LPs getting to grips with private equity’s bad reputation

Only one in ten LPs believe that private equity enjoys a good public reputation, according to research conducted by unquote" intelligence for the recently released Coller Capital Private Equity Barometer. The verdict is even more ruthless coming from purely Europe-based investors – a mere 5% believe that the industry is seen as a force for good.

Meanwhile, almost half (45%) of those same LPs think that private equity suffers from a bad reputation in the public eye, with another 45% deeming it merely neutral. But, luckily for GPs currently on the fundraising trail, the investors surveyed by Coller believe that private equity is getting the short end of the stick: two thirds of North American LPs think the industry's reputation is worse than it deserves, with 62% of European investors agreeing with this statement.

Nevertheless, private equity firms may be forgiven for thinking that a target is painted on their backs once again. The US presidential race has seen Republican candidate Mitt Romney labelled a job destroyer by his opponents based on his tenure at Bain Capital, putting private equity back under a harsh spotlight. In the UK, the Southern Cross debacle severely damaged the reputation of large-cap buyout players like Blackstone – undeservedly or not. Furthermore, as the capital gains tax issue is gaining traction with various governments across Europe, GPs are more often than not mentioned in the same breath as tax dodgers.

LPs and trade bodies are aware of the problem and willing to tackle it

Private equity may have developed a thick skin since the "locusts" debates of 2007, but it would seem that the days of just weathering it out in stoic silence are numbered. Two of the industry's largest trade bodies, Europe's EVCA and France's AFIC, elected their new chairmen in June – and both heads have made a point of putting private equity's image problem on top of their to-do list.

"We aim to encourage a positive view of private equity and venture capital as a very effective model of company ownership [...] and as an indispensably useful source of risk capital for European enterprise," said EVCA's Vincenzo Morelli in his post-election speech. Meanwhile AFIC's Louis Godron highlighted the need to "keep explaining what we do as responsible and socially beneficial actors".

The French association even went as far as to change its name in an effort to highlight the positive role of private equity in the economy: the trade body will now be known as the Association Française des Investisseurs pour la Croissance (French Association of Investors for Growth) as opposed to Association Française des Investisseurs en Capital (French Association of Investors in Capital). Prior to this, it drafted a hefty 90-page white paper to share its ideas on fostering economic growth and employment with decision makers.

This might be an uphill battle, but it appears that LPs are willing to play their part in fostering a more positive image of the industry: according to the Coller barometer, two thirds of investors think the LP community and its representative bodies such as ILPA should be more vocal in defending private equity.

For a more in-depth look at the issue of private equity's public image, check out the next issue of unquote" analysis, on desks at the end of July.

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• Topics
• LPs
• Coller Capital
• EVCA
• AFIC