Barbarians and herbivores

I recently attended a seminar at the Oxford Said Business School on the subject of the dark art of private equity (PE). Inky scribblers like me were allowed into the plush halls only under Chatham House Rules - ie, I'm not allowed to tell what was said, which invites the question why I was asked in the first place ...

by Matthew Gwyther, MT editor
Last Updated: 31 Aug 2010

Anyway, I'm not breaking any confidence by telling you that the bright young business things in the audience had their eyes out on stalks as they listened to tales of derring-do from the chuckling Guy Hands of Terra Firma and his chums. Student tongues were drooling at the prospect of the fortunes awaiting them if they took the PE route once they left biz school. Never mind Bain and McKinsey, forget Goldmans and JP Morgan - and the dozy old corporates of the FTSE-250 aren't even a blip on their radar. No, when it comes to the MBA-garlanded jeunesse doree from the City of dreaming towers, PE is where they want to be. And I don't mean doing forward rolls in their freshly blancoed plimsolls in the school gym.

If you read Andrew Wileman's dryly witty and brilliantly researched piece on private equity in this month's MT, it's not hard to see why. Wileman contends that in the 20 top European PE firms, there are at least 100 senior partners in the £100 million-plus net worth bracket. PE is the 21st-century way to get rich quick. PE regards the slow-witted believers in joint stock companies and in sharing out good fortune among those who help create it as no more than easy prey.

But how, if you truly believe in a free and open market, can you possibly argue an intellectual case against private equity? To do so makes you look like a simple-minded Creationist arguing against a slick Darwinian.

There's no contest.

So why, then, do I feel unease about what PE people do? For the same reason as you marvel at the cupidity, greed and gullibility of those characters in one of the most gripping business books of the past 20 years, Barbarians at the Gate. This page-turner by Bryan Burrough and John Helyar laid out in gruesome detail the devouring of RJR Nabisco by corporate raiders KKR back in 1990. In those days they used to be called asset-strippers, a term little used now.

But PE is not alchemy. Nobody can ever have something for nothing. Someone, somewhere has to be a loser. As Wileman asks: 'Who are the herbivores?

The dozy sheep? In poker speak, who's the fish?' And the answer? 'If you look around the table and you don't know, you're it.'

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