SVG Capital predicts tax relief will continue

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Nick Ferguson, the chairman of SVG Capital and a central figure in the debate about private equity, does not expect the Government to overhaul key tax regulations that allow relief on interest payments.

Speaking on his firm's interim results, Mr Ferguson said: "I was most worried about any change to tax deductibility of interest, but we think it is now highly unlikely that that will occur. Private equity is a major benefit to investors and to the economy, and the chancellor is much too smart to do anything to upset that."

SVG's interims reflected the healthy returns experienced by most of the industry during the last months of the buyout boom earlier this year. SVG, the biggest single investor in Permira, Europe's largest buyout firm, saw its net asset value grow by 12.4 per cent in the six months through to June of this year. Funds under management grew by 33 per cent to ¿4.4bn.

Mr Ferguson added, however, that the meltdown in global credit markets and the resulting depression of asset prices meant that investors shodul expect, "the rate of realisations to slow and holding periods to lengthen".

Guy Hands, the head of the buyout giant Terra Firma, agreed. In a letter to shareholders, he said: "The days of simply buying a good company, financing it well and enjoying a great return are over."

Aside from lower returns, the industry is facing a fresh onslaught this autumn, when the Commons Treasury Select Committee is expected to call leading industry figures for another round of public hearings after several stormy sessions in the summer.

Buyout firms, which borrow heavily to take over companies, rely on the tax relief on the interest charged on that debt to pad returns. That tax treatment, as well as the lower personal rate paid by many private equity professionals, have become flashpoints in the public debate about whether industry is a force for good in the economy.

Mr Ferguson added fuel to the fire in summer when he said that many of the industry's top professionals "pay less tax than their cleaners". He had "absolutely no further comment" on the issue yesterday.

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