‘The onus is on us’

Do you think the industry needs to be regulated?

It’s clear that the private equity industry is facing a new reality: heightened regulation and increased public antagonism to an asset class which is, at best, misunderstood. I think that for those of us facing this fresh wave of interference – an attempt to curtail an industry that is all too easily seen as self-serving – it is easy to feel frustrated. Yet really these issues are two sides of the same coin. Increased regulation is the direct consequence of the poor regard in which the financial services industry as a whole and private equity in particular is held. And we have no one but ourselves to blame.

In what ways is the industry to blame?

For too many years, private equity firms have failed to engage with the public, or to properly explain their business models: we have been happy to advertise our successes when it suited us, but have too often fallen back upon jargon and obfuscation when confronted with difficult questions concerning failures. For broader society – and by extension government – to understand the very real value we bring to the respective economies in which we operate we must tell them, and show them – especially if we wish to be able to influence regulation.

Alistair Mackintosh

Could you give specifics on how the industry can guard against future “interference” or regulation?

Measuring the tax we pay and the jobs we create is a start. But we must also assess and communicate the broader benefits our capital, when well deployed, delivers to a society. Classically, these benefits have been labelled, “non-financial returns” – improved health and safety, high standards of corporate governance, customer satisfaction, responsible environmental practices – outcomes which may make us stand taller and feel better about our place in the world, but which seemingly have no material impact to our bottom line. These returns have been indulged, providing the cost of creating them has been minimal. This is changing for two reasons.

Firstly, the debate about the role of environmental, social and governance practices has moved on. The argument as to whether stringent ESG practices make good business sense and add value to our portfolio companies is over: they do.

Secondly, the question of what business is for is being redefined. Prize-winning economists like Joseph Stiglitz encourage us to think more boldly about how we can create a global economic architecture which works better, for more people.

What exactly do you mean by the purpose of business being redefined?

This is a seismic change from the accepted wisdom of the 1970s and Milton Friedman’s famous and simplistic insistence that, “the social responsibility of business is to increase its profits.” The private equity industry’s capital and scale means we have the opportunity to make a lasting difference.  Indeed, I would argue that we have an obligation to do so.

Over 80,000 employees work in Actis’s portfolio companies, these in turn employ a multitude of suppliers and service workers. These individuals support hundreds of thousands of dependents. If you repeat this exercise across the private equity world and account for all the people whose lives are being touched by our industry, you realise the opportunity private equity has to make a real and lasting global impact. If our industry is to deliver more for the many it needs to be wholly accountable and transparent. But the onus is on us.

So what is your final call to the industry?

We must begin by taking the private out of private equity and by being more open; clearly explaining how we are fulfilling our obligations to society. And we must be ever more ambitious while not in any way jeopardising financial returns. In short, it is time to reflect upon the work we do, to consider what more we should be doing to engage and to begin to re-define our own role in society.