Private equity still attractive to FTSE CEOs(2)

Many FTSE 100 chief executives are considering a move into private equity, either as operating partners, advisers or individual investors, despite misgivings about the industry’s short-termism and excessive leverage.

Chief executives at companies in the FTSE 100, an index of the biggest listed firms in the UK, have strongly endorsed the private equity model – despite the controversy that has surrounded the industry in recent months.

 

Executive search firm Heidrick & Struggles interviewed 58 FTSE 100 chief executives, and found that more than half planned to enter the private equity industry as operating partners, advisers or investors.

 

However, the survey, which was sponsored by The Daily Telegraph, also found that despite this sympathetic attitude towards private equity, many FTSE 100 bosses are concerned that the asset class has too much of a short-term attitude and too much leverage.

 

Steve Tappin, managing partner at Heidrick & Struggles, said: “The short-term investment approach of private equity firms is probably the biggest concern for CEOs of public companies, while the excessive leverage in private equity deals probably ranks as the second biggest concern.”

 

The survey also highlights the increased convergence between the public and private markets. Tappin told the Telegraph: “The findings reinforce the view that as the traditional barrier between private equity and the public company model erodes, executives will increasingly flit in and out of each sector, developing skills to cope with the demands of each.”

 

“In addition, as standard private equity strategies, such as increasing leverage, restructuring property portfolios and tightening the focus on operations, are adopted by public companies, private equity may have to become even more adventurous. Public company CEOs may end up shaping the next generation of private equity thinking.”