GLOBAL - GE chairman keeps the pressure on private equity

In comments to the UK press, Jeffrey Immelt, the chairman of GE, has added his voice to the sceptical chorus surrounding private equity in recent months. His argument is based on a critique of the industry that sounded like the idiots guide to a buyout in 5 easy steps. 'If you think about the last five years, private equity funds could buy things cheap, do zero operational improvements, strip things out, add leverage and float the business,' he said. Of course, a cynic may see his comments as a ploy to detract attention from the performance of the public markets in general and GE stock in particular. As funds grow ever-larger, the threat to the old-school titans embedded in the quoted space grows in proportion. As we have seen recently, no business is immune to a takeover, and Immelt's comments should be taken lightly. Justifying his claim that firms will now have to show they are 'operationally astute' rather than just 'financially astute,' he cited interest rates. 'Interest rates were 1 per cent, now they are 5 per cent. If you are buying today, you are ponying up. You are paying top dollar. It's a different ballgame now.' It is quite correct that interest rates in the US are up from historical lows to around 5 per cent, and have risen in Europe and the UK over the past year. However, from his comments you would think private equity as an asset class didn't exist before 2000. Indeed much of the press coverage given over to the industry recently seems to peddle the misconception of a fledgling industry. As industry-watchers with access to the internet know, interest rates in the US fluctuated from 5%-6.5% through the mid-nineties and into the millenium. A similar story played out in the UK, although the top rate during this period hit 7.5%. Some will probably be suprised to know that private equity firms were not only active throughout this time, but were also generating healthy returns to their shareholders and, more often than not, outperforming the public markets. Tension between the public and private markets is healthy, but generalisations, point-scoring attacks and falsehoods are not. They fuel the ignorance of the critics (a consequence not wholly unwelcome by Immelt I'm sure) and mire the debate at a level below the basic. What price Immelt's accusations being parroted by the Treasury Select Committee in the UK tomorrow? By Nathan Williams