City lawyers hit back over GMB’s dig at private equity

The current debate surrounding private equity is welcome but misguided, according to the City’s top private equity lawyers.

For the past month private equity has been the focus of debate for politicians after a powerful trade union, the GMB, called for favourable tax relief for private equity houses to be scrapped, labelling private equity investors “asset-strippers”.

On 6 March the Treasury Select Committee announced that it would investigate private equity. It will look into the Financial Services Authorities’ (FSA) report into potential regulation (The Lawyer, 13 November). The British Venture Capital Association has also revealed that it will draw up a voluntary code of conduct.

Macfarlanes corporate partner Charles Martin said “regulation of the area is tricky” and that any change in the tax regime would cause private equity to migrate.

Edmund Reed, a private equity partner at Travers Smith, said the public’s interest was inevitable given the increasing appearance of private equity on the M&A landscape.

“It’s been an issue simmering for a while. As the private equity houses have raised more money they’ve been able to do more high-profile deals,” he said.

The GMB opposes tax deductions on interest repayments on the highly leveraged debt that makes private equity investments so popular.

Another City private equity partner said: “It’s a spurious argument. It’s not private equity that gets tax relief but the companies. And it’s tax relief that’s open to any other company, owned by private equity or not. It’s not a question of subsidising 200 City financiers.”

But Martin welcomed the fact that private equity is now a hot topic. “It’s not a bad thing that there’s interest in private equity,” he said. “Private equity houses could do a better job at being transparent.”

But Reed added: “The underlying attack on private equity isn’t justified. The industry is a vital part of the economy and creates wealth and jobs not just for the senior managers, but for the all employees and the pension funds and insurance companies that invest their savings.

“What is justified is saying that private equity hasn’t been as good as it could have been in presenting that message to the public.”