Letter to SMH Editor
(The Letters Editor declined to publish our response)
Claims in a SMH online article (4 Nov) with respect to private equity are simply not true.
These uninformed generalisations incorrectly perpetuate misperceptions about an industry that, on virtually any time scale examined, outperforms most asset classes (see data on the AVCAL website).
Private equity does not strip to the bones companies as claimed by the reporter, but aims to expand and grow the companies invested in. The fact is that most private equity owned companies grow their staff numbers, operating revenues and profits. The reality is that you can only deliver the substantial returns that PE does, by growing the underlying value of the companies invested in. If the reporter was to actually ask the company founders that PE has invested in and provided capital for expansion and growth, whether all they did was slash and burn, he would get a very different answer to the one he has inferred.
Private equity strives to also build scale and improve efficiencies. Of course, just as in any market or asset class, not every investment is successful. Industry figures released on 4 November show that there were 89 full/partial exits of 73 companies for FY2011, a significant increase on the previous year. These exits in turn delivered significant returns to the PE investors – which are largely superannuation and pension funds in Australia and overseas. Contrary to the article’s erroneous slant, private equity investments are growing and returns to investors are solid.
Author: Kosta Sinelnikov, Senior Research Analyst, AVCAL