Buffini breaks cover
Persuading for broadcast has been like teaching a cat to swim. The boss of Europe's largest private equity firm is allergic to being in the public eye (it is called 鈥減rivate鈥 equity, after all).
But he finally agreed yesterday - and if you click here, you can hear the full version of his responses to the many and heated criticisms of Permira and its ilk.
controls swathes of the UK high street, hotels, the AA, much of British bingoland 鈥 and plenty more overseas. It's the largest firm of its sort in Europe and is going head-to-head with the global giants, which all happen to be American.
Is that a reason to celebrate? Is private equity spearheading a reconstruction of the British economy to make it leaner meaner and more productive?
Or is the GMB trade union right that the partners of private equity firms are accumulating obscene wealth by slashing jobs and selling off crown-jewel assets?
It鈥檚 the industrial debate of our age. And it reminds me of the passions raised 20 years ago over the seemingly unstoppable rise of the acquisitive conglomerates Hanson and BTR. Just about everyone who weighed into that debate turned out to be wrong (BTR was widely regarded as superior to Hanson, when the opposite was the case; ICI was perceived to be far too important to the British economy to be allowed to fall into the hands of the supposed cowboys at Hanson, so ICI continued to be managed as an independent by a succession of pompous managers who couldn鈥檛 reverse its long term decline; and so on).
Of one thing I am clear. Buffini himself could be a wonderful role model for can-do Britain. He was brought up on a council estate by a single mum, he鈥檚 black and he was educated at state schools. Now he runs one of the most powerful financial institutions in Europe.
As I say, he could be the evangelist for a meritocratic, socially mobile UK 鈥 and one day cats might choose too to swim.
I'm 
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Was it a condition of this interview that Mr Buffini would be gently confronted with the criticisms of private equity companies, while the GMB would be grilled live by John Humphrys?
Why do people have such little faith in market forces? Citing the ICI example, and Rover more recently, market pressures. Hanson drove efficiences but, as it became too big, was itself broken up. Similarly with Rover, the Government effectively blocked a private equity purchase, aiming to take tough decisions quickly, in favour of a group which promised glorious continuation but in fact ran the company to its demise. Why not let private equity run its course. I struggle to see any difference between private equity and the unfashionable conglomerates of the '80s. Whilst stripping out initial efficiences may be effective initially, I suspect momentum will struggle and at that point businesses will be recycled i.e. the current business "warehousing" of the private equity houses will itself collapse in influence as the move towards ownership of single businesses again moves to the fore as the optimum way forward.
Well done to the 成人快手 for getting Mr Buffini to speak.
His role on the Investment Board of Cambridge University shows that private equity is now very much part of the British Establishment and so to be taken very seriously indeed.
Audrey
''Buffini himself could be a wonderful role model for can-do Britain. He was brought up on a council estate by a single mum, he鈥檚 black and he was educated at state schools. Now he runs one of the most powerful financial institutions in Europe.''
Can-do? If that 'can-do' spirit is the embodiment of greed, then I 'can't / won't do'. Simon Webbe ( an authentic role model) has, I believe, a similar background - I don't see him 'can-doing' by going around his old haunts, ripping off his peers, maximising profit from their misery and throwing them onto the dole queue : quite the opposite, in fact. Perhaps its because he possesses bucketloads of integrity, possibly the one commodity that doesn't have a price, thank God.
Remember what Adam Smith said. He pointed out that a major goal of business is to deceive and oppress the public. One of the striking features of our modern times is the institutionalisation of that process. Buffini would appear to epitomise this, both through his educational experiences and how he capitalised upon them (no pun intended).
Perhaps the 成人快手 would itself represent an attractive situation for Mr Buffini?
It has a regular predictable income, a massive cost base (riddled with inefficiencies) and probably the most expensive broadcast output in the world (in terms of cost per hour).
Think about it!
The questioning was very soft (even confused), however difficult it was to get this man on the air. It might have helped if the the interviewer and interviewee had been properly miked up giving equal authority to both.
The rise of private equity reflects in part the availability of cheap money but it is also a direct consequence of another, much more problematic, issue. Simply, we have systematically over-regulated public companies. The very best talent doesn't want to manage them and those with money don't want to invest in them.
In a sense, we're seeing a rebirth of the investment model. In the Victorian age, public companies were very much akin to what private equity companies are now. It took us a hundred years to get to the level of regulation public companies now face. How quickly will we move to over-regulate private equity?
Picking winners is sooo 1970s Old Labour.
The new breed of uber capitalists are the definition of benign self-interest. If people are worried about their jobs they need to make themselves indispensable not whinge and run to the unions.
I agree with Greg's post. Robert Peston left unchallenged Buffini's statement that private equity's investment horizons are "long term" at five years. It may be that the whole financial cycle has speeded up and that this represents a norm these days, but it still cannot be described as long term in the normally understood sense of that phrase. By failing to take Buffini to task on this point the opportunity to debate the main critique of private equity investment was missed.
Damon Buffini and his ilk have created more jobs, more wealth and more tax income to the treasury than the GMB or their cohorts have ever or will ever.
I don't want asset stripping pirates killing off businesses and sacking people willy-nilly. But neither is it valid to allow businesses to stagnate, fail and go bust because they can't change quickly enough. If that happens then cost of failure on jobs and lives is greater than bringing private equity in.
Yes these people have got rich on it - ummmm what exactly is wrong with that?
This is all very interesting and just goes to show how much invisibility there is in British industry and commerce.
I don't necessary mean deliberate hiding of information, as Permira are very well known. It's just that so many British success stories never make the newspapers, TV and radio as the media is much more likely to report scandals or the problems of an irrelevant actor or pop-star, than the real stories that actually create all the money. Without that money, those that knock and promote the politics of envy, would not have a job. Let alone a decent one.
Many years ago, I helped to create a company that plans nearly half of all of the major projects in the world. We sold it in 1985 for a very sensible sum.
But did it make the papers as a seriously good news story about the success of British technology? Of course not.
James Miller
The comments that have recently appeared from the GMB are short on fact and content, and high on emotion and a political dislike that too many unions have for any structure that involves profit and reward. Private equity has shown itself to be a successful model, and one that seems particularly suited to transforming small to medium size enterprises that are on the verge of a fast transition in scale.
Because in truth, most private equity investments are looking for rapid growth in the underlying companies, and this growth usually means more not fewer jobs. And yes, the management and the equity firms will benefit most from this - but they are the ones taking the risk and putting the money in, so what is the GMB's problem with that, other than a knee-jerk hatred of capitalism? The myth of asset stripping the union is spreading is fundamentally naive - if it was that easy to buy a company, strip its assets and flog it on - then the private equity market would be far, far bigger than it is, and the average investment cycle far shorter.
And yes, to those above, a 5 year outlook these days in business is actually quite long. Try comparing to many listed companies who if you work within them, you will often find have great difficulty in taking much more than a 1 year outlook, as the pressure to improve results from the prior year, and meet the analysts expectations to preserve the share price in the short term is intense.
The private equity market is not perfect, and does not suit all businesses. Perhaps it is too secretive, but too much regulation could also break what is currently making many companies successful. But the GMB's complaints are false, and are more driven by their fear of losing power and influence as employees find that direct contact with management in a fast growing business can be more healthy and rewarding than using union intermediaries who will drive a company to stagnate. This is where the real debate lies.
I caught most of the Damon Buffini interview this morning but missed the counterpart with the GMB representatives. It may be that the comments regarding the softness of the Buffini interview could be explained by the incredibly lazy job of research Robert Peston had done beforehand. Mr Peston failed to understand the basic mechanics of what private equity firms are (specialist investment managers), how they invest (they don't, the funds they manage invest), how they make their money (he seemed to confuse the "2 and 20" fee structure of hedge funds with the more complicated arrangements prevailing in private equity firms) - I could go on, but it's getting dull.
All that aside, there does seem to be a particularly nasty campaign being waged by the GMB that is, as so often, short on facts and long on prejudice. Despite what the GMB would have us believe, the fact is that there are very few, if any, paternalistic businesses run as a kind of charity to keep workers off the streets. All managers should be making the sort of decisions that annoy the GMB so much, whether they work for Mr Buffini or not. The private equity industry concentrates on identifying underperforming or undervalued businesses and doing something about them, sometimes in a way that leaves employees better off, sometimes not. Whilst the old saw about omlettes and eggs applies, in the round this is good for the economy and so for all of us and at least in a dynamic economy, if you lose your job you have a better chance of moving on and finding another.
More interesting to me is the growing tendency of private equity firms to target public companies, in no small way driven by the fact that company management teams are now much more receptive to the barbarians at the gate than they used to be. The reason? Managers of public companies feel so beset by corporate governance codes, government initiatives and so on that the prospect of being able to get on with the job of running their companies in peace becomes very compelling.
I agree with Greg, Michael and Dickie.
This was the softest interview I have heard on 'Today' for a long time. If Mr Peston had done the recent Tony Blair interview, I guess it wd have been 'Would you like to explain your policies to us please.... Thank you very much sir'.
Business people should be questioned as rigorously as everyone else, but they rarely seem to be
Robert
So much chippy ignorant tosh being peddled by you posters! Private equity is a huge contoributor to UK productivity, a huge contributor to your pensions, a huge conrobutor to the UK tax take, and so a very significant indirect funder of Britain's infrastructure and social welfare system. Private eqtuiy is extremely risky - for every Permira there are dozens of less successful PE firms - and it is entirely appropriate that PE investors and professionals are rewarded for the risks they take. PE is a very good thing, and the British PE industry is a world leader. As an industry, it enjoys no special privileges relative to the rest of UK plc. Why do the envious want to smash down something that is manifestly so successful and of which everyone in Britain should be justly proud?
How are ligitimate concerns over private equity negated in any way at all by the fact that Buffini is black and was once poor or that ICI was badly managed in the past.
It is very difficult to assess the rights or wrongs of the private equity movement but complicating the equaltion with irrelevances will not help.
There is nothing wrong with private equity per se. Taking a company, making it leaner and more efficient ultimately helps the economy. Yes, people might lose their jobs, but if the alternative is that a company goes bankrupt or a foreign competitor takes over the market, then everyone loses out.
More of a concern is the way in which some modern private equity firms take out very large loans at the current cheap rates, and leave the company saddled with large debts. This could easily be rectified by forcing full disclosure for, say, five years after taking a public company private, which would scare off the charlatans while allowing the good companies free reign.
To Dickie regarding long-term meaning five years - I think what Damon Buffini was referring to is how long his company aims to invest in a business. I think he's right to call this long-term because 1) this firmly counters the claim that his (and others') private equity companies are in there to get the quickest possible buck (which is, in fact, what hedge funds do) and 2) contrasts nicely with the fact that typical public shareholders turn and flip their holdings on daily, weekly, monthly and yearly basis which hinders public companies from being able to make rapid, decisive changes where necessary.
And, rapid, decisive changes are needed these days, long-term strategy does mean five to ten years due to the scarily rapid forces of globalisation and technology. Just five years ago, Apple was a computer company, now they are the biggest music retailer in the world. BT now provides more IT services that phone services. In the same time period, China has gone from a tiny manufacturer to one of the world's largest!
All this means that companies must constantly re-evaluate their strategy, their positioning, against these trends. Some public companies (like Apple) have a strong charismatic leader (Steve Jobs) and, despite a fragmented shareholder base, manage to change and adapt. But many public companies can't - Marconi anyone?!
The idea that either public or private equity ownership is de facto better is overly simplistic. I see mainstream private equity firms playing a useful role in certain cases. To cast them as pure asset-strippers, just flies in the fact of common sense and evidence. They don't make 20% returns to their investors - our pensions and investment funds btw! - without creating value.
Listening to the GMB interview this morning made me feel I was trapped in some "Life on Mars" style 1970s timewarp. I thought those destructive and regressive attitudes to progress and wealth had been long consigned to the dustbin of history!
Bob.
As a financial mechanism designed to produces buckets of cash I'm sure the PE industry does a good job. But in terms of contributing to economic growth it achieves little if anything at all.
Real growth comes from the creation of new companies not fiddling around with existing ones.
It's just capitalism dude. Most small companies would be considered private equity - you can't buy or sell the shares in them publicly. My own company even.
I don't see a problem in a private equity company being large, and I don't think business should be about emotions, passions and tired out allegiances to tired-out companies.
With regards to the ICI reference - Hanson's approach led to the splitting of ICI into two companies - Zeneca (now AstraZeneca) and ICI. The old guard of ICI stuck with the old company while the more dynamic moved on. The consequences were significant - one firm was dynamic, risk taking and forward thinking and as any investor will know, has been successful. The old, slow ICI has remained moribund. I'm sure that losing ICI was the best thing that the Pharma side of the company ever did.
Looking for above-average return on investment after five years is NO WAY a 'long term' framework.
ICI, for instance, when it used to have petrochemical plants, had to plan 20-30 years ahead because it takes that long to find and exploit resources. And by the way Robert Peston - who says ICI has been a 'failure'? By my book, as a long term observer of the performance of high-tech R&D intensive companies, ICI has been remarkably sucessful in getting itself out of petrochemicals and into high-value-added speciality products. So succesful that it is now a target for takeover by similar companies like Akzo Nobel who see the potential long-term synergies. Not a target for private equity which merely seeks short-term gains.
Many people can make money out of money - that is the essence of private equity - but it no good for anyone apart from the private equity firms and their wealthy private inddividual investors. If you want to see which firms promise proper long term growth then look at where the large sucessful pension funds invest - pension funds are forced to take a proper long term view because of their pension committments and recent legislation.
I thought that Mr Buffini talked a lot of good sense and I would love to see him in politics. One of his main points was that we live in a world of international competition for business success. This is should be basic to how our contry is run but is a fact seems to pass Mr Brown and Mr Cameron by.
Robert Peston's comparisons with ICI, Rover etc. are very pertinent. Private equity thrives on poorly managed businesses or those whose financial structures are inefficient. Yes, they do load balance sheets with debt and come unstuck on occassions, but they are also a force for change in the private sector and a spur to better management performance. There aare of course down sides. They look to 'turn' i.e. sell their investments after 3 to 5 years of ownership (or sooner) and that causes disruption to businesses and makes them more short term in their outlook. However that is not much different to the stock market who are not prepared to wait for 3 years for a business turnaround. And why? Those of us who are in business know that if you are not successful in the short term you are probably not going to be successful in the long term, whatever the time horizon of your investors. Those who complain about private equity either don't understand it or have a political axe to grind, which is ironic as the original private equity company in Britain, Investors in Industry was set up by a Labour government over 30 years ago - where are they now? A FTSE 100 company called 3i.
This man gets a friendly interview because he does not need to use the media, he already has power! Surely the arguments used to nose on celebrities are much more important here: This person has a very large effect on our lives, and yet he does so without us ever seeing him and asking him what he is doing.
I'm not advocating loosing the paparazzi on him, but I can't help thinking of the book Diamond Age, where the people are run by an upper-class of "Equity Lords", like a more flexible version of the old land lords. These people run our society, together with the government. The fact that they are not answerable to the people surely should make investigation of them even more of a priority, and the 成人快手 is best placed to do this.
Unless of course you are sizing him up to be the next Director-General! Best be extra nice to him in that case.
I take very seriously the criticism that I am too soft on any interviewee. But the way I interviewed Mr Buffini was conditioned by two factors. First, that many of Today's listeners would know very little about private equity, if they had heard of it at all. And second that this was the first time that Mr Buffini had given a broadcast interview - and that no one quite like him from his industry had been questioned outside of the business slots on the programme. So my questioning was designed to help the many private-equity virgins among Today's listeners get a sense of what Permira does and who Mr Buffini is, while of course putting to him the GMB's and others' serious criticisms of the industry.
As for the quality of the sound, I can only apologise to Bruce if he could not hear us properly.
In response to Andrew's remarks, in the pre-amble to the interview as broadcast on Today, I did indeed explain that private equity firms raise and manage specialist investment funds, that the money they invest is their investors' and so on. It's a shame that we didn't include that in the online version - and I'll make sure we do include explanatory sections like that next time. As for what he has to say about my "2 and 20" shorthand, I am well aware of the differences between the charging structures of hedge funds and private equity. I could have talked about the variations in private equity's management fees and "carry" rates (in fact I did, though it was chopped in the edit), I could have talked about IRR hurdle rates which some - but not all - private equity firms impose on themselves, and I could have talked about the complex equity structures imposed on companies owned by PE funds. However I took the view that for most Today listeners, that was too much detail - and I remain of the view that "2 and 20" is reasonable shorthand.
However, over the past few weeks I have tried to shine a light in this blog over how private equity operates - and would expect to post more in the coming weeks. In particular, the issue raised in many postings about whether private equity firms are builders of businesses or pillagers (do they take a long term view or a short term one?) is one to which I will return. My broad view is that it is probably wrong to castigate all private equity firms as either excessively short-termist or to praise all of them as providing the conditions for managers to make important but difficult decisions. Like all large industries, different private equity firms have different cultures and different investment criteria and approaches. There's a world of difference even between the larger UK firms like CVC, Permira and Apax. And as for the differences between a Permira and a 3i, well they are barely in the same universe
I'm not sure that comparisons between PE and public ownership are the right ones. The real comparison is between PE and publicly listed companies. As someone who has worked for companies listed on NYSE and LSE I can tell you that their financial horizons are incredibly short term - mostly being around the next reporting period (3 months in the US, 6 months in London).
The question about which form of capital is better is clearly an empirical one - although I suspect for some its akin to the difference between Great White Sharks and Blue Sharks, nice if you're in the aquarium, irrelevant if you're in the ocean...
The most important consideration within a liberal democracy is transparency, something that is severely lacking here and there will continue to be mistrust while this remains the case; many, like me, will be asking "what have they to hide, and why hide it?". I don't fully understand the workings of PE but something doesn't seem quite right in any 'get rich quick' game. The possible long-term conclusion would appear to be social and economic exclusion for those of us not involved in the heady world of finance (many of us), in an ever more feudal at worst, and at best deeply divided society. Something to aim for?
Scanning the posts from the men who have replied I note many stick up for PE firms. I wonder whether they are cosily installed in posh offices with safe (?) highly paid jobs in PE or allied commerce. Are they using firm's time and PCs to monitor blogs and replies? Have any of them been behind the scenes in a large branch of any of our major supermarket chains? One I saw was like a modern day "Bedlam" furnace picture. If you guys are happy about people with little job security, slaving away on 8hr shifts in unappealing conditions for the minimum wage (not even a minute can be stolen for PC debates)then of course you would applaud PE take-overs. If enough PE firms do enough take-overs, the jobs will not be there for "surplus" employees to find. And are all PE firms British? In an unregulated market surely anyone from anywhere can invest?
Umm, just to point out that of our major supermarket chains, three are publicly listed, and one is owned by Walmart, itself publicly listed in the US. I'm not aware of a major UK chain that is owned by a PE fund.
Your point regarding PE firms and takeovers implies that job losses stem solely from PE takeovers; many acquisitions by and of publicly listed companies result in job losses, and all companies shed jobs according to economic conditions. PE is no better or worse in this.
By no means are all PE firms British; the industry effectively began in the US about 30-odd years ago, and the majority of PE/VC firms are American. The PE industry in Britain is younger than the US, and is in turn more established than in Europe.
Its not true to class the industry as unregulated; the companies owned by PE funds are subject to the same regulation as any privately owned company.
Anyone from anywhere can invest and there are various routes available. Indeed, if you currently have a pension its likely you already are an investor.
I was one of the managers who lost my job thanks to the pure greed of CVC and Primira.
But now the AA is on a down ward trend and 100 years of giving outstanding service to the public.I had the task of collecting one of the top bosses to take him to our management meeting, I asked why all the companies that he takes over shed lots of staff and managers.
His reply was all staff and managers will moan about the workload, but if you take out a third of the work force and the company still runs, sack more and keep going until the company cannot function, then take on a few more, this practice will give you the right number to manage a company effectively. The goverment should stop the tax breaks on interest payments.This is allowing this type of company not pay tax to the goverment, even the owners dont pay the same amount of tax like the rest of us have to pay out of our wage packets.
I had to pay 40% on my redundancy, his bonus could be well over 20 Million and he will only pay 10% tax no wonder the goverments broke.
Come on Gordon stop these type of companies tax breaks now they are destroying some a our great UK companies
No doubt all the comments about Pc,Vc and ICI are valid, but what I find fascinating about this is the PR aspects.
The starting point of the story is that Mr Buffini is "alergic to the public eye". A recent press article about him was also prefaced with a similar comment, as were articles which have appeared in the press in the recent past about other leaders of private concerns, such as Mr Cauldwell (telephones) and Mr Hunt (Foxtons), amongst others. We the public are always assured that such people are "reclusive", "publicity shy" or some other such phrase which is presumably supposed to help us believe that we are privilaged to be allowed to know anything about them. But why, at the particular time in question, do they want us to know how well they have done and what good citizens they are, having been very successful but anonymous up to that point? In some of the examples to which I have alluded above, the articles were published shortly before announcements were made concerning the forthhcoming sale or flotation of their firms.
I wonder if we will be hearing any news about plans to float Premira? Could it be that the end of cheap money is in sight?