Less hassle

In the week the Southern Cross controversy erupted in Britain, PEI was in the capital of Europe for the European Private Equity and Venture Capital Association’s “Smart Capital” event, a gathering of industry people, investors and policy makers held to assess and, as EVCA put it, “celebrate” private equity’s record as a responsible investor.

EVCA insists there is indeed plenty for the industry to celebrate, as its public image is slowly but steadily improving. Rightly so, EVCA says: Europe’s private equity and venture capital funds have come through the financial crisis well, with few write-offs and a tally of some 16,000 businesses funded since the onset of the crisis. Who else but us was there to back these businesses at a time of need, EVCA is asking. Not many others, is its answer.

As a consequence, EVCA believes more people who matter are beginning to realise that marginalising private equity by way of introducing crippling regulation would be a bad idea. Europe needs growth, and the industry is there to help finance it. Make it harder for institutional capital to find its way to growth companies via private equity, and Europe’s global competitiveness will come under even more pressure, is the argument. Make it easier, and the whole of Europe will be better off for it.

Karsten Langer, the freshly installed chairman of EVCA for the next 12 months, is confident that recognition of private equity as a driver of growth is in the ascendancy. “Private equity has proven its ability to support portfolio companies even in severe downturns, and has shown itself to be a better custodian of businesses than other types of owner,” he told PEI in Brussels. “These facts are an enormous counterweight to what the sceptics are saying.”

Already the trend was making a noticeable difference to those working in private equity, Langer added: “We’re not being hassled so much anymore.”

Those following the industry closely, and especially those remembering the breakout of the locust debate in 2005, will likely agree. Generally speaking, the demonisation in the mainstream media of private equity is not as intense and ferocious as it was.

However, readers will not miss the irony of Langer’s upbeat comments coinciding almost to the day with The Blackstone Group coming under attack for its alleged asset stripping at UK care provider Southern Cross prior to the company’s IPO in 2006. Blackstone, which has since hired Finsbury, a London PR house, to help defend itself against charges of greed and irresponsibility, is being blamed by unmistakably hostile commentators including the widely read tabloid The Daily Mail for the ongoing near-collapse of a business it hasn’t owned for five years.

Less hassle? Right now Stephen Schwarzman and his London-based lieutenants might tell you something different. Whatever the facts surrounding the company’s exit from private equity ownership back in ‘06, there is no question that Southern Cross will now have to be remembered as a moment when private equity bashing in Britain made a comeback. For Blackstone, the episode has been bruising.

“I believe in five years private equity will not just be tolerated; we will be seen as a force for good in the economy,” EVCA boss Langer said at the Smart Capital event. He’d be wrong to change this prediction – the long-term trend is indeed pointing to the industry becoming more widely known as responsible owners.

However, Southern Cross also shows that private equity is still vulnerable to attack from those who stand ready to point their guns at it. The facts do support the industry’s case – but careful treading also remains mandatory.  ?