date: February 20 2007

embargo: 18:00 Tuesday 20 2007

Time for action against private equity excess

The TUC is to warn the trustees of pension funds controlling £300 billion worth of assets against the dangers of investing in private equity schemes and is to call on the government to regulate an industry 'that at the moment is pretty much allowed to operate with impunity'.

In a lecture delivered at City University, TUC General Secretary Brendan Barbersaid that while private equity has sometimes turned ailing companies around, too often it is about 'amoral asset-strippers after a quick buck. Casino capitalists enjoying huge personal windfalls from deals at the same time as they gamble with other people's futures.' And 'in companies that are often leveraged to the hilt, it's employees who end up shouldering much of the risk, with downward pressure on pay, pensions and job security.'

'The problem is simple: private equity can steer clear of the responsibilities a public company has to live up to. Its owners will disclose as little as possible about what they are doing, and why. On issues like employment practices and corporate social responsibility, the silence is usually deafening.'

Mr Barber says that there is insufficient debate about the role of the City in the UK economy. While it has undoubted strengths and economic importance, we should 'debate the City's role in our economy and our national life' even if politicians 'sometimes give the impression that they would prefer to let sleeping dogs lie' and say 'better that our financiers make their money here than somewhere else - and we don't want to frighten them away.'

Extract from the City University Leader's Lecture, February 20 2007

Check against delivery

'Yes, the City is an international centre of excellence. And yes, our growing financial services industry is a creator of tremendous wealth. I don't for one moment want to talk down the importance of that.

'But at the same time, we shouldn't be afraid to debate the City's role in our economy and our national life. Does the imperative to go for short-term returns damage companies' ability to build for the long term? To what extent does the huge wealth created in the Square Mile trickle-down to people in Newcastle or Manchester or even Bethnal Green?

How much of the City's tax take actually ends up in the Exchequer as opposed to being squirreled away to the Cayman Islands? The problem is we simply don't know; too much of what happens in the City is clouded in secrecy. And our politicians sometimes give the impression that they would prefer to let sleeping dogs lie.

Better that our financiers make their money here than somewhere else is the cry - and we don't want to frighten them away. Take the hot issue of the day: private equity firms.

With speculation building about a possible takeover of Sainsbury's, the UK's burgeoning private equity industry is in the spotlight as never before.

It's already bigger than most people suppose. Across the UK, two-and-a-half million workers - one in six of the private sector workforce - are employed in companies controlled by private equity.

As you would expect, the trade union movement and the private equity industry don't have an easy relationship. Sometimes private equity firms turn failing businesses around, providing decent returns to their investors, pensions funds included. Sometimes, however, they give the impression of being little more than amoral asset-strippers after a quick buck.

Casino capitalists enjoying huge personal windfalls from deals at the same time as they gamble with other people's futures. This is not just trade union dogma.

As a recent study by the chief investment officer at Fidelity International showed, there is little evidence overall to show that private equity improves bottom line performance.

And as the respected City figure Paul Myners recently commented, in companies that are often leveraged to the hilt, it's employees who end up shouldering much of the risk, with downward pressure on pay, pensions and job security.

The problem is simple: private equity can steer clear of the responsibilities a public company has to live up to. Its owners will disclose as little as possible about what they are doing, and why. On issues like employment practices and corporate social responsibility, the silence is usually deafening.

That's why the TUC will shortly be producing a briefing on private equity for our network of over 1,000 pension fund trustees - who help manage assets worth more than £300 billion.

Encouraging them to look long and hard at all these issues before they support major new investments in private equity. And why, next month, trade union leaders from 40 countries will be gathering in Paris to discuss how to make the industry more accountable.

We will be feeding our concerns to German Chancellor Angela Merkel ahead of June's G8 summit. And with stronger standards of corporate governance likely to be one of the themes of the German Presidency, we believe the argument is on our side.

So this evening I challenge ministers not turn a blind eye. To think about how to better regulate an industry that at the moment is pretty much allowed to operate with impunity.

NOTES TO EDITORS:

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Contacts:

Media enquiries: Tim Lezard T: 020 7467 1248; E: tlezard@tuc.org.uk

Liz Chinchen T: 020 7467 1248; M: 07778 158175; E: media@tuc.org.uk

Press release (1,000 words) issued 20 Feb 2007