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The private equity and venture capital industry: creating public value for the United Kingdom

Publish Date 25 May 2021
Categories News

The private equity and venture capital industry in the UK, as represented by the BVCA, is committed to generating success for all of its stakeholders: those who invest in the companies backed by the firms, those who manage and work in them and those in whose communities they are based.

Today’s private equity and venture capital (‘PE/VC’) businesses are therefore focused on creating public value, by producing both economic and social value for the country as a whole. To that end, there are over 4,200 businesses in the UK backed by PE/VC who employ nearly a million people. In the main they are highly successful and growing, are found across the economic sectors and are embedded in every part of the country. In addition, approximately 90% of the industry’s investment has been directed towards small and medium sized businesses in recent years, providing vital funding unavailable from other sources.

The industry has a strong track record of growing businesses and delivering exceptional returns for its wider investor base, including UK pensioners, as our annual reports on investment and performance highlight.1 To do this the investors put significant capital at risk (both equity and debt) and alongside the successes there can be failures. But academic research shows that in the last financial crisis these rigorously focused businesses produced better outcomes than non-private equity-backed businesses2.

The last year has been enormously challenging for people in all parts of the world – a health emergency and human tragedy unlike anything we have known. At the same time there has been an economic crisis unprecedented in peace time. In the midst of this turbulence, private equity and venture capital backers have worked hard to preserve jobs and the companies in which they have invested, with hands on engagement and new capital.

Private equity and venture capital do this as part of a commitment to think and invest for the long term – the individual holding periods for an investment may vary, but the rewards for the PE/VC investors depend in large part on how a fund performs over a ten-year period, not a single quarter as can be the case on the public markets. And at the point of sale (or a flotation) the seller has to have regard to how the business will perform for the new shareholders - otherwise they will secure a much lower price, and deservedly so. Short term thinking reduces value and is in nobody’s interests.

Overall, the industry’s successful record is down to growing businesses over the long term, through careful stewardship and strong governance. And as the businesses grow they are subject to more scrutiny as they voluntarily adopt standards of disclosure in line with the public markets, as required by the Private Equity Reporting Group3. Public companies acquired by private equity firms in the UK are also brought within this regime and voluntarily maintain higher standards of disclosure as a result.

Having supported businesses to get through the crisis, PE/VC firms will continue to do so now. Like all businesses they look for new opportunities in the private and public markets – in what is a highly competitive, internationally-open economy here in the UK. Nevertheless, however fierce that competition to acquire businesses, the industry as a whole has consistently improved the businesses in which it invests, bringing benefits to everyone from employees to investors of all types4.

As such, it is well-placed to play an important role in supporting the UK’s efforts to build back better after COVID, drive innovation in the economy and improve our overall competitiveness in the new environment post-Brexit. The industry has embraced the need to invest and act responsibly, recognising the pressing timescales to adapt the economy and society to changing environmental and other realities.

Going forward, we remain committed to making a significant contribution to the UK economy.

Michael Moore
Director General, British Private Equity and Venture Capital Association

  1. BVCA Performance Measurement Survey 2019 / BVCA Report on Investment Activity 2019
  2. Private Equity and Financial Fragility during the Crisis - Shai Bernstein, Josh Lerner and Filippo Mezzanotti – Abstract / Working Paper
  3. Private Equity Reporting Group (PERG) – Thirteenth Annual Report - January 2021
  4. EY - Annual report on the performance of portfolio companies, XIII – 13th Edition – January 2021