22 Aug 2020

We agree with your editorial (‘Private equity should help itself’, August 18) that because of COVID-19 ‘survival has become the sole focus of many British businesses’, especially in the heavily impacted retail, leisure and hospitality sectors. Private equity firms and their investee companies in these and other sectors are fully engaged to that end.

As you rightly point out, thousands of jobs are at stake – private equity and venture capital support 843,000 jobs across the UK, in 4,300 different businesses. We are working urgently to get through the immediate challenges and position businesses for the recovery. As you suggest they should, private equity firms are ‘put[ting] their expertise to good use’ intensively in board rooms and, by using the dry powder funds allowed for this purpose, investing further in those companies. The firms will continue to invest across the UK through the cycle.

The government is to be congratulated for the support it has provided to businesses irrespective of ownership or financial structures. In addition, we welcome the work clarifying the application of the State Aid rules. Ahead of the crisis, caused by a pandemic not economic factors, these enterprises were regarded by lenders as creditworthy and support has been sustained for most businesses. However, as previously raised here (Letter to the Editor, May 22), where government support could make the difference, we believe it should be available based on business fundamentals, not constrained by State Aid rules designed for other purposes and different economic times.

More broadly, private equity provides risk capital to management teams, but it is not, as you put it, ‘all about risk’. The industry’s track record is down to creating value by growing businesses over the long term, through careful stewardship and strong governance. Of course these enterprises can fail, but academic research from the last financial crisis supports the view that this model produced better outcomes than many other types of ownership.

As part of that, and in common with most businesses, the structures adopted are designed to be appropriate and efficient (with not all interest tax deductible), to incentivise management and produce returns for investors. That has helped to produce performance which has routinely outperformed other asset classes. In doing so, investors, including UK pensioners, have been rewarded for their patient approach to these companies.

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

Michael Moore

Director General
British Private Equity and Venture Capital Association

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