The need for image management

These are interesting times for general partners. In particular, those leading some of the largest and most prominent private equity firms in the US and elsewhere are, and largely not out of choice, experiencing widespread scrutiny at present. And much of it is pretty negative. This is because both the specialised and mainstream media have alighted on recent events inside the world of private equity as a chance to open up what some see as a suspiciously private world dominated by suspiciously private people.

Private equity has a number of characteristics that makes it an ideal target for media investigation, particularly in the US. A key factor here is that many of the buyout firms are led by distinctive, often charismatic, individuals. They're reputed to be worth tens or even hundreds of millions of dollars and often achieve further notoriety on account of high profile purchases and donations. Whether it's a baseball team or a charity, this attracts attention.

It's inevitable too that these influential people move in other circles of influence, encouraging much speculation as to the degree of linkage between private equity and politics: witness the considerable coverage given over to The Carlyle Group's undoubtedly intimate relationship with the defence industry and its equally close relationship with that sector's main clientele: governments.

Next add in the fact that private equity transactions are usually shrouded in secrecy. This reluctance to reveal information, be it significant or not, adds further fuel to the fires. Money, power, secrecy help spawn rumours of conspiracy and skulduggery. Or in other words: great copy.

Against this backdrop it comes as no surprise that UTIMCO's recent revelations have had the keyboards humming. Some are portraying the move as a crusade and hint that more revelations are forthcoming, something that UTIMCO have denied. Others dwell on what they regard as the GPs' calculated attempts to stifle UTIMCO by threatening to freeze the investor out from subsequent funds. Whatever angle is taken though, the bottom line is that more people are reading more copy more often about private equity practitioners – to the extent that the ?private? label looks increasingly like a misnomer.

There have been other recent indications, albeit less explosive, that provide a useful reminder that some of private equity's key people are becoming acutely aware of the need to manage their own, and their companies', profiles in the public eye. One episode evidencing this heightened awareness amongst GPs was at the recent Private Equity Analyst conference in New York, where many of the private equity industry gather and some of the more prominent speak. As one who attended commented, the image being presented by the big buyout firms was one of humbleness. ?These guys were saying ?yep, we've made some bad deals, got a bit too bold but we've learnt from this and we're going to stay focussed going forward?? was how the visitor described it. And this same message has been broadcast at the LP meetings of several leading buyout firms too.

Some may immediately point back at recent performance figures such as the ones released by UTIMCO (see Asset Class, p. 15) and say that there's the reason why private equity is looking to better manage its image. Some of the recent – and not so recent – vintage funds have numbers that seem radically disconnected from the claims of top quartile IRRs. That's part of the reason. Another part is that these private equity firms are now deeply embedded in many key industries globally (telecoms, manufacturing, distribution, services, you name it) and this makes it essential that private equity loses its opacity. It's just too important to be able to fly under the radar any more. Call it spin, PR or image management, there's more of it to come.