Private to Public: Mission impossible

When TPG’s Vincenzo Morelli was elected chairman of the European Private Equity and Venture Capital Association in June, his first official statement stressed the importance of selling the industry’s benefits “to society at large”. In subsequent interviews, he has continued to suggest that improving the industry’s public image would be his main priority during his time as chairman.

That will be easier said than done, however.

The problem is not Morelli himself. In fact, as potential advocates go, his credentials are impeccable. He started his working life as a consultant with Boston Consulting Group, before spending eight years at General Electric. In his current role as operating partner for TPG Capital Europe, he co-ordinates operational improvement across all the buyout firm’s European portfolio companies (two of which he continues to chair). This is not some faceless financier who has spent his life poring over discounted cash-flow models; Morelli has genuine hands-on operating experience. So he’s well positioned to highlight the good work private equity does in this area – and since that remains, in our view, the industry’s best hope of reputational redemption, he’s a great candidate for this job.

The problem is timing. Morelli’s tenure lasts just one year. And that year happens to coincide with a US general election in which one of the candidates, by dint of his background, is acting as a lightning rod for criticism of private equity. The recent scandals in the City of London won’t have helped either; after the rows over mis-selling, LIBOR and money laundering, it will be difficult to persuade ‘society at large’ that any financial services organisation deserves any benefit of the doubt.

Nor can he expect a lot of help from the private equity industry as a whole. Many of its leading lights clearly do not share Morelli’s enthusiasm for greater engagement with the wider world (including many of his colleagues at TPG, in PEI’s experience). And they have no wish to argue the case for private equity against Romney’s critics; in fact, some resent the would-be President for not doing more to defend it.

There’s also a sizeable contingent who are genuinely uncomfortable with the idea of defending Romney’s track record. In a recent Bloomberg piece under the headline “Romney’s Bain Yielded Private Gains, Socialized Losses”, Anthony Luzzatto Gardner of European growth investor Palamon Capital Partners picked apart some of Bain’s more controversial deals – the early, very highly-leveraged ones – in forensic detail, arguing that there’s nothing admirable about this sort of private equity.

“President Obama is correct in distinguishing the patient creation of value for the benefit of investors through genuine operational improvements and growth – the true mission of private equity – from the form of rigged capitalism that was practiced by some in the industry in the past when debt was cheap and plentiful,” writes Gardner. It’s a sentiment that many outside the large buyout space share (although how likely the rest of the world will be to recognise and appreciate this distinction is debatable).

It’s not Morelli’s job to defend Romney. But it’s the issue that will define his tenure – and against this sort of backdrop, it’s hard to imagine even the most compelling advocate making much headway on improving the industry’s image. Morelli will arguably have done well if things don’t get a whole lot worse.