The Private Equity Council has presented evidence showing the industry outperformed public markets by an average of seven per cent and 11 per cent over three and five years.
The figures contradict claims by the Centre for the Study of Financial Innovation that the industry produced disappointing average returns whilst charging high fees to investors.
Mark Spinner, partner and head of the private equity team at law firm Eversheds, says the private equity industry is an easy target for the media and other interested bodies such as trade unions because it has a reputation as an asset stripping industry that makes money from financial engineering rather than operational improvement.
He says the facts support a very different proposition.
“Whilst in my view the large LBO funds can be criticised for taking advantage of too much cheap debt from the banks and injecting too much debt into their deals, the Banks must shoulder the lions’ share of responsibility for this. It is also true (to an extent) that the leverage made available to private equity sponsors does increase the returns that they make for their investors but to say their investors are disappointed with the returns they have made over the course of a number of years (not just the last two or three) is over stating it.
“The reality of life is that increasingly the private equity industry is having to make its returns by going back to basics – buying well, improving the operational performance by, amongst other things, trimming out fat and introducing stringent financial disciplines, and then selling well too. As demonstrated by the other performance measures referred to by the Private Equity Council, over the medium to long term the statistics tend to support the argument that private equity out performs many other asset classes as well as stimulating economic growth.”