Business View: Attacks on private equity are unwarranted

For all the fuss over fat pay cheques, they can make better owners than plcs

It is understandable that the private equity industry is coming under a sustained assault from a few ambitious Labour MPs and the massed ranks of the unions. Partners in these companies trouser vast salaries, and many do so while overseeing swingeing restructuring programmes at the companies they run. Unimaginable bonuses for the few and P45s for the masses is as distasteful a combination as a maggot in an apple.

What makes matters worse is the stubborn refusal on the part of some private equity bosses to accept they are accountable to anybody. Several we tried to speak to last week - and their highly paid PR advisers - decided they had no need to answer their critics.

But nearly everybody with a pension has money invested in private equity companies - they are among a range of assets in which fund managers place our savings. And one in five private sector workers are now employed by private equity-owned companies. It is an utter nonsense for these mega-wealthy executives to stay tight-lipped, and thankfully, the more forward-thinking of their number have come to that realisation.

And they have a good story to tell, for private equity groups are not the grasping asset strippers that some would have us believe; more often than not, they are better owners than plcs.

For a start, private equity companies do not have to answer to investors every three months, like publicly owned groups are obliged to. This enables them to formulate long-term strategies - typically three to five years - that maximise the prospects for the companies they own.

Second, investors in private equity funds - the pension fund owners with which we place our savings - have unfettered access to management. Third, the huge bonuses that private equity bosses pocket can generally only be secured if the companies under their stewardship increase in value over the long term.

By contrast, directors of plcs are pressured into making strategic decisions to satisfy the short-term demands of fund managers who are often more concerned about their Christmas bonus than the long-term health of the companies in which they invest.

All these factors mean private equity-owned companies typically grow faster than their plc peers - which is good for their staff. For every private equity-owned company that has cut jobs, there is at least one that has added to its workforce. Take Fitness First, the gym company: in 2003, when it was sold to private equity, it had 7,000 workers; it now employs 13,500.

While it is true that private equity groups often cut headcounts at the companies they buy, that is typically because these groups were badly run when in plc hands. I suspect that political anger at private equity is more to do with the looming Labour leadership contest, with candidates wanting to stay in the good books of the unions.

Sky starts a scrap

BSkyB seems determined to wind up the whole of the TV industry. Not content with causing a competition rumpus by buying a stake in ITV, as well as withdrawing three channels from Freeview, it is now promising to pull its main entertainment channels from Virgin Media, its chief competitor in the pay-TV arena.

On how many fronts does it wish to fight? If Ofcom, the media regulator, does decide to take action to redress the looming imbalance in the commercial TV market, then the satellite broadcaster will only have itself to blame. Sky seems all too happy to demonstrate just how powerful it has become, but this looks an unwise course of action.

Sky's behaviour is also the first real test for Ed Richards, the new chief executive of Ofcom. There will soon be a queue of broadcasters at his door unhappy at Sky throwing its weight around. That queue could also soon include the BBC and ITV, which both have a significant interest in Freeview.

We might be about to witness the British television industry entering one of the most fractious periods in its history.

a.murray-watson@independent.co.uk