UK - A public campaign to try to dissuade pension funds from investing in private equity has left them indifferent.
Last year, senior German politician Franz Müntefering branded private equity firms “asset stripping locusts” and called for tighter regulation of the industry. Febuary saw a concerted campaign by European trade unionists to convince pension funds not to invest in the asset class.
In the UK, National Association of Pension Funds (NAPF) corporate governance head David Paterson said: “Our view is pretty simple: well-managed private equity funds are suitable investments for pension funds because they can deliver attractive returns and the risk profile is quite different from that of traditional quoted equities.”
With companies like Sainsbury’s, Birds Eye, AA and NCP now either private-equity backed or about to be, unions like the GMB and Trade Union Congress (TUC) have raised concerns over the morality of private equity investment, the opacity of the industry and the long term sustainability of the asset class.
TUC senior policy officer Janet Williamson said: “Of course trustees are obliged to produce the best returns for the beneficiaries, but that doesn’t mean that they have to do this in a way which is irresponsible... You can make a very coherent case for not investing in companies which treat their staff very poorly, adopt a slash-and-burn approach and do not invest for the long-term: the asset-stripping approach.”
Mercer Investment Consulting German principle Herwig Kinzler admitted that the “moral issue” should be considered, but insisted this was an issue that affected all asset classes.
He stated: “In the end, it is the decision of a pension fund to balance return and moral aspects in the best way for their clients.”
Paul Myner, author of the seminary 2001 Myner’s review on institutional investment, recently wrote a letter to the New Statesman urging pension fund trustees to “wise up to the huge sums being earned by intermediaries from the movement of money from publicly quoted companies to private equity”.
However, speaking at a recent M&A conference in Ireland, EU commissioner for internal market and services, Charlie McCreevy, said private equity helped keep publicly quoted companies “on their toes”.
He defended those features of private equity investment most reviled by the unions as being in the interests of investors, stating: “Contrary to what might generally be perceived, the people with the ultimate economic interest in private equity funds... are... the private clients of institutions who have entrusted the savings they have set aside for their future to professional managers.
“It is to those clients that private equity funds are ultimately accountable... And it is to those clients that private equity funds must deliver – by being proactive in managing their money.
“Proactive in identifying good investment opportunities. Proactive in identifying good management teams and in weeding out bad ones. Proactive in identifying mergers and acquisitions that deliver synergies, scale and value. Proactive in disposing of assets that are not delivering adequate returns.”
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