Private equity is learning to live in public. The industry is campaigning to persuade the European Commission not to bundle it together with other alternative assets such as hedge funds in likely new regulatory proposals. But ambitious buyout firms were eager to distinguish themselves from fuddy-duddy mainstream investment during the boom times. They can’t opt out so glibly now.
Prodded by European Parliament resolutions, the Commission is drawing up proposals for tighter pan-EU regulation of alternative assets. The aim is to replace Europe’s patchwork of national rules governing alternative assets with one framework. Among the Commission’s main concerns are capital adequacy, leverage, disclosure and treatment of companies in portfolios.
The previously reticent and private industry is suddenly buttonholing whoever will listen to complain that what’s in the works is grossly unfair. We, they say, are not like those wicked hedge funds. We don’t pose a systemic threat. We invest in real companies with real assets. We invest for the long term – well, five years anyway – and only get paid when a business is sold. We’re just victims of socialist politicians who’ve never liked or understood us.
There is some truth in all of this. But the industry is missing the point. You can’t be alternative one minute and mainstream the next just because the political wind has changed direction. And private equity did itself few favours in recent years. Portfolio companies were too often loaded down with debt, flipped after only a few years, and traded from one private equity firm to another like cans of beans.
Private equity’s protestations of purity are part of the global blame game. As the house it helped to build lies in a heap of ruins, the industry looks all wide eyed and proclaims: “It wasn’t me guv, honest.” The locust was a butterfly all along. But given private equity’s known past associations, it’s not surprising that legislators and voters dump all alterative assets into the same fat cat bucket. Private equity may not like it but will have to lump it – in the public gaze.