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Eversheds private equity head rejects call for buyout code of conduct

Mark Spinner, head of private equity at law firm Eversheds, has spoken out against the call for a voluntary code of conduct made by Dominique Senequier, chief executive of Axa Private Equi

Mark Spinner, head of private equity at law firm Eversheds, has spoken out against the call for a voluntary code of conduct made by Dominique Senequier, chief executive of Axa Private Equity, on how profits should be split among investors, managers and staff.

Following public controversy in France over multi-million-euro payouts to the managers of companies sold by private equity firms, Senequier told the Financial Times: ‘Public opinion is demanding more transparency and ethics on management packages, so we need to be ready for this.’

Pierre de Fouquet, chairman of the French private equity association AFIC, has promised to discuss the issue at a planned meeting with Jonathan Russell, the new chairman of the European Private Equity and Venture Capital Association.

But Spinner says: ‘The views expressed by Dominique Senequier are not widely held within the private equity industry. While it is one thing to concentrate on disclosure issues in relation to assets that have been on the public markets or have significant socio-economic impact, as covered in the Walker report, trying to impose any sort of codification, voluntary or otherwise, on the remuneration of private equity investors and managers would be a backward step.

‘The market already drives the rewards earned by private equity investors and managers, since the vast majority of the remuneration paid to private equity managers is paid via a carried interest or co-investment scheme and as such is dependent upon the investors making successful investments.

‘The level of carry or co-invest only kicks in after the original investors have had their cash returned with a hurdle of, say, 8 per cent return, and rarely exceeds 20 per cent of the excess profits, leaving 80 per cent of the super profits available to the limited partners.’

Spinner says investors naturally gravitate toward the managers that provide the best returns, and they are remunerated accordingly. ‘Those private equity investors that are most successful attract the best managers and often the most interest from limited partners wishing to invest in private equity as an asset class,’ he says.

‘If they felt the rewards earned by the private equity managers were excessive, they would not invest. This can also be extended to the operational managers who again only derive a reward if the investment is sold at a profit.

‘This results in true alignment of interests in the long-term growth of the businesses receiving private equity investment that is good news for the economy, since successful businesses create profits and employment, which again results in higher taxation revenues for the government. If artificial caps on remuneration are introduced, the fear is that this will result in a misalignment of interests and dampen the growth of private equity-backed businesses.’

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