature alternative investment markets and tends to be seen as sharing the pro-private equity camp with the UK rather than the more sceptical view of the asset class taken by regulators and politicians in France and Germany in particular.
Secondly, the private equity compensation model is arguably far removed from that typically found in banking and is frequently cited as something of which the industry can be proud. “It makes you scratch your head a bit,” says Wilson, “because the principles behind carry-based incentives must surely be the model for everyone else to follow. You have alignment between investors, GPs and management teams and GPs get paid on long-term capital gain.”
Wilson knows that the success or otherwise of his chairmanship will hinge to a large degree on whether or not the private equity industry in Europe ends up with regulation it can live with. Avoiding further regulation altogether is no longer an option, he insists.
“We've moved past the point of arguing private equity has no case to answer because it has nothing to do with the crisis. We have to acknowledge that the world is in a different place and that regulators want to regulate. The encouraging thing is that the three big issues are investor protection, avoiding systemic risk and transparency. Those things are all welcome and, on transparency for example, we've already made great strides thanks to the Walker Report. So we're fine with the principles. What was problematic was the detailed drafting of the original Directive, which was done in haste and would cause collateral damage. We need to get more tailored and proportionate regulation and we need a level playing field.”
Fortunately for Wilson and the industry as a whole, the Directive has already been through a long debating process which is expected to result in significant concessions when Sweden's so-called “compromise text” is published (this was due imminently at the time of going to press). Further amendments can then be made before an eventual European Parliament vote on the final draft, anticipated in July 2010.
Wilson believes that “there has been progress on some of the provisions”. For example, he thinks that the proposed requirement for all alternative investment funds marketed in the EU to have an independent valuation agent – derided by private equity back office professionals as costly and unnecessary – will be withdrawn. But he thinks the overall situation remains “highly fluid” and there is still much work to be done.
He adds that one big sticking point is the restriction on the marketing of so-called “third country” funds in the EU and marketing of funds by non-EU fund managers. “It's related to investor protection but it's caused a lot of concern,” says Wilson. “A lot of capital is raised from outside the EU and we don't want to be seen as protectionist. We'd be shooting ourselves in the foot.” Because of this issue in particular, there are some doubts that the Directive will be voted through next summer. If it fails, the need for a second Parliamentary debate would mean a further six-month delay. Wilson may need to rally his troops for a long-drawn-out battle.
There was just no expectation of it at all. The draft was drawn up in April and then, in November, remuneration pops its head up
Fortunately for EVCA members and all those hoping for a favourable outcome, Wilson is relishing the tussles ahead. “The thought of jumping in at the deep end was appealing to me. It's an exciting time” he says, when asked why he agreed to assume the role from outgoing chairman Jonathan Russell of 3i. He is also under no illusion about the time demands: “It's one of those roles that will take as much time as you can give it. I would imagine around one-and-a-half to two days a week. It's a lot of work.” Although the chairmanship rotates on an annual basis, a two- to three-year commitment is typically needed as the previous chairman, current chairman and chairman-elect work together in a tripartite arrangement.
Aside from the personal challenge, he also refers to an Apax tradition of engagement with industry associations. Notably, the firm's founder Sir Ronald Cohen was a founder and director of the EVCA as well as founder and chairman of the British Private Equity and Venture Capital Association (BVCA). In addition, Max Burger-Calderon – who retired as the firm's Asia chairman in November, while staying on in a non-executive capacity – was chairman of the EVCA from 2002-03. Wilson says this “tradition” imbues in Apax Partners professionals “a responsibility to participate”. By his admission, this is not entirely altruistic: “Wearing my Apax hat, we need to be in the middle of the debate on regulation. We're a long-established firm and we should have a view.”
Wilson has already cut his teeth with an industry association as chairman of the BVCA's research advisory council. The council was launched at the end of 2008 to “provide guidance and critical oversight to the research work undertaken by the BVCA”. It followed a period of hostile media coverage of UK private equity when, in Wilson's words, “the industry had been caught off guard in terms of its own profile and the profile of the companies in which it was investing and did not produce a great response. There was a lot of scrutiny and not much in the way of credible data and statistics the industry could use to defend itself.”
PRODUCTIVE PARTNERS HIP
Seated in the breakfast room of London's Goring Hotel, near Buckingham Palace, Wilson comes across as genial and selfeffacing. This prevents him from referencing his own career as evidence of private equity's ability to do good by building businesses and creating value. Were he to do so, he could point to his involvement in a $3 million investment in software company Autonomy in 1998, which three years later delivered a cash return of $900 million. It is often cited as one of the private equity industry's most successful deals of recent times. During this period, Wilson – who joined Apax in 1995 – had struck up a productive partnership with John McMonigall, an industry veteran who had been a senior executive at telecom giant BT prior to joining Apax in 1990.
Wilson recalls that McMonigall was “business focused not balance sheet focused” – an ethos that made him a good partner for Wilson. It may be no coincidence in terms of Wilson's EVCA appointment that he seems so far removed from the caricature of the asset stripping financial maverick beloved of private equity's opponents. Asked why he chose to go into private equity following his MBA, he says: “It was not just about the intellectual aspect but also variety and accountability for the investments you make. You are a principal investor, on the board as an active shareholder and you have involvement in the business. That was always important to me. I have an engineering background [Wilson graduated from Cambridge University with a BA (Hons) in engineering]. I'm not a financier.”
Having worked on a number of successful deals alongside his mentor, Wilson assumed leadership of Apax's tech and telecom sector team upon McMonigall's retirement as a partner in 2003 and continued in the role until 2008. He is now an equity partner and member of the firm's investment committee and became chairman of the tech and telecom advisory board at the beginning of 2009.
We've moved past the point of arguing private equity has no case to answer because it has nothing to do with the crisis. We have to acknowledge that the world is in a different place and that regulators want to regulate
If all this represents a relatively swift ascent for someone not long turned 40, Wilson is not the type to let success go to his head. Home life, he adds, is a welcome distraction: “I'm married to a vet, which is a very healthy situation because it means I don't go home and chat about the City; I talk about the real world.” Wilson, his wife and three children are residents of Buckinghamshire. “We're not urbanites. We like to see the grass and trees,” he says. In this rural setting, Wilson is frequently to be found roaming golf courses while his wife (“an equine fanatic”) perfects her skills as a dressage rider.
Despite the idyllic scene conjured, Wilson admits to a passion for a far-off land. South Africa, he says, is his dream location “for the space, the wildlife, the food and wine”. Asked whether the dream might become a reality any time soon, the response is brief laughter followed by an emphatic “no”. His sights are firmly set on the tasks at hand in his homeland.
Aside from the Directive, the other major preoccupation for Wilson is a new model of governance for the EVCA that was honed under Russell's stewardship (a process that delayed Wilson's succession by a few months) but will be implemented on Wilson's watch. The new structure sees the EVCA's venture capital, mid-market and large buyout “platforms” – which were created in 2007 – for the first time set their own priorities and directly elect their own platform councils. This also applies to a newly created fourth platform for limited partners.
Each platform council will have at least seven members, three of which will sit on the EVCA board. The latter will examine action plans put forward by the platform councils, measuring their viability against possible conflicts and the allocation of resources. A member from each platform will also be represented on a new Public Affairs Executive (PAE), which will form an overall industry position on public affairs matters that are pan-European and pan-industry in nature. The PAE will also have representatives from the national associations of France, Germany, Spain and the UK, as well as whichever country is holding the European presidency.
New members of the EVCA will join their relevant platform and will now be able, says Wilson, “to tailor what they need out of the EVCA to their own agendas”. This is seen as a way of empowering the membership in a way that was not possible previously. Under the prior system, an EVCA secretariat representative would work with a group of nonelected members who broadly represented the platform's constituency but would be selected rather than elected. Albeit with consultation, the agenda was driven as much by the EVCA as by the members.
Wilson claims: “It's quite a fundamental departure. It's an opportunity for the industry segments to take things by the scruff of the neck and take ownership of issues. It will demand active GP and LP participation. The ball is in their court.”
He sees the creation of the new LP platform as highly significant. An active EVCA membership should, he believes, embrace not just GPs but a vocal and engaged limited partner community as well. With the platform councils represented on the PAE, limited partners will henceforth always have a voice in the big public affairs issues of the day – which today, as if any reminder were needed, is the Directive.
He says: “The LP platform was formed in response to demand from LP members. As we represent the full investment ecosystem, it was logical to integrate them fully with voting rights and a representative platform.”
LPs are an increasingly important part of the industry's message to policymakers. The Directive is partly there to protect investors but the investors weren't consulted
Wilson adds: “LPs are an increasingly important part of the industry's message to policymakers. The Directive is partly there to protect investors but the investors weren't consulted. Getting momentum from the LPs in the Directive debate was initially difficult as they tend to be reticent. But we've now had seven submissions from the LP community to the Commission regarding the Directive. That's a huge benefit.”
Wilson sees the PAE as the natural successor to the Brussels Task Force, an ad hoc committee put together by the EVCA in October 2008 to respond to the proposals that were then brewing within the European Parliament with respect to alternative investment regulation. “All formality was put to one side and it [the Task Force] worked well,” says Wilson. “The PAE is the next phase.” He adds: “Historically, relations between different associations in Europe have been a bit tense but the refreshing thing is that the Directive has seen everyone pull together in an encouraging way and focusing on the challenge at hand.”
Wilson is focused as he rises from the table and heads off for that meeting about the compensation issue that came out of nowhere. His demeanour suggests such things will not easily faze him. Just as well. The crisis may have receded, but these are still unpredictable times.