Social acceptability key to future of private equity

The prominence of private equity was once again highlighted at the Frankfurt European Banking Congress 2007. The second panel of the day was dedicated to private equity and amply named "Private Equity - A New Trojan Horse?" playing on the prejudices and misinformation circulated in today's media about the asset class. The panel was hosted by Klaus-Peter Muller, chairman of Commerzbank and consisted of Thomas Putter, CEO of Allianz Capital Partners, Axel Herberg, CEO of Gerresheimer Group and British economist John Kay.

Putter started off the session by giving an overview of the private equity industry, putting its size in context to the total financial assets, with 1.3% being allocated to the industry in Europe and 2.2% in the US. He went on to explain the business model, emphasising that private equity is a business with its main drivers being value creation, asset pricing and investment proceeds. Additionally, he dispelled the myth of private equity generally providing superior returns, stressing that only top quartile performers achieve these, while lower quartiles provide no premium to many other asset classes. As highlighted at the Deutsche unquote" Private Equity Congress in October 2007, Putter reiterated that social acceptability is the key factor for the future success of the asset class, admitting that the industry would need to become more transparent.

Kay compared the recent hype and wall of money provided to private equity funds to similar events in the past, such as the stock market bubble at the end of the 90s. Additionally he pointed out that the mispricing of risk in the credit markets had supported the private equity mega deals in the past couple of years and due to the current correction in the markets expects fewer such transactions in the coming years. Putter partly agreed with Kay's statement of large LBOs being a thing of the past, however seeing the current state only as a time out for large transactions. When prompted with examples of private equity funds stripping companies of assets true to the infamous locust comparison, the panel dismissed these as black sheep that are also present in other industries. Putter noted that as in any free market such players will naturally disappear, as bad reputation and returns will impact negatively on the future fundraising of these private equity houses. Axel Herberg added to the positive comments supporting the private equity industry, with his account of two consecutive private equity backed buyouts of Gerresheimer, during which the company underwent a successful restructuring out of the public eye.

In its 18th year, the European Banking Congress brings together leading decision makers of the financial world to discuss European issues and their role in the world of politics and financial markets in three panel discussions. Panellists included Jean-Claude Trichet, President of the European Central Bank, Axel Weber, President of the Deutsche Bundesbank, Josef Ackermann, Chairman of Deutsche Bank's management board and Sir Callum McCarthy, Chairman of the Financial Services Authority.

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