More Treasury Tales

As you probably know Dan’s away for the next fortnight so the Thomson private equity team is taking it in turns to fill his shoes while he is on holiday. First up is me, Tom Allchorne, the associate editor of EVCJ, and, I think, the first ever none American to do the Wire. As such, you can expect a bit of a British flavour to today’s post. 

The UK’s new Prime Minister Gordon Brown hasn’t been in the job a week and he’s already got plenty on his plate, even without the failed terrorist attacks at the weekend, which will surely overshadow all news stories in the short- term, including the final hearing of the Treasury Select Committee which has already heard from the British Venture Capital Association, trade union representatives and four European buyout chiefs (more can be found here 

A last minute addition to tomorrow’s line-up has been CVC and Charterhouse, representatives of which will be there in as a result of the recent merger of the AA, the UK’s automobile repair and insurance group – owned, of course, by Permira – and Saga, the insurance group owned by the two aforementioned firms. The merger seems to have upset the trade unions and as such the committee has asked CVC and Charterhouse to turn up tomorrow for a bit of a chat. 

Maybe this sort of thing shouldn’t matter, but it was a bit of a strange time to announce such a big merger – £6.15bn – of two well known names in the midst of the current storm surrounding the industry in the UK. It was always going to be seized on by the anti-private equity brigade who, whenever they see the word “merger” assume it also means “job losses”, which of course it might well do. Well, expect CVC and Charthouse to give a presumably robust defence of the deal, armed to the teeth as they surely will be with all the salient facts. 

After them (or before them, the new schedule not’s been made clear yet), it’s the turn of Sir David Walker, the former chairman of Morgan Stanley and current chairman of a private equity working group on transparency and disclosure set-up by the BVCA in March. It’s even got its own website if you’re interested (, although it doesn’t reveal very much. The group was established to tackle some of the criticisms the industry was and continues to face, namely in regards to its perceived secrecy, but also to ensure that any solutions to such problems didn’t overwhelm smaller businesses with new reporting requirements. The working group will produce a voluntary code addressing the levels of disclosure and how PE-backed companies communicate with its wide-range of stakeholders. It is due to report in the Autumn, and presumably the Treasury Committee tomorrow will want a progress report. 

The challenge for private equity is to get in there first. There is no point in sitting back in the middle of the transparency storm and waiting for governments and regulators – which have hitherto shown a rather limited understanding of just how the industry works – to slap new rules down. Private equity needs to take the front foot and demonstrate its ability to regulate itself; as such, Sir David’s comments tomorrow should prove important. 

Sir David will be followed by the Financial Services Authority (FSA), the body responsible for regulating the UK financial services industry. A lot of GPs were pleasantly surprised – and relieved – when the FSA published its report into private equity last year. No-one really knew what to expect but many were beginning to feel the heat that increased regulation was only a step away. They needn’t have worried because the FSA was in actual fact pretty dull – broadly supportive of the role private equity plays in the economy with a few caveats about excessive leverage, market abuse and conflicts of interest 

There were a few other risks highlighted but they were quite minor and vague that they could be applied to almost any industry. Of course, this wouldn’t have been the impression had you read any of the newspaper reports at the time, which made the FSA report sound apocalyptical – but then I suppose ‘Financial watchdog slams debt levels’ is more exciting than ‘Regulator supports private equity’. 

In the last month the FSA has made some further announcements following feedback to its report, and now looks like it will be asking banks to hand in bi-annual reports on their LBO exposure, calling form private equity firms to report on committed capital as well as drawn down capital. Expect the FSA to essentially reiterate the above. You can even see for yourself at a webcast on 

*** On a highly related note, at the EVCA Symposium a few weeks ago in Rome I must have had at least half a dozen conversations with GPs and LPs based in Continental Europe whose first or second question was always “So, do you think that Gordon Brown will come down hard on private equity?” They usually said this with a smirk on their face – read into that what you will – but I was a bit taken aback but the frequency of the question, but then again this was the day after the BVCA Chairman Peter Linthwaite resigned following his mauling by the Treasury Select Committee. My answer then is the same now: not really. I think increased regulation is a certainty and there may very well be some changes to the way carried interest is treated but, as always, the model will just be tweaked so I doubt anything major is on the cards (famous last words).