Wellcome Trust, the UK’s largest investor in private equity, has stoked the debate over private equity, warning that any change to the tax treatment of the industry would hit the trust’s investment returns, with a knock-on effect on its donations to medical research.
It could also force the trust to withdraw more of its investment from the UK.
In a letter published in today’s Financial Times, Danny Truell, the Wellcome Trust’s chief investment officer, said: “In the increasingly heated debate about private equity and hedge funds, the owners of these funds have been largely silent.”
Truell said the trust’s “ability to answer important questions related to health and disease is dependent on the performance of our investment portfolio”.
The GMB union has led calls for the abolition of tax relief on the debt used to fund their deals.
But, Truell said the trust’s alternative asset returns have been “a significant contributor” to a huge leap in its charitable spending, which has soared from £20 million in 1985 to £484 million last year, more than 90 percent of which was spent in the UK.
“Changes to tax and statutory controls on UK companies owned by private equity funds and on hedge funds could have two disadvantageous consequences.
“First, lower overall investment returns would reduce our ability to continue to increase our support for the UK’s position as a world leader in biomedical research and second, lower UK returns would drive us to redeploy more of our investment portfolio outside the UK.”
He said private equity ownership “is by no means always the best model to achieve long-term value creation”, but warned: “Interference with successful models without due consideration to the impact on the ultimate owners would be mistaken.”