Taylor backs Walker’s transparency drive(3)

Duke Street Capital’s managing partner Peter Taylor has emphasised his support for Sir David Walker’s drive for greater transparency in private equity, after successfully deflecting criticism about the industry at this morning’s Treasury hearing.

Peter Taylor, managing partner at Duke Street Capital, reiterated his defence of the industry’s tax treatment and his own firm’s recent investment record today, while emphasising his support for Sir David Walker’s attempts to improve transparency.

Speaking at a press conference held immediately after this morning’s Treasury Select Committee, Taylor was keen to set the record straight about his firm’s investment in biscuit-maker Burton’s and DIY chain Focus – both of which have recently made headlines for all the wrong reasons. Taylor stressed that both companies had been or would be growth stories, saying that he expects Burton’s to “at least double in size during the next five years.”

Taylor also defended Duke Street’s use of leverage in comparison with some other private equity firms, following criticisms that excessive leverage had caused the collapse of Focus. He said: “Our leverage to EBITDA ratio has been around five times consistently during the last five years. We typically adopt a conservative approach to leverage and this is the first time in over a decade that any lenders have lost money on a Duke Street deal.”

Taylor also insisted that it was right to treat carried interest as capital gains, since all private equity funds include upfront capital investment by the partners personally. He said: “When raising our €1 billion fund, the partners and staff at Duke Street personally invested €25 million or 2.5 percent – so this is risk capital to ourselves and ought to be treated as capital gains.” Duke Street is set to close this fund imminently on €1 billion – above its target of €850 million.

Carried interest also takes a long time to pay out, he added: “Partners’ interest is paid out only after a long hold period, generally around eight years and only once investors’ capital, management fees and a minimum hurdle rate of 8 percent per annum have been paid.”

Taylor did acknowledge the need for greater transparency and engagement. “As an industry, we have not been good enough at telling our story,” he admitted. When asked about Sir David Walker’s suggestions for greater transparency, he said: “I absolutely agree with everything that [he] said”. He confirmed that Duke Street would participate in Walker’s recommendations for greater transparency, which are due to be published on July 17.

However, Taylor said there was one point on which he disagrees with Walker: “I disagree with the idea that GPs are different from people like Sir Richard Branson and Sir Philip Green. We ought to get the same treatment as these individuals with regard to capital gains tax and the disclosure of annual reports. After all, we are not that different from these individuals, who frequently use the sort of amounts of leverage seen in private equity deals.”