Let’s not kid ourselves that private equity was any more prepared for the onslaught of COVID-19 than anyone else. Even the best laid contingency plans have been tested to their limit by a global economy in lockdown. But – as the industry is fond of telling itself – private equity’s resilience is legendary. Sponsors have succinctly transitioned from emergency action, into a hard-nosed appraisal of the pandemic’s impact on consumer behaviour, business recovery rates, future fundraising and, of course, returns. Indeed, while there is no doubt that the vast majority of private equity managers are rolling up their sleeves, ready to support their portfolio companies through a grueling return to business as usual, it is also true that most didn’t miss a beat before – none too quietly – heralding the arrival of a once in a generation buying opportunity.
That is their job, of course – to maximise the money they make on behalf of their investors through savvy buying decisions and smart value creation. But swaggering headlines proclaiming Apollo’s plans to raise $20bn as distressed opportunities soar; KKR’s $20bn bargain hunt in March, while others were still reeling, and a bubbling sense of excitement across the industry, ultimately, at the prospect of others’ misfortune, shows a remarkable lack of sensitivity – and basic PR nous – that one would rather hope the asset class had grown out of.
There is, I believe, a very real danger that the biggest challenge facing private equity in the years to come will be a brutal opinion backlash. In the US, the looter narrative promulgated by Elizabeth Warren has grown roots, resulting in failed bailout discussions with the authorities. And while in Europe, private equity-backed companies have not faced the same political gridlock – with major corporates from Europcar in France and Spain, and Apcoa Car Parks in Germany, currently able to access government rescue schemes – private equity is coming under growing scrutiny for its pre-crisis practices, ranging from aggressive dividend recaps, to high levels of leverage and exorbitant pay. It is inescapable, now, that many of the portfolio companies affected by these tactics will suffer – and some will not survive. Many jobs will be lost. Many will look for someone to blame.
Last time around, the banks were in the firing line. A decade later, and private equity is pervasive. The asset class employs vast swathes of the population. It rules the high street. I think, it is clear, that sights are now being trained on a different target. Buyout bosses are being primed as the villains of an economic catastrophe that some are predicting will exceed that of the Great Depression. But it doesn’t have to be that way. It is not inevitable that private equity is caught in the crosshairs of condemnation.
