Don't hold out much hope for transparency from private equity firms

By John Cranage on Jul 29, 08 07:32 PM in Finance

It's a good world, the world of the well-meaning. Got a problem? Just speak nicely to whoever's causing the trouble and all will be well.

That's the theory. Whether or not, in a naughty world, it works is another matter.

The police are trying it in Redruth in Cornwall where anti-social teenagers have been making life hell for the peaceable and law-abiding. There's now a curfew in place aimed at getting troublemakers off the streets by 9pm. Except it is voluntary. Which presumable means that those who believe their right to misbehave trumps the right of others to peace and quiet will simply ignore it.

In another world entirely, much the same thing is being tried to get private equity companies to do what doesn't come naturally to such beasts and sign up to a code designed to show the world that they're not the jobs-destroying, asset-stripping, tax-avoiding, debt junkie bandits of the bottom line they're popularly believed to be.

Its purely voluntary, of course. No need to sign up to it if you feel uncomfortable with telling the world what you're doing old boy.

When he's not chairing the BT board, Sir Michael Rake has the job of getting private equity firms to sign up to the "transparency" guidelines that Sir David Walker drew up for the BVCA (the industry's trade body).
Sir Michael told the Financial Times that so far 33 group comprising 55 companies had signed up, although some prominent names had not.

Some firms, including Apax Partners, Terra Firma, Permira and Cinven, have already begun publishing annual reviews while privately-held household names such as Alliance Boots and Gala Coral put out annual reports similar to the statutory publications from quoted companies.

There is, of course, a tiny chance that this apparent enthusiasm for openness on the part of naturally secretive organisations is connected with the BVCA's fight to head off a plan by the EU to ramp up the regulation of the private equity and hedge fund industries.

One financial commentator said a few months ago that in some respects, a private equity takeover of a business with thousands of employees, millions of customers and a big supply chain is anything but a private transaction.

He was referring specifically to the £11 billion takeover of Alliance Boots by Kohlberg Kravis Robets & Co (KKR), the orginal "Barbarians At the Gate". But not only has KKR apparently signed up to the transparency package it is has also revived a plan to list on the New York Stock Exchange.

That same commentator, however, believes that private equity should be renamed "long-term capital" as that is a much more accurate description of it as an asset class.

That's not what the employees and customers of LDV, the Birmingham vanmaker, and South Staffordshire Water would call it. Both went into private equity hands only to be sold on again in short order.

Private equity might well see the benefit to its public image by opening up its books, but its chances of ever being regarded as a long-term investors are slim.

About as slim as your chance of getting a quiet night in Redruth.