Jonathan Ford falls into the unfortunate trap of assuming investors in private equity funds — and pension fund managers in particular — are, to put it plainly, stupid (“The exorbitant privilege enjoyed by private equity firms”, Inside Business, September 8).
On the contrary, investors are highly sophisticated and know that private equity has consistently produced outstanding returns. Indeed, for all the talk of “performance” in Mr Ford’s article, nowhere does he state what the performance actually is. As soon to be released data shows, BVCA members produced a since inception return of 14.4 per cent in 2018, with large buyout funds (those that make more than £100 million of equity investments) at their joint highest level — 15.6 per cent — since 2010. These figures are, crucially, net of fees and consistently higher than other asset classes, including the public markets.
This outperformance, rather than being driven primarily by leverage, is in fact generated by what is dismissed as “bits and bobs”. A report published by EY, and commissioned by the BVCA and the Private Equity Reporting Group in December, found that between 2005 and 2017, 47 per cent of the gross return of private equity comes from strategic and operational improvement (52 per cent for exits between 2015 and 2017). This is less “bits and bobs” and more the nuts and bolts of why investors keep coming back and why private equity, as well as being good for UK business, is also great for UK pension funds.
Director-General, British Private Equity and Venture Capital Association,
London WC2, UK
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