Spotlight focuses on rodeo capitalism
The public spotlight is shining strongly on private equity and hedge funds as politicians join the debate over the runaway financialisation of the global economy.
In the UK two candidates for the deputy leadership of Labour Party have warned of the impact of private equity fund buyouts on workers and called for an end to the tax breaks these funds enjoy.
Affiliate GMB has written to more than 100 Labour MPs calling for a debate on the issue while the TGWU is seeking talks with Government ministers over the proposed buyout of the UK’s third largest supermarket chain J Sainsbury.
Commerce affiliate USDAW has already warned of the unsettling impact of the possible bid on management and staff at Sainsbury, which has been making a strong recovery in the UK’s fiercely competitive retail food sector.
In France presidential candidate Nicolas Sarkozy has called for a European tax on “speculative movements” by financial groups, such as hedge funds. “Who can tolerate a hedge fund buying a company with debts, firing 25% of staff and then reimbursing them by selling it in pieces? Not me,” he is reported as saying.
Global unions met in Switzerland last November and agreed to force these shy giants out of the shadows and get policy makers to look at the damage some of them are causing.
“We want the G8 and international financial institutions to look at where the financialisation of the world’s economy is taking us,” says UNI General Secretary Philip Jennings. “We want the EU and the European Central Bank to evaluate risks that would include instability and serious damage to pension funds if some of these big, debt-funded deals go bad. Above all we want accountability - and recognition that workers and the public are stakeholders in the economy too.”
At the OECD the Trade Union Advisory Committee is working on a comprehensive policy statement for launch in the summer and UNI will host another global union meeting on private equity later this year.
Having captured the headlines at the World Economic Forum on private equity, Philip Jennings has invitations to meet key equity groups in the UK, France and the United States.
“Rodeo capitalism,” is how Philip Jennings describes the current wave of private equity buyouts that has reached new records on both sides of the Atlantic.
Blackstone has just bought the US’s largest office owner - Equity Office Properties Trust - for a record $38bn and have already started asset stripping with the sale of some of the properties.
In the UK four funds are now circling as they prepare a combined £9bn buyout attempt for J Sainsbury - and that would be a new record for Europe if it goes through.
The funds buy widely - ISS in UNI’s sphere was taken private and now funds are reported to be circling German chipmaker Infineon, airline Qantas and Shoprite Checkers of South Africa.
The money to feed the buying frenzy comes from banks and pension funds as well as wealthy individuals.
Only last week Goldman Sachs launched a new private equity fund that is expected to bring in up to $19bn and, between them, these funds have a $500bn war chest to shop for more companies.
Depressed share price levels and historically low interest levels have also encouraged the growth of private equity buyouts.
The issues at stake include jobs and working conditions - sacrificed in the squeeze to maximise profits and to pay for their own takeover. Private equity funds load acquired companies with the takeover debt and, for good measure, impose hefty charges on their new acquisition.
In Hull Northern England, Birds Eye - bought from Unilever by the Permira fund last year - moved what had been UK-based fish production to Germany leading to hundreds of job losses.
For public policy makers, stability has to be a major issue. Hedge funds do go bust and a heavily debt ladened buyout is going to fail some time, putting pressure on pension funds and - ultimately - pensioners.
Private control of a company also removes the pressures for corporate social responsibility and openness that are growing on public companies.
It’s great news if you are Goldman Sachs or a Blackstone, not such good news if you are an employee. And not such good news, believes UNI, for the wider public interest. Governments may be lamely talking of voluntary restraint but how do you restrain voluntarily a company that can buy the US’s biggest property company for $38bn?
“Private equity firms should be placed on a level playing field. It’s not right that one set of companies hold a tax advantage over other companies,” UK Labour MP John Cruddas told the Financial Times.
Michael Gordon, the chief investment officer of Fidelity Investments, told the Guardian newspaper that “employees are a little further down the pecking order in private equity”. He also warned that pension funds may be seeing private equity deals as a “panacea” and that they are taking on bigger risks because of leveraged debt.
“Private equity opens the door to a new Dark Ages. It’s time our mute political class spoke out,” wrote Will Hutton in the UK’s Observer.