CBI chief defends private equity firms as a force for good

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The Independent Online

The head of the CBI waded into the row over private equity firms yesterday with a staunch defence of the industry and its "compelling economic model".

Richard Lambert, the director general of the employers' organisation, said that most businesses benefited from a period of ownership by private equity firms, contrary to union claims that they are "robbers and plunderers" interested only in lining their own pockets.

In a wide-ranging speech to a business seminar in London, Mr Lambert also defended the huge bonuses earned by a small band of City high-fliers, warning that heavy handed regulation would only drive talent overseas and undermine London's lead over rival financial centres such as New York.

He was responding to union calls for the tax breaks enjoyed by private equity firms to be curtailed and comments by Cabinet ministers that City salaries had helped open a "grotesque" wealth gap in the UK.

Noting that private equity-backed companies now accounted for one in five private sector jobs in the UK, Mr Lambert argued that this offered real potential to improve the efficiency of business. "Since the whole aim of private equity investment is to sell on the asset at a profit after its underlying performance has been improved, managers have a real interest in the long-term health of their business," he said. "If they strip out its assets and close down its factories, as the critics claim, they won't have a viable business left to sell at the end of their holding period."

He added that the evidence, at least until recently, was that companies refloated on the stock market after a period of private ownership performed better than other new issues, while private equity-backed companies had created more jobs in recent years than their publicly quoted counterparts. Mr Lambert acknowledged, however, that City finance houses and private equity firms alike needed to do a better job of explaining the benefits they created and said it was right that there should be a debate about the growing impact of private equity ownership.