A public dialogue

Despite its contributions to the economy, the private equity industry has often struggled with its public image. Recently in Europe, public opinion of the industry has become even less supportive.

In April, the Dutch parliament sponsored a roundtable to learn more about the possible “harmful effects” of the industry on the country, looking into recent poor performance and bankruptcy at portfolio companies. In the UK, the tax on carried interest recently came into the crosshairs when a left-leaning advocacy group published a study calling carry “government-sponsored tax avoidance on a breathtaking scale,” with an attached public petition.

Speaking at PEI’s Operating Partners Forum: Europe 2015, EQT managing partner Thomas Von Koch reiterated concerns he has repeatedly voiced in the past – private equity needs to be more open and transparent if it wants to survive. pfm followed up with von Koch to learn more about the ways EQT is working to prove private equity’s worth to the public.

pfm: There seems to be a growing negative opinion of private equity in the public eye, specifically in countries you mentioned during your panel like Sweden, Holland and the UK. What prompted this backlash against the industry?  

I would say lack of transparency. The general public didn’t know much about private equity until it started to invest in schools, healthcare and other tax financed sectors. Many people assumed that it was all about short-term profit. Private equity firms could have addressed this by increasing the level of transparency and engaging in public dialogue but few did. And there are examples of private equity owners not doing a good job – that hurts the whole industry and provokes a lot of misconceptions about how private equity firms can and cannot contribute to society.

You noted that EQT conducted a study of its companies in Sweden to prove the benefits of private equity within the community. What prompted the study? Was it the result of influence from trade organizations (such as EVCA) or was it an independent endeavor?   

It was entirely our own idea. It was a bit frustrating that people didn’t believe us when we said that EQT developed “future-proof” companies that could continue to grow and contribute to society long-term in a variety of ways, for example by creating jobs, adding new products and services. So we decided to make a study to get the facts about the development post EQT’s exit. The findings were striking: out of the 22 Swedish companies that EQT has owned and sold since 1995, on average, five years after exit sales had increased with 9 percent, EBITDA with 6 percent and number of employees with 8 percent – each year.

What has been the response to the study?  

It has sparked quite an interest – several Swedish news columnists picked it up when we published the study in March. From start, we made the study for internal use only but when we realized that people were interested, we decided to make the study fully public so that everyone could dig into it in detail.

What practical steps would you suggest that other firms take to demonstrate their value and increase transparency?   

Firstly, engage in dialogue! For EQT, the whole concept of “future-proofing” companies includes earning trust from society – it has been in our DNA from start. But without dialogue, you will not earn that trust. The private equity stakeholder span has expanded the last decade, and I believe you can increase transparency just by getting out there, meeting new people. Secondly, I want to reemphasize transparency. For instance, EQT´s website has become a benchmark for many of our peers, just because we have proved that it is possible to be open even for a private equity firm.