Risky business

The issue you now hold marks the one-year anniversary of Private Equity Manager. On behalf of all of us who put this journal together each month, thank you for your support. In the previous 12 months, we have built a very prestigious, large and dispersed readership around a very important topic ? the management of a private equity firm, which continues to be a very complex affair, and therefore continues to warrant our focused coverage.

Getting sued over a bad investment is like getting salt poured on your wounds. Private equity GPs do not take a cavalier attitude towards portfolio company failure. Most of them have their own capital tied up in the fates of these investments. Moreover, each write off means a lost opportunity to collect carry.

But increasingly, GP pain is not seen as painful enough for the many parties that are involved in a private equity deal ? lenders, public shareholders, limited partners, pensioners, employees, even the government. They know that GPs have something they do not ? namely, a great big fund, and in many cases, significant personal wealth.

As we explore in this issue of Private Equity Manager, general partners must control risk on two fronts ? they must keenly manage a portfolio company against all forms of market and regulatory risk, and they must protect themselves and their firms against the many liabilities the spring from a bankrupt or troubled investment. Carry is a terrible thing to waste, but what’s left over in one’s personal bank account is an even more terrible thing to lose in an out-of-court settlement.

One of the most effective forms of risk control is the recruitment of top managers for a portfolio company. Sometimes hiring the right team means firing the team that is already in place. This is difficult to do anywhere in the world, but in Europe, with a long history of workers’rights, firing bad managers can presentmyriad challenges. This month Andy Thomson takes a tour through the sacking regimes of many European countries and finds that dismissals are possible, but a GP who fails to follow the right procedure should himself be fired.

Enjoy the issue,

David SnowDavid.s@us.investoraccess.com